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India, Israel and the Jewish People

Rapid growth, past and future

A vast frontier
If there is one sector where the sky is the limit for future growth, it is the economic and trade links between India and Israel. Bilateral trade, which generated in 2014 over $4.5 billion, excluding military trade, is predicted to triple to $15 billion were an Indo-Israeli free trade agreement signed. Israel first proposed a free or preferential trade agreement with India as early as 2006, but it was only in 2010 that the Indian government agreed to enter talks to establish a free trade zone with Israel. As of 2016, the talks have not borne fruit. There are no public explanations for these delays. Probably Israeli concerns about competition from low-cost Indian consumer goods play a role. India has free trade agreements with neighboring countries, but very few with more remote ones. In some sectors where India is weak, Israel is particularly strong. Agriculture, water and renewable energy (especially solar) technologies, medical and biotechnological equipment, and homeland security systems are all sectors with great potential for Israeli exports to India. As for Indian sales to Israel, the textiles sector has enormous potential. For Israel, there is an additional attractive aspect to economic relations with India – an attraction that Israel will not mention openly, but that was publicly emphasized by none less than India’s minister of trade during his 2012 Israel visit: through cooperation with Indian companies, Israel is or will be able to penetrate the markets of the Near and Middle East more easily.

The rapid growth of India’s urban middle class and other societal trends are encouraging the growth of Indo-Israeli economic links. There is no ideological reluctance in the Indian business community to be engaged with Israel. The positive attitude of India’s business elite toward Israel is based on respect for Israel’s achievements in science, technology, and agriculture.

Bilateral trade until 2014
Indo-Israeli trade in the civilian sector has greatly expanded since normalization, a spillover, to a certain extent, from military trade. Apparently, the two countries initially agreed that Israeli weapons sales to India would be offset by an Israeli commitment to purchase Indian products.22 However, civilian sector trade moves in both directions today.

In 1992 bilateral non-defense trade was only 202 million dollars. In 2000 it rose to 1.1 billion dollars, in 2004 to 2.15 billion and kept rising until it reached in 2008, 4 billion. Then in 2009 there was a sharp decline to 3 billion. The 2008 and 2009 global financial crisis and economic slowdown left their mark on trade between India and Israel, particularly in the diamond business, a sector hit hard by the crisis worldwide. But trade between the two countries bounced back fast and in 2011 Israel-India trade reached its peak since 1992, with 5.2 billion dollars. Between 2011 and 2014 there was again a substantial trade reduction to 4.4 billion in 2013 and 4.44 billion in 2014. This occurred against the backdrop of a severe downturn of the Indian economy, high inflation and a depreciation of the local currency. These factors reduced Indian demand for Israeli goods.23 In 2015 India’s economy started growing again, which, if it continues, is likely to boost bilateral trade in the years following 2016. Looking at the long-term trend, the increase between 1992 and 2014 was massive, particularly when seen in isolation. However, in international comparison, India-Israel trade is still modest. Israel’s trade with Turkey is of the same order of magnitude as trade with India, more than 5 billion dollars, although Turkey’s population is twenty times smaller than that of India, and its GDP four times smaller.

In 2014, trade with India represented 3.2 percent of Israel’s exports and 3.1 percent of its imports. For India in 2012-13, trade with Israel was even more negligible, at least in relative terms. Israeli exports to India were 0.48 percent of its total Indian imports. Indian exports to Israel amounted to 1.33 percent of its total exports.24  India’s trade with Israel represents approximately 3 percent of India’s total Middle East trade. While these figures could be seen as disappointing, India was and remains one of Israel’s fastest growing trade partners, along with Turkey and Brazil.25

