PM Modi's visit to Israel: Sky is not the limit!

The latest visit by PM Modi to Israel is a watershed moment in the Indo-Israel bilateral relations which is celebrating 25 years of establishing diplomatic ties. This also happens to be the first tour by an Indian PM to the Jewish state, highlighting a renewed approach to India’s diplomatic stance towards its relations with the Middle East in general and Israel in particular. Furthermore, despite the immense potential, the nondefense bilateral trade has stagnated around 4-4.5 billion USD since 2014 after showing a steady growth from 200 million USD in 1992 to 5.19 billion USD in 2011 with trade in diamond constituting a major chunk. Apart from this, metals, minerals, textiles and machinery comprised a significant part of the trade between the two countries. However, defense trade and cooperation has continued to remain the mainstay in the bilateral trade, with Israel comprising roughly 7.19 percent of India’s total defense trade as on 2017 as per data provided by Stockholm International of Peace Research Institute (SIPRI). Additionally, SIPRI data also indicates that India’s import between 2014-16 from Israel pegs at around 1.03 billion USD.

In light of this, the latest visit by PM Modi was focused more on diversifying the trade relations, beyond defense and diamond trade and explore other prospective areas for investments and partnerships, including those in the field of agriculture, water management, technology as well as enhancing bilateral trade by adopting best practices in terms of business by focusing on startups in both countries. In the backdrop of the impetus received to the ‘Make in India’ initiative coupled with a crucial role played by Israel in it, prospects for enhancement of bilateral relations looks promising. Apart from these, other areas of prospective investments include the development of smart cities, infrastructure, healthcare, renewable energy, and higher technical education.

That being said, the bilateral relations continue to face certain challenges. Most of these though not significant, continue to impinge on bilateral relations. India’s independent foreign policy calculus with other regional players, including Saudi Arabia and Iran and New Delhi’s stance on the Palestinian issue has indirectly impacted the Indo-Israeli ties. Secondly, bureaucratic hurdles continue to delay the signing of the Free Trade Agreement (FTA) which has been under review since 2010 and if signed, is expected to triple the bilateral trade. Moreover, there continues to remain lack of administrative clarity with regards procedures formulated to seek funds allocated by the government or development of startups in a host of fields, including technology. Finally, the domestic politics during the previous coalition government gave rise to lobbies which discouraged engagements with Israel for politico-ideological factors. However, most of the challenges have been addressed nonetheless. A strong sense of partnership has been fostered by the personal equation between PM Modi and PM Netanyahu. This coupled with developments in India’s domestic political environment since the ‘pro-Israel’ BJP party secured a majority in the country, has significantly limited the potentially negative influence providing a strong impetus for further strengthening the ties with Israel. The current report thus factors in the aforementioned variables and analyses the potential areas which are likely to witness greater focus and investments between the two countries in the following months. 

The latest visit was groundbreaking not only from a political and diplomatic perspective but also in terms of the economic and strategic partnership between the two, highlighting the evolution of India-Israel ties from a buyer-seller to that of strategic partnership. In this regard, given that the Israeli Foreign Direct Investment (FDI) in India continues to remain low at approximately 55.32 million USD between April 2000 to October 2012, there continues to remain scope for increasing the share in India. A review of the MoU’s signed indicates that apart from Agriculture and Water Management, which has been one of the top most agenda’s of PM Modi’s larger food security program, significant forays have been made into space technology with special focus on dual use technology. Given India’s advances in space technology, especially in the space launch vehicles coupled with Israeli advances in software and satellite technologies provides lucrative areas of collaboration and investment. Moreover, the development thus aims to move beyond the traditional areas of engagements, and broaden the spheres of investments under the frameworks of India’s ‘ Make in India’ and Israel’s ‘Make with India’ initiatives. Additionally, joint collaboration in research and development and Technological Fund serves dual purposes.

Not only does this provides a gateway for new players in the field to engage entrepreneurs involved in the development of newer technologies, but also formalizes the existing systems as highlighted by Indian investments in Israeli technologies and vice versa. In this regard, the research in the realm of Internet of Things (IoT) is likely to receive impetus as it has seen burgeoning cooperation between the two countries. In this context, the Indian IoT market is estimated to be around 9 billion USD by 2020 and presents a lucrative area for investment. Concurrently, Tata group is part of the larger group of partners that have invested in setting up of IoT incubators in Israel. 

With these variables in mind, the seven MoU’s signed between India and Israel are aimed at providing special impetus to three specific areas namely Agriculture (food security); Water Management; Research and Development in the Technology realm; which also has the potential to complement each other and are not mutually exclusive but which continues to impinge upon the larger strategic goals of both India and Israel.

