Why India and Israel still need an economic deal - opinion

India and Israel share a strategic partnership that encompasses defense, agriculture, innovation, and advanced technologies. Their relationship was formalized in February 2026 when India upgraded its ties with Israel to a Special Strategic Partnership. However, the economic relationship between the two nations has lagged behind. In the 2025-26 financial year, India and Israel conducted trade worth around $3.93 billion, and discussions for a free trade agreement (FTA) remain ongoing.

This economic disparity may be due to differing economic priorities between the two countries. Israel is keen on the potential benefits of improved access to India, a large and rapidly growing economy, while India's trade discussions are influenced by its need for investment, technology transfers for its capabilities, and support for domestic manufacturing. The challenge lies in creating an economic deal that benefits both parties.

India's trade relationship portfolio is expanding, with agreements in place with the United Kingdom, New Zealand, and ongoing negotiations with the European Union and the United States. These developments indicate India's intention to diversify its trade relationships while safeguarding domestic interests. For Israel, the opportunity seems promising, considering India's projected economic growth of 7.1% in the 2026-27 financial year.

However, Israeli firms require predictable regulations, competitive conditions, and reliable local partners to succeed in India. India's FTA with the EU showcases a balanced approach that provides market access for Indian service providers and professionals while gradually opening the Indian market and retaining protections for sensitive sectors. Similarly, India's FTA with New Zealand ties trade liberalization with significant investment commitments and long-term economic cooperation.

For Israel, the negotiation process should not solely focus on market access but also on leveraging its strengths in technological expertise, innovation, and specialized industrial capabilities. Areas for cooperation could include water management, agricultural technology, medical equipment, and advanced manufacturing. However, it is essential to take into account the commercial interests of Indian companies and encourage joint research, technology transfers, and investments that create employment opportunities.

The Bilateral Investment Agreement, signed in September 2025, offers a framework for investor protections and supports cross-border investment. Although it is separate from the proposed FTA, it demonstrates that economic cooperation can progress even before a trade agreement is finalized. Flexible provisions, such as phased tariff reductions, quotas, and sector-specific arrangements, could help manage domestic consequences of opening markets and address sensitive sectors without hindering progress in areas where interests align.

Despite recent success in simplifying compliance and increasing interagency collaboration, Turkey still faces bureaucratic obstacles. Lower tariffs may have limited impact if companies encounter costly or lengthy approval processes or difficulties in servicing their products. Targeted regulatory cooperation, mutual recognition, and sector-specific initiatives could help overcome these challenges.

Ultimately, the diplomatic rapport between India and Israel can create opportunities for negotiations but cannot eliminate differences in economic interests, and it cannot guarantee a deal. Israel should approach the negotiations with a clear understanding of India's priorities and identify areas where both economies can provide tangible benefits.