India’s trade with Israel has long been based primarily on one commodity: diamonds and precious stones (in 2004, nearly 70 percent of total Indo-Israeli trade,26 by 2014 it had decreased steeply to 53.5 percent). Indo-Israeli diamond ties have revived trade links in precious stones, which date back to the Middle Ages27 and perhaps even to Biblical times. Today, diamond trade between the two countries is not a classic buyer-supplier relationship, but rather an exchange of expertise. Whereas Indian diamond manufacturers are adept at cutting and polishing small-sized diamonds, Israeli diamond manufacturers are known for their expert cutting and polishing of unusually shaped and larger diamonds. Accordingly, Indian manufacturers export larger rough diamonds to Israel for cutting and polishing while Israeli manufacturers export smaller rough diamonds to India. However, diamond cutting and polishing confers little added value, and thus, the diamond trade is not a particularly lucrative component of the Indo-Israeli economic relationship. That said, it is a relationship that engages the Jewish people worldwide with India like no other traditional economic sector. The Ramat Gan diamond bourse is the hub of an international Jewish diamond network, involving Antwerp, Amsterdam, New York and more. Diamonds have created thousands of professional and personal links between Indians and Jews globally. In recent years, Indo-Israeli trade has diversified, with other sectors growing in importance, including: high tech products such as communications systems, medical equipment, educational technologies, software and digital printing products, chemical and mineral products, machinery and electrical equipment, textiles, plastics, rubber, plant and vegetable products, base metals and transport equipment.

Bilateral investments and joint ventures
Not surprisingly, many of the sectors most propitious for bilateral investments and joint ventures are also the ones where much bilateral trade can or will be found. Over a hundred Israeli companies have established a presence in India through joint ventures, investments, and other cooperative projects, Still, this number is minuscule compared to the far greater number of Israeli companies that have opened offices and developed activities in the United States and in West Europe. In 2015, there were more than 300 Israeli investments in India, mainly in high-tech and agriculture. While the traditional business thrust in diamonds, agriculture, chemicals, information and communication technology, and pharmaceuticals remains strong, there is a growing preference of Israeli companies for sectors such as water technologies, homeland security and real estate. Some Israeli companies have set up R&D centers or manufacturing plants and have opened subsidiaries or offices in India. Teva Pharmaceuticals, Truphatek, Pelamix, Huliot, Netafim and others have set up manufacturing plants in India. There are some Israeli companies that are focusing exclusively on the Indian market.28 As of early 2010, Israeli investments in India – excluding those in the defense sector – were estimated at about $3 billion.29 According to other figures, foreign direct investment inflows (one foreign entity acquiring a controlling interest in a firm in another country) from Israel to India are currently low. Figures released by the Department of Industrial Policy & Promotion, India, indicate that foreign direct investment inflows from Israel to India from April 2000 to December 2014 totaled 77.3 million dollars. But these figures may not accurately reflect all inflows from Israel, as many Israeli companies invest in India through the U.S., Europe, and Singapore.

While official data about India’s investment in Israel is not available, these investments are probably not large, but they include acquisition of Israeli drip-irrigation, pharmaceutical, software, telecommunication, and engineering companies. Indian companies are showing their presence in Israel through mergers and acquisitions and by opening branch offices. In its first, still very small investment in Israel,Tata Group announced in 2013 that it would invest $5 million in the Ramot Technology Transfer Center at Tel Aviv University.

  • IT and telecommunications

Indo-Israeli cooperation and investments in IT and telecommunications have been thriving, supported by the strength and dynamism of the two sectors in both countries. Many Israeli IT and telecommunications firms have outsourced part or all of their activities to India, including in research and development, owing to lower labor costs along with a highly skilled and English-speaking workforce. Ness Technologies, a leading Israeli technology services provider, has nearly 3,000 employees working in five branch offices throughout India. In recent years, Israeli companies have also shown an increasing interest in the telecommunications market in India. In 2014, Israel’s TowerJazz teamed up with India’s Jaiprakash Associates and IBM to build a $5.6 billion chip plant near Delhi.