AGRICULTURE

Israel's advances in agrotech, coupled with India’s continued excessive dependence on monsoons for sustaining agriculture, has provided an opportunity for collaboration in developing and adopting technologies that are aimed at improving productivity. In this context according to a report by India’s Ministry of External Affairs (MEA), India and Israel have a bilateral agreement for cooperation in agriculture under the Indo-Israel Agriculture Project (IIAP). The IIAP is a self-sufficient platform in the context of Human Resources, accumulated knowledge & operating capabilities. The bilateral action plan for 2015-18 is currently operational. This will be followed by implementation of the three-year work program in Agriculture between 2018-2020. This coupled with MoU on Water management and conservation under the aegis of “Strategic Partnership in Water and Agriculture” are likely to facilitate increased cooperation in the field of agricultural productivity and joint development of technologies. Furthermore, 15 out of the proposed 26 Centers of Excellence in agriculture are being developed in India with Israeli help that has already been commissioned across different states such as Haryana, Maharashtra, Rajasthan, Gujarat etc. The Centers of Excellence provide a suitable platform for rapid transfer of technology to the farmers. Know how and new agricultural technologies such as protected cultivation, drip irrigation, and fertigation are demonstrated at the centers with the aim of being adopted by the farmers, to achieve the goal of increasing their yields and productivity and also to improve the quality of produce. In addition to this, India has benefited from Israeli expertise and technologies in horticulture mechanization, protected cultivation, orchard and canopy management, nursery management, micro-irrigation, drip irrigation and post-harvest management.

On the business front, plans to promote commercially viable business models involving Farmer Producer Organizations (FPOs); the provision of quality planting material; and the transfer of post-harvest technical know-how and market linkages involving the private sector through Public Private Partnership (PPP), B2B & other models are also under consideration. A joint working group to achieve this is expected to be set up in the upcoming months.

DEFENSE

Though no MoUs in Defense were signed, the vertical continues to be a major area of cooperation between India and Israel, with the latter contributing roughly 7.19 percent of India’s total defense imports as per SIPRI. Given that India continues to be one of the largest importers of defense equipment in the world, coupled with the slow pace of ongoing reforms aimed at increasing the share of indigenous production, Israel is likely to continue to play a crucial role in the years to come. More importantly, Israel also happens to be a frontrunner in the ‘Make in India’ initiative, a flagship project launched by the incumbent BJP government. In the case of Defense, a collaboration between the Israel Ministry of Defense International Defense Cooperation Directorate (SIBAT) and the Federation of Indian Chambers of Commerce and Industry (FICCI) provides a platform for increasing collaboration between Micro Small and Medium Enterprises on both sides. This has proved a welcome move as highlighted by the signing of a teaming agreement with India’s Dynamatic Technologies and Israel Aerospace Industries (IAI) for the development of mini Unmanned Aerial Vehicle (UAV) during Aero India in January. Additional reports indicate of a similar agreement between Dynamatic and IAI along with Elcom Systems on the development of Medium Altitude Long Endurance (MALE) UAV’s in India under the aegis of ‘Make in India’ initiative. Apart from this, the joint development of long and medium range surface to air missiles between India’s Defense Research and Development Organization (DRDO) and IAI, Rafael and other firms is also in advanced stages. Multiple defense contracts, including those for additional Phalcon Airborne Warning and Control System (AWAC’s), Barak-8 long range surface to air missile (SAM) and Spike anti-tank guided missiles (ATGM) have been contracted from Israel and deliveries for the same are slated to arrive in India in the following months.

Apart from this, the growing threat posed through cyberspace adds another dimension for collaboration, both at government as well as at the private sector level. With the need to further institutionalizing the broad-based cooperation having been recognized framework for cooperation in the areas remains likely to be worked upon in the coming weeks and months.

WATER MANAGEMENT

Given Israel’s forays in water management, including development and adoption of latest technologies in drip irrigation, desalination, reverse osmosis, water-metering and security of water projects, India presents a lucrative market. Furthermore, a MoU was signed between India and Israel in the field of water resources management in 2015. Reports further indicate that Israeli water purification and wastewater management companies are expected to sign a contract with the government of India’s Uttar Pradesh state for a section of the larger plan to clean the river Ganga better known as the ‘Namami Ganga’ project during the current visit of PM Modi. The potential offered by such projects for Israel is enormous. Israeli companies, with their record in clean water technologies, could not only benefit from the program but also gain from making in-roads into one of the world's biggest markets. In this vein, some Israeli firms have also bagged contracts for cleaning up of a stretch of the Yamuna river alongside other Indian and foreign companies. Tie-ups with large Indian companies and conglomerates are expected to be mutually beneficial. Given that Israeli water purification companies have already established a presence in the countries, big ticket projects like ‘Namami Ganga’ are expected to further facilitate the consolidation of such presence in India.

TECHNOLOGY

One of the hallmarks of the visit has been the bilateral agreement to put 4 million USD each year, for five years into the Israel-India Innovation Initiative Fund, or I4F. The MoU, between the Indian Department of Science and Technology and the National Authority for Technological Innovation of Israel, will enable Indian and Israeli enterprises to undertake joint R&D projects leading to the development of innovative technologies and products that have the potential for commercial application. Furthermore, besides getting Israeli technology firms to invest in India, the fund aims to spur Indian firms to open development centers in the Jewish state and invest in their technology ecosystem. Moreover, it underlined the need to boost bilateral cooperation in innovation and entrepreneurship and called for greater collaboration in the field of start-ups.

