In May, two ships that left Chennai in India and sailed through the Strait of Gibraltar on their way to Ashdod in Israel. The cargo ship Borkum was carrying 20 tons of rocket engines, 12.5 tons of rockets with warheads, 1,500 kilograms of explosives, and 740 kilograms of materials for artillery, according to documents revealed by "Al Jazeera." In its wake, according to the Spanish newspaper "El Pais," the ship "Marianne Danica" passed through the same way with 27 tons of explosives.
These shipments made headlines around the world, but these are just one example of the transformation taking place in the nature of relations between Israel and India.
In 1947, India voted with the Muslim countries against the UN partition plan, and for decades supported the Palestinian struggle. After the collapse of the Soviet bloc, full diplomatic relations were established in 1992 between the countries that gradually warmed, and since the election of Narendra Modi as prime minister in 2014, have become a true romance. Today, the ties include security and economic cooperation, which continues to expand.
India is traditionally identified as one of the founders of the non-aligned states, which refused to see themselves as under the sphere of influence of any power. But in recent years, Modi has brought India closer to the US camp. In this context, his foreign policy sees a common denominator between the security threats in India's region, led by jihadist terrorist organizations, and the threats faced by Israel. Also, in July 2023, the US, India, Israel, and the UAE formed the I2U2 Group, which aims to strengthen cooperation in various areas such as infrastructure, space, and food security.
A country Modi wants to visit
In elections held last month, Modi did not manage to secure his hoped-for parliamentary majority, but did win a third consecutive term. Over the next five years, the tea seller from Gujarat who became the leader of the world’s largest democracy, is expected to maintain the momentum of the past decade. In 2023, as part of a campaign for a permanent seat on the UN Security Council, Modi said that India should take its rightful place on the world stage. To Israel's delight, it is one of the countries that Modi appears to want to visit.
"His position regarding Israel should be separated into two parts: Modi and the prime minister of India. There is much in common between his personal and professional views, but there are also gaps," explains India expert Dr. Oshrit Birvadker, a senior researcher at the Jerusalem Institute for Strategy and Security (JISS). The connection between Modi and Israel is long-standing, both based on his ideological views from his days in the Rashtriya Swayamsevak Sangh (RSS) (a right-wing, Hindu, nationalist political organization), which sees Israel as a model, having been exposed to its technological treasures from his days as the Gujarat head of the state.
As prime minister, according to Birvadker, Modi views Israel as a close friend of India. "We also saw it in his firm stance on Israel's behalf on October 7, but he is committed to the citizens of India’s welfare, and the country’s future. In times when India is under fire from all sides, this friendship can become hollow if you don't know how to create and build value, so Israel needs to adapt itself to the new India."
Unlike in the past, India today has clear interests in the stability and strength of Israel, at the center of which is Haifa Port, owned by Indian billionaire Gautam Adani. New Delhi is interested, for the sake of its economic interests, for Israel to have permanent and risk-free access to the world. Moreover, today India and Israel have a common security threat: the Houthi rebels in Yemen, who are terrorizing the Red Sea, which is a critical trade route for both countries.
Apart from clear political-security interests, India is a very significant trading partner in the security and defense sector for Israel. And there’s more.
Defense trade is thriving
In 2017, India purchased a Barak 8 missile defense system from Israel Aerospace Industries (IAI), for $1.6 billion (the largest deal in the history of Israel's defense industries until the sale of an Arrow 3 antiballistic missile interceptor system to Germany for $3.