For much of the past three decades, India and Israel have built a relationship defined primarily by strategic trust. Defence cooperation, counter-terrorism, intelligence sharing and agricultural innovation have become the pillars of an increasingly mature partnership. Yet while political and security ties have expanded dramatically, the economic relationship has not kept pace with its potential. The ongoing negotiations for an India Israel Free Trade Agreement (FTA) offer an opportunity to change that.
The second round of negotiations, held in New Delhi from 20 to 23 July under the Terms of Reference signed in November 2025, received relatively little public attention. Yet it may prove to be one of the most consequential developments in bilateral relations in recent years. Led by Ajay Bhadoo, Additional Secretary in India’s Department of Commerce, and Yifat Alon Perel, Senior Director for Trade Policy and Agreements at Israel’s Foreign Trade Administration, the talks reflected a shared commitment to negotiating a balanced and mutually beneficial agreement. Bilateral merchandise trade stood at nearly USD 3.93 billion in FY 2025–26, underlining both the depth of existing ties and the scope for further expansion.
The significance of these negotiations lies not simply in tariff reductions but in what they reveal about the next phase of India–Israel relations. Unlike many traditional FTAs that focus primarily on labour-intensive manufacturing, this agreement is likely to centre on innovation, advanced technology, value-added manufacturing and investment. It represents a shift from a relationship built on strategic necessity to one increasingly driven by economic opportunity.
A Free Trade Agreement is often reduced to a discussion about lowering customs duties. In reality, modern FTAs go much further. They simplify customs procedures, improve regulatory transparency, provide greater certainty for investors, reduce non-tariff barriers and create clearer rules for services and digital trade. For businesses, these agreements reduce the cost of cross-border commerce while making supply chains more predictable. For governments, they create frameworks that encourage long-term investment rather than short-term transactions.
At a time when global supply chains are being reconfigured amid geopolitical uncertainty, countries increasingly view trade agreements as strategic economic instruments rather than merely commercial arrangements. That is precisely why the India–Israel negotiations deserve closer attention.
India and Israel are not natural competitors. Their economic strengths are largely complementary. Israel is recognised globally for innovation, research and development, precision manufacturing and cutting-edge technologies. India offers scale, manufacturing capability, a large domestic market, highly skilled human capital and an increasingly attractive investment ecosystem. The objective of an FTA, therefore, is not simply to increase trade volumes but to combine these complementary strengths in sectors where both countries possess comparative advantages. Three industries illustrate this potential particularly well.
Long before defence cooperation dominated headlines, diamonds formed the backbone of India–Israel trade. When diplomatic relations were established in the early 1990s, bilateral trade amounted to roughly USD 200 million, much of it centred on diamonds and precious stones. Three decades later, that relationship remains remarkably resilient.
Israel continues to be one of the world’s leading centres for diamond trading, certification and marketing, while India has emerged as the global hub for cutting and polishing rough diamonds. The two countries occupy different positions within the same value chain rather than competing for the same markets.
Yet despite decades of commercial engagement, exporters still encounter customs procedures and transaction costs that could be reduced through a comprehensive trade agreement. An FTA has the potential to streamline these processes, lower friction and improve competitiveness for businesses operating in one of the oldest pillars of bilateral trade.
If diamonds represent the oldest chapter of India–Israel economic cooperation, agriculture arguably represents its most successful one. For over a decade, the Indo–Israel Agriculture Project has demonstrated how technological collaboration can produce tangible results for Indian farmers. Today, 35 operational Centres of Excellence across multiple Indian states showcase advanced irrigation systems, protected cultivation, precision farming and high-yield horticultural practices. The ambition, however, extends much further. The Government aims to expand these Centres of Excellence to one hundred nationwide. Alongside this effort, the recently announced Villages of Excellence initiative seeks to extend proven technologies beyond demonstration farms into entire rural ecosystems, supported by the newly established India–Israel Innovation Centre for Agriculture (IINCA).
An FTA cannot by itself transform Indian agriculture. But it can create a more favourable commercial environment for agricultural technologies, irrigation equipment, climate-smart farming solutions, post-harvest systems and private-sector investment. Instead of viewing agricultural cooperation primarily as government-led development assistance, the agreement could encourage a stronger ecosystem of commercial partnerships, joint ventures and technology deployment. Given the growing challenges of water scarcity, climate change and food security, this may ultimately prove one of the agreement’s most significant contributions.
India and Israel already share one of the world’s closest defence relationships. Yet the nature of this partnership is also evolving. The Defence Cooperation Memorandum of Understanding signed in November 2025 emphasises joint development, technology transfer and co-production rather than simple arms purchases. This evolution aligns closely with India’s broader objective of expanding domestic defence manufacturing under the “Make in India” framework.nIt is important, however, not to conflate defence offsets with the proposed FTA.
Offset obligations arise under India’s defence procurement policy and remain legally distinct from trade negotiations. Nevertheless, both developments reflect the same strategic direction: moving beyond a traditional buyer-seller relationship towards long-term industrial collaboration.
Israeli firms increasingly view India not merely as a market but as a manufacturing and innovation partner.
An FTA could reinforce this trend by facilitating investment, improving business confidence and reducing barriers affecting related industrial sectors, even while defence procurement continues to operate under separate regulatory frameworks.
New Opportunities Beyond the Traditional Sectors
While diamonds, agriculture and defence remain the most visible pillars of bilateral commerce, the opportunities extend much further.
India’s globally competitive pharmaceutical industry could benefit from greater access to Israeli markets and collaborative research.
Engineering goods, speciality chemicals, textiles and advanced manufacturing all stand to gain from lower trade barriers.
Perhaps even more importantly, India’s rapidly expanding startup ecosystem and Israel’s globally recognised innovation ecosystem offer enormous possibilities for partnerships in artificial intelligence, cybersecurity, medical technology, clean energy and digital services.
Investment, rather than merchandise trade alone, may ultimately become the defining feature of the next phase of bilateral relations.
From Strategic Partners to Economic Partners
India and Israel have spent more than three decades building mutual trust.
They have demonstrated that security cooperation can flourish despite changing regional and global dynamics.
The challenge now is translating that strategic confidence into sustained economic integration.
An FTA is not a guarantee of higher trade, nor is it a substitute for domestic reforms or business competitiveness. Much will depend on the final agreement, implementation, regulatory coherence and the willingness of businesses to seize new opportunities.
Yet the direction of travel is unmistakable.
The negotiations signal that both governments increasingly see economic partnership as the next logical pillar of the relationship.
In an era when global trade is being reshaped by technological competition, supply-chain resilience and geopolitical uncertainty, India and Israel possess complementary strengths that few bilateral partnerships can match.
If concluded thoughtfully, the India–Israel Free Trade Agreement could do more than lower tariffs. It could establish the foundation for deeper collaboration in innovation, advanced manufacturing, agriculture, technology and investment—transforming a relationship long defined by strategy into one equally driven by shared economic ambition.
That would not simply strengthen bilateral trade. It would position both countries as long-term partners in shaping the industries that are likely to define the twenty-first century.