Israel-India trade lags diplomatic warming

Amiram Barkat

Israeli exports to India are dominated by arms deals, with civilian trade in decline. 

The considerable warming of diplomatic relations between Israel and India in recent years has not yet been translated into economic relations. This is the conclusion from analysis of the trade and investment figures of the past few years. Israeli exports to India have been declining for several years, Indian investment in Israel is close to zero, and arms deals are the only area in which there has been real growth.

Since Narendra Modi became prime minister of India in 2014, the two countries have become closer both on the official level and in the personal relationship between their leaders: Modi and Israeli prime minister Benjamin Netanyahu shower compliments on each other through the media and social networks, and now are making historic reciprocal visits to each other's countries.

More than once in the past, Netanyahu has described China and India as strategic markets for Israeli exports that can become alternatives to the Israel's traditional markets in Europe and North America, which are suffering from sluggish economic growth and where there are attempts to impose boycotts on Israeli products.

In advance of Modi's visit this week, Minister of Economy and Industry Eli Cohen released an optimistic public declaration according to which "closer diplomatic ties and Modi's historic visit will take us beyond defense exports to more deals in trade and services as well."

Declarations are one thing, however, and reality is another. India is indeed an important trading partner for Israel, ranked ninth out of the ten main export destinations, but in recent years, non-defense exports to India have been in retreat. In 2013, exports of goods and services to India fell sharply, by 13%, and this was not a one-time blip. Exports (excluding diamonds) to India have totaled $1.151 billion on average in the last four years (2013-2016), which compares with $1.422 billion in the previous four (2009-2012). Indian exports to Israel have averaged $800 million annually over the past ten years.

According to Israel Export Institute figures, Israeli exports to India consist of telecommunications equipment (21% of total exports); metals and metal products (19%); mining, quarrying and mineral products (14%); chemicals and refined oil products (12%); and other products and services. Indian exports to Israel mainly consist of chemicals (29%); textiles (18%); plastic and rubber products (12%); machines and electrical equipment (11%).

The situation in investment between Israel and India is no less dismal than their trade relations. Although investment by Israelis in India has grown substantially in recent years, reaching about $1 billion annually in 2013-2014, the Indians invested less than $50 million in total in the period 2011-2014. It can also be presumed that a considerable proportion of the Israeli investment in India is not real investment in enterprises, but financial investment through the local capital market, in ETFs and other financial instruments.

Unrealized potential

Predictably, the Ministry of Economy and Industry prefers to present the glass as half full. Figures published by the ministry in anticipation of the visit stressed that, since diplomatic relations between the two countries were established in 1992, trade between them has risen to $4.167 billion, representing growth of some 2,000%. The high trade figure arises from the inclusion in it of diamonds, merchandise that passes through Israeli traders to diamond polishers in India without leaving any real added value here.

The Ministry of Economy and Industry also stresses that Modi will be accompanied on his visit by about 100 businesspeople, CEOs of the largest business groups in India, most of which have currently have no activity in Israel.

The only highlight of economic relations between Israel and India is, as mentioned, defense exports. In this context, Israel Aerospace Industries (IAI) reported a deal this year for the sale of air defense systems to India worth $2 billion, and a naval protection systems deal worth $630 million. India has a huge defense budget, some $50 billion in 2016, making it the fourth biggest in the world, and four times Israel's defense budget. But aside from defense, India holds out massive potential in other areas relevant to Israeli companies and know-how – chiefly agriculture, telecommunications, and water and waste-water treatment. There have been several deals in these areas in the past few years, but they represent only a small fraction of the potential market.

Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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