The agreement, if achieves its full potential, will not only contribute to enhanced bilateral investments and facilitate joint collaboration on the development of newer technologies but will also provide great impetus to the indigenous R&D culture in the country. This, in turn, is likely to complement the ‘Make in India’ initiative contributing to the larger goal of carving out a niche in certain critical technologies both commercial and military.

Furthermore, MoU’s on Space technologies now clears the way for deeper and wider engagement in the realm of space technology, which also lies under the purview of dual-use technology as it has applications for both military as well as civilian purposes. Given India’s strong track record in space launch vehicles which are also commercially, the most viable alternatives available in the market, coupled with Israel’s development of some of the most sophisticated satellites for both civil and military purposes, thus opens a very promising area for the two states to develop and enhance bilateral partnership.

The aforementioned areas were the ones which witnessed the signing of MoU’s for joint collaboration in terms of investment and cooperation and have been developed between India and Israel over the period of the past 25 years. The current visit by PM Modi is thus expected to further deepen the partnership between the two states in these areas. Apart from these, in order to further broaden the bilateral partnership, other areas which are expected to witness increasing cooperation and investments are as follows.

SMART CITIES

In January 2016, 20 Smart Cities were selected in Round 1 and have been incorporated in a Special Purpose Vehicle at the city level. Furthermore, reports indicate that 15 out of the 20 have engaged Project Management Consultants and Project Management Units for implementing their respective plans. The total capital cost of the proposed projects in the Smart City Proposals of the is to the tune of 7 billion USD. Given Israel’s extensive experience in development of smart cities, as evident from the development of Tel Aviv-Yafo thus makes it a potential partner in this big ticket Indian venture. In this regard, reports quoting the Tel Aviv municipality official announced preliminary engagements between Tel Aviv municipality and Thane Municipal Corporation for replicating the ‘DigiTel Aviv’ Project, a digital platform enabling advanced solutions for urban administration and residents’ engagement as ‘DigiThane’.

INFRASTRUCTURE

The Infrastructure sector is largely responsible for propelling India’s overall development. The Ministry of Road Transport and Highways & Shipping has announced the government’s target of 376.53 billion USD investment in infrastructure over a period of three years, which will include 120.49 billion USD for developing 27 industrial clusters and an additional 75.30 billion USD for road, railway and port connectivity projects. The Indian power sector itself has an investment potential of 250 billion USD in the next 4-5 years, providing immense opportunities for power generation, distribution, transmission, and equipment. Furthermore, the Government of India plans to award 100 highway projects under the public-private partnership (PPP) mode in 2016, with expectations that recent amendments in regulations would revive investor sentiments in PPP projects in the infrastructure sector. The sector thus becomes a lucrative area for Israeli investments in the following years.

DIPLOMATIC CHALLENGES

The government continues to put forward a balanced foreign policy stance with respect to the region in general and Israel in particular as highlighted by India’s continued engagements with its regional trading partners UAE, Saudi Arabia and Iran and alongside Israel. India’s policy of a zero sum game with regards to Palestine until 1992 has also undergone a notable change with New Delhi continuing to engage both Israeli and Palestinian representatives independently.

DOMESTIC POLITICS

Secondly, at the domestic political level, the relations between India and Israel were hostage to coalition politics, with some lobbies discouraging engagements with the latter for politico-ideological factors. However most of the challenges have been addressed nonetheless with the ‘pro-Israel’ BJP party secured a majority in the country, has significantly limited the potentially negative influence providing a strong impetus for further strengthening the ties with Israel.

ADMINISTRATIVE CHALLENGES

Thirdly, bureaucratic hurdles continue to delay the signing of the Free Trade Agreement (FTA) which has been under review since 2010 and if signed, is expected to triple the bilateral trade. Finally, though investment and collaboration on startups continue to hold immense potential, there continues to remain lack of administrative clarity with regards procedures formulated to seek funds allocated by the government to boost such initiatives. With ‘minimum government, maximum governance’ being the main mantra of the incumbent government, the success of such a venture remains to be seen.

The current visit by PM Modi clearly indicates the intent in both Israel and India of diversifying bilateral relations from one focused on the traditional areas of investment, namely defense and diamond trade to other broader spheres of engagement by broadening the areas of investments. Technology and Research and Development under the purview of the ‘Make in India’ and Make with India initiatives are thus likely to see further strengthening of the strategic partnership between the two countries and provide a boost to the non-defense bilateral trade. Apart from this, investments in renewable energies, smart cities, infrastructure and training, and development continue to remain lucrative areas for investment that are likely to witness investment in the upcoming months. In the backdrop of the impetus received to the ‘Make in India’ initiative coupled with a crucial role played by Israel in it, prospects for enhancement of bilateral relations looks promising.

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