  • Agriculture and water technologies

While agriculture contributes less than a fifth of the India’s gross domestic product, it is the essential source of livelihood for the rural poor, who represent, according to World Bank figures, 68 percent of the total population, although only 50 percent of the population makes its living from agriculture.30 India benefits from diverse agro-climatic conditions and has the world’s highest arable land to land mass ratio and the largest irrigation network. Yet Indian agriculture continues to be characterized by poor performance, largely due to rudimentary cultivation practices and a lack of advanced technologies. Development of India’s agriculture also depends on effective water supply and management practices, especially as its growing population, rapid industrialization, and urbanization have resulted in the overexploitation of surface and ground water in recent decades. This has led to water scarcity and contamination in some regions, including, periodically, in major urban areas. It will become increasingly critical for India to improve water conservation and efficiency, and to expand water treatment and recycling capabilities. Even before normalized relations, India sought Israeli cooperation and assistance in agriculture and water technologies. Indian companies were eager to benefit from Israel’s technological acumen, while Israeli firms and investors found the high sales potential in the large and fast growing Indian market attractive. MASHAV, the international development cooperation department of Israel’s Ministry of Foreign Affairs, participated in the establishment of several agricultural and diary demonstration farms in India. The Israeli firm Netafim, well-known for inventing the drip-irrigation system, has 12 regional and state offices in India, two manufacturing plants, and over 600 employees – all of them Indians. It is regarded as Netafim’s most successful subsidiary. Today, over 250,000 Indian farms are irrigated by Netafim systems. Netafim’s Indian subsidiary has been working on a drip-irrigation project in the remote Bagalkot district of India’s North Karnataka state. When completed, the Ramthal (Marol) integrated micro-irrigation project will be the world’s largest single drip-irrigation project, worth about 60 million dollars.31

  • Renewable energy

Energy sciences and technologies to develop alternatives to oil and natural gas, discussed in the preceding chapter, is one of the ways toward greater Indian energy security and diversification. In the past Indo-Israeli cooperation in the field of renewable energy sources remained limited. However, this could change if a first 2015/16 Indo-Israeli cooperation agreement in the renewable energy sector is implemented. Israel is well placed to benefit from the increased Indian interest in renewable energy sources. India is hard pressed not only to diversify energy supplies, but also to address energy poverty, climate change, and environmental degradation. The most powerful boost for renewable energies may eventually follow from the 2015 United Nations Climate Change Conference in Paris, which produced, for the first time in history, an agreement between almost 200 countries, including India and Israel. This agreement promises to reduce greenhouse gas emissions across the globe, not least by compelling its signatories to switch to renewable energies. For Indo-Israeli cooperation in this field to move ahead, a number of bureaucratic hurdles will have to be overcome.

  • Pharmaceutical and healthcare sector

A large pool of high quality English-speaking scientists and experts, some world-class facilities, and relatively low development and manufacturing costs are some of the key factors that make India an attractive location for medical and pharmaceutical research and development. An increasing number of Israeli healthcare and pharmaceutical firms see India as an advantageous destination for outsourcing research and development activities, and for collaborative enterprises with local companies. Driven by its growing and increasingly health-conscious middle class, India has also emerged as a pharmaceutical and healthcare market with immense opportunities; this has not gone unnoticed by Israeli firms.

  • Homeland security

The first-ever Indo-Israeli joint venture in homeland security was initiated in late 2008, in the wake of the Mumbai terrorist attacks. In 2009, an India-Israel Homeland Security Cooperation forum was held in Mumbai and New Delhi. High-level Indian homeland security delegations have visited Israel since then to continue exploring areas with potential for bilateral ties. For example, at a major security conference in Tel-Aviv in 2014, executives of many top Indian firms were shopping for systems to secure their pipelines, refineries, and other infrastructure components. Homeland security, a relatively new field of Indo-Israeli cooperation, is likely to grow in the coming years. Israeli companies are known internationally for providing state-of-the-art security equipment, as well as some of the most advanced and effective security services and technologies.

  • Large infrastructure projects

Israel has also become involved in large urban and other infrastructure projects in India. For example, in 2014 Israel Ports Co. partnered with India’s Cargo Motors to build a deep-water port in Gujarat (Modi’s home state),32 and, in 2015, the City of Tel Aviv-Yafo announced an agreement to assist in creating “smart cities” in India. Tel Aviv-Yafo plans to begin with transferring its digital-urban technologies to help with the urban transformation of the Indian cities Pune, Nagpur, and Nashik in Maharashtra although the execution of this plan could be a long, drawn-out process.33

More frequent Indian delegations to Israel
The last few years have seen a multiplication of initiatives to advance economic ties between the two countries. Several Israeli organizations, both governmental and private, have launched programs designed to facilitate trade and business ventures with India in specific economic sectors. They organized bilateral seminars, and invited Indian delegations of scientists, businesspeople, and government officials to visit Israel. Increasing numbers of delegations of Indian businesspeople are coming to Israel to meet with Israeli companies and entrepreneurs and explore mutual investment opportunities. The May 2012 Israel visit by an Infosys delegation, one of India’s leading and largest software companies, was thus followed by an agreement with the Israeli Chief Scientist’s Office for industrial R&D cooperation. The same month, an Indian delegation to Israel’s AgriTech, which included more than 2,000 government representatives and businesspeople, was the largest foreign delegation at the exhibition. In June 2012, an Indian delegation of senior executives of leading Indian technological companies participated in the third Israel-India Technology Forum held in Kfar Hamaccabiah, Israel.

More Indian delegations have visited Israel since 2012. One could mention, in 2014, the India Pavilion in the first Israel Innovation Conference, which brought 35 private and governmental exhibitors from India to Israel; the visit of the chief ministers of Maharashtra and Meghalaya who attended, together with other delegates, the AgriTech-2015 Exhibition and Conference In 2015; or the 8th Meeting of the India-Israel Forum (IIF), which brought industry leaders of both countries together, including representatives of some of India’s big conglomerates (Tata, Reliance). At the beginning of 2016, the industry minister of Odisha (Orissa) came with a delegation to explore business opportunities in Israel.34 Last but not least, late in February 2016, a delegation from Aditya Birla, India’s third-largest corporation, a multinational with 120, 000 employees, arrived in Israel. Birla plans to review as many as 500 Israeli start-ups in a wide variety of technology areas, with the intention of cooperation and investment. As said India’s main corporations have traditionally avoided Israel except for recent investments by Tata and Infosys. If the investments of Birla materialize, it could be the beginning of a quantitative and qualitative change in Indo-Israeli economic relations. By making major investments, Indian industry would demonstrate a tangible interest in Israel’s future and prosperity, another improvement of mutual ties beyond the political and military links.35

Constraints and challenges

General obstacles and constraints
The section on military links discussed the problems of India’s cumbersome bureaucracy and alleged corruption. The same problems also exist in the civilian sector. Although all foreign countries and companies have to cope with these, Israel may face an additional problem. There are reasons to suspect that the refusal of India’s top government leaders to visit Israel before 2014 or meet with Israel’s leaders, may, to some extent, have had a discouraging effect on India’s large industrial conglomerates and multinationals. In spite of a generally favorable Indian business attitude to Israel, India’s business tycoons are more comfortable investing in countries their leaders visit than in those they avoid. This could be one of the reasons that prior to 2015 there had been no major Indian investment in Israel. Time will tell whether past or projected visits of Indian leaders will change this situation.

However, India is not the only source of obstacles. During the protracted negotiations of a free trade agreement (FTA), differences over tariffs have been a major stumbling block. Israel, like many other countries, regards India’s current high tariff policy as prohibitive. It has attempted to convince India that the risk of the Indian market becoming inundated with Israeli products as a result of tariff relief is very low, not least because of the limited size of Israel’s manufacturing industry. In fact, Israel has more reason to fear a massive inflow of cheap Indian goods once an FTA is reached. Knowledgeable Israeli sources attribute the signing delays of the long expected FTA, in some measure, also to Israel’s recalcitrance and lack of enthusiasm.

Another daunting problem, which only Israel can solve, is the shortage of economic counselors among its diplomats in India. Although Israel now pays much more attention to Asia than in the past, particularly to India, and has upgraded its diplomatic presence on the subcontinent, there is still not enough emphasis on promoting Indo-Israeli economic ties. There are only two economic attachés in Mumbai, India’s economic hub, and one in Bangalore. Poor cooperation between Israel’s Foreign and Trade Ministries only exacerbate this problem.

