India and Israel have formally embarked on negotiations for a Free Trade Agreement (FTA), a move that could reshape bilateral economic relations and open new avenues for cooperation in technology, investment, and services. The signing of the Terms of Reference (ToR) in Tel Aviv in November 2025 by India’s Commerce and Industry Minister Piyush Goyal and Israel’s Economy and Industry Minister Nir Barkat marks a significant milestone in the evolving partnership between the two nations.
Background and Context
India and Israel have enjoyed strong diplomatic ties since the early 1990s, with cooperation spanning defense, agriculture, water management, and innovation. Trade between the two countries has steadily grown, with India now ranking as Israel’s second-largest trade partner in Asia and seventh globally. Despite this progress, the absence of a formal trade agreement has limited the full potential of economic collaboration.
The renewed push for an FTA comes after earlier attempts stalled due to differences over sensitive sectors. This time, both governments have signaled a pragmatic approach, focusing on areas of mutual benefit while respecting domestic sensitivities. Israel has assured India that it will not seek market access in dairy and agriculture, two sectors that remain politically and economically sensitive in India.
Key Features of the Proposed Agreement
The ToR outlines several pillars of cooperation:
- Market Access for Goods: Reduction of tariffs and non-tariff barriers to facilitate smoother trade flows.
- Investment Facilitation: Encouraging joint ventures and capital flows between Indian and Israeli businesses.
- Technology and Innovation: Expanding collaboration in water management, agri-tech, defense technology, and renewable energy.
- Services Trade: Promoting IT, fintech, and professional services by easing regulatory hurdles.
- Customs Simplification: Streamlining procedures to reduce delays and costs for exporters and importers.
This framework reflects a balanced approach, combining India’s large consumer market with Israel’s niche expertise in cutting-edge technologies.
Strategic Importance
The FTA negotiations carry weight beyond economics. For India, deepening ties with Israel aligns with its broader Middle East outreach, complementing existing partnerships with the Gulf states. For Israel, access to India’s vast market offers opportunities to diversify trade relationships and reduce reliance on traditional partners in Europe and North America.
The agreement also has geopolitical undertones. As global supply chains face disruptions and trade blocs become more fragmented, both nations see value in building resilient bilateral frameworks. The FTA could serve as a model for India’s engagement with other technologically advanced economies.
Potential Benefits
The benefits of the proposed FTA are wide-ranging:
- For India: Access to Israeli expertise in water reuse, seed improvement, cybersecurity, and defense technology. These innovations could support India’s agricultural modernization and national security priorities.
- For Israel: Entry into India’s growing consumer market, particularly in sectors like pharmaceuticals, IT services, and manufacturing.
- For Both: Expansion of bilateral trade volumes, currently estimated at over $10 billion annually, with scope for significant growth once barriers are reduced.
Beyond trade figures, the agreement could foster deeper collaboration in research and development, startups, and academic exchanges, strengthening people-to-people ties.
Challenges Ahead
Despite optimism, several challenges remain. Negotiating tariff reductions across diverse sectors will require careful balancing. India must protect its farmers and small industries, while Israel will seek meaningful concessions in technology and services. Domestic political considerations in both countries could slow progress.
Additionally, the global trade climate remains uncertain. Rising protectionism, geopolitical tensions, and supply chain disruptions could complicate negotiations. Both sides will need to demonstrate flexibility and commitment to reach a mutually beneficial outcome.
Looking Forward
The launch of FTA talks between India and Israel represents more than just an economic initiative; it is a strategic partnership rooted in shared interests and complementary strengths. If successful, the agreement could unlock new opportunities for businesses, researchers, and innovators in both countries, while reinforcing the broader diplomatic relationship.
For India, the FTA aligns with its vision of becoming a global hub for manufacturing and innovation. For Israel, it offers a gateway to one of the world’s fastest-growing economies. Together, the two nations have the potential to craft a partnership that blends market access with technological excellence.