India and Israel have built a strategic partnership that extends from defense and security to agriculture, innovation, and advanced technologies. Indian Prime Minister Narendra Modi’s visit to Israel in February 2026, during which the two countries elevated their relationship to a Special Strategic Partnership, reflected the depth of those ties. Yet the economic relationship has not developed at the same pace.
The two countries traded approximately $3.93 billion in goods in the 2025-26 financial year, and negotiations over a free trade agreement (FTA) remain unfinished. This raises a question that deserves more attention: Why has a relationship built on such strong political and strategic foundations struggled to produce a comprehensive trade agreement?
Part of the answer may lie in the different economic priorities of the two countries. For Israel, the attraction of an agreement is clear: improved access to one of the world's largest and fastest-growing major economies.
India, however, has its own priorities. Its trade negotiations are shaped not only by the promise of greater market access, but also by the need to attract investment, ensure technology transfers for its own capabilities, and bolster domestic manufacturing.
The challenge, therefore, is not simply to translate strategic goodwill into a trade agreement. It is to identify an economic bargain that serves both countries.
This challenge deserves particular attention as India expands its network of trade agreements. New Delhi has secured agreements with the United Kingdom and New Zealand and concluded free trade negotiations with the European Union. Its negotiations with the United States, meanwhile, remain politically sensitive and economically complex. These developments reflect India's efforts to diversify its trade relationships while protecting important domestic interests.
India's economic outlook makes the opportunity particularly significant for Israel. According to the World Bank's October 2026 India Development Update, the Indian economy is projected to grow by 7.1% in the 2026-27 financial year, supported by strong domestic demand.
Yet access to a growing market does not automatically translate into commercial opportunities. Israeli companies still need predictable regulations, competitive conditions, and reliable local partners to succeed.
India's agreement with the EU offers useful lessons. The negotiated framework combines wider market access with opportunities for Indian service providers and professionals, while allowing a gradual opening of the Indian market and retaining protections for sensitive sectors. It demonstrates that India is prepared to negotiate ambitious trade agreements, provided they accommodate its priorities and aspirations for a “balanced” outcome.
Another useful example is India’s free trade agreement with New Zealand.
The agreement links trade liberalization with concrete investment commitments and longer-term economic cooperation. New Zealand commits to increase its investors’ direct investment in India by $20 billion within 15 years, while India may undertake proportionate remedial measures to rebalance certain concessions, provided those commitments are not met.
For Israel, these examples suggest that negotiations should extend beyond market access. Israel cannot offer India a consumer market comparable to that of the EU. Its advantages lie in technological expertise, innovation, and specialized industrial capabilities.
Cooperation in areas such as water management, agricultural technology, medical equipment, and advanced manufacturing could create opportunities for businesses bilaterally.
However, identifying promising sectors is not enough. The commercial interests of Indian companies must also be considered. Joint research, technology transfers, and investment that supports employment may help by responding to genuine commercially viable business needs. Such arrangements should not be dependent solely on government declarations of cooperation.
There is already a foundation on which to build. The Bilateral Investment Agreement, signed in September 2025 and entered into force in July 2026, provides a framework for investor protections and supports cross-border investment. Although it is separate from the proposed FTA, it demonstrates that progress in economic cooperation is possible even before a trade agreement is completed.
Flexibility will also be important. Phased tariff reductions, quotas, and sector-specific arrangements may help both governments manage domestic consequences of opening their markets, as well as expectations. Such provisions could allow negotiators to address sensitive sectors without preventing progress in areas where interests are more closely aligned.
For Israeli companies, the practical value of an agreement will depend on more than tariffs.
Regulatory barriers, product standards, and restrictions affecting trade in services can all influence entry into the Indian market. Despite recent actions simplifying compliance and increasing interagency collaboration, bureaucratic obstacles remain high. Lower tariffs may have limited impact if companies still face costly or lengthy approval processes or difficulties servicing their products.
These obstacles require attention at the sectoral level and across all levels of government. Some may be addressed through targeted regulatory cooperation, mutual recognition, or sector-specific initiatives. These endeavors can deliver practical benefits even while negotiations continue.
Ultimately, the strength of India-Israel relations should make an economic agreement easier to pursue, but it cannot determine its terms. Political trust creates opportunities for negotiation; it does not eliminate differences in economic interests, and in itself cannot seal a deal.
Israel should therefore approach the negotiations with a clear understanding of what India seeks to achieve and where the two economies can offer each other tangible benefits. Success should be measured not simply by the signing of an agreement, but by whether it reduces barriers and enables more companies to operate successfully in each other's markets.
India and Israel have already demonstrated their ability to build a close strategic relationship. The next challenge is to ensure that their economic cooperation develops on equally sustainable foundations.
A free trade agreement can contribute to that goal, but only if both sides see clear value in what they are prepared to offer and receive.
Revital Karin Sela is a geopolitical advisor and former Head of Investment and Trade Agreements at Israel’s Ministry of Finance. She led the negotiations on the India-Israel Bilateral Investment Agreement.
Source: The Jerusalem Post · DR. LAUREN DAGAN AMOSS, REVITAL KARIN SELA
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