Main challenges for Israeli businesspeople in India

  • Cultural differences and misunderstanding

Many Israeli businesspeople come to India without knowing much, if anything, about Indian culture and its business environment. Differences in business culture often complicate the genesis of business ties and cause confusion, embarrassment, conflict, and misunderstandings. A joint Indo-Israeli survey found that temporal perception is a major dissimilarity between India and Israel’s business cultures: “[f]or Israelis, time is precious and a perishable commodity. This underlies their thrust for quick and fast gains, which are translated by Indians as a tendency of being assertive and aggressive. The Indian time perception is more relaxed … They put emphasis on first evaluation of the counterpart, and developing mutual trust relations, and then reaching comfortably long term decisions.”36 Different communication styles are another substantial gap between Indians and Israelis. The Israeli style of communication is characteristically straightforward, and, in particular, questions are expected to be answered with a clear “yes” or “no” and conflicts dealt with openly. In contrast, Indians try to avoid overt conflict and often find it difficult to raise problematic issues with their Israeli counterparts, or to say “no” clearly: “Indians have hundreds of ways to say ‘no’ implicitly, and expect the other side to understand the message, accept it and carry on while maintaining their relationship without burning bridges for future opportunities. The Israelis, however, feel discomfort with uncertain situations in life and therefore interprets the avoidance to say a clear ‘no’ as lack of openness, holding cards close to the chest, and unfairness.”37

Indian businesspeople often find their Israeli counterparts overconfident, even aggressive, while their Israeli counterparts often misread and resent what they perceive as an unacceptable lack of clarity and directness. A third major difference relates to how Indians and Israelis approach and tackle problems. Whereas Israelis are very goal-oriented, Indians generally focus more on the process and are reluctant to cut “unnecessary” corners to reach their targets. Another significant issue relates to the nature of contracts in India. For Israeli entrepreneurs, a signed contract must be respected and a legal complaint can be filed if it is not executed properly. For many Indians, there is nothing sacred about contracts, and it is not unusual for them to review some contractual clauses and obligations even after an agreement is signed. This is linked both to local culture and to the fact that the Indian court system is inefficient, often taking years for legal claims to be heard.

  • Finding the right local partner and location

Although the vast size of the Indian market offers Israeli firms and investors enormous opportunities, it also makes finding the right inroads difficult. Israeli firms and investors find it difficult, and understandably so, to establish themselves in a territory as large as the European continent. This is particularly the case for small and medium-sized Israeli enterprises. Israeli entrepreneurs have to forge a partnership with a local Indian firm, which takes time, patience, and personal relationships. Only a local partner may help the Israeli entrepreneur navigate through the Indian bureaucracy, tailor his or her products to the specific needs of the Indian customer (often a farmer from a small village), and identify the right location to establish his or her business. This means taking into consideration infrastructure quality, availability and cost of offices, quality of workforce, and more. Indian infrastructure remains under-developed: electricity, water supply, and road transport can be problematic. Equally problematic is the local workforce. There is keen competition for the few high-quality engineers – especially in cities like Bangalore and Mumbai where many Western companies are headquartered, and most eventually prefer to work for large Western companies that pay well and confer prestige rather than for Israeli companies.

Main challenges for Indian businesspeople in Israel
Many specific challenges remain. Several relate to the sheer difficulty and inconvenience for Indian businesspeople to visit Israel. Since Air India ceased flying to and from Israel, apparently the result of “political pressure exerted by Islamic movements,”38 the Israeli national airline El Al is the only carrier offering direct flights between India and Israel. Options for Indian businesspeople thus remain few – depending on the time of year there are two, three, or four direct flights a week between Tel Aviv and Mumbai, and none between Tel Aviv and New Delhi. In addition, flights to Israel remain relatively expensive and long (eight hours from Tel Aviv to Mumbai because El Al is prohibited from the air space of some Arab countries, as well as Iran and Pakistan). In addition, the fact that many Indian entrepreneurs and executives visit and conduct business with Gulf countries often complicates the process of obtaining an Israeli visa. Furthermore, Indian visitors have had unpleasant experiences with Israeli security operatives at Ben-Gurion Airport (often because they have Arab visas in their passport). This risks jeopardizing important relations, including in the economic and business arenas.

Another major constraint facing Indian businesspeople interested in economic links with Israel relates to the dearth of relations between the elites, including the business elites of the two countries. Despite India’s enormous size, its business elites comprise no more than 5,000 people, and Israel’s elites are of course much fewer. And yet Indian businesspeople find it more difficult to identify, and reach out to the right business leaders in Israel than in other Western countries. The professional and personal networks that would allow them to create the necessary connections simply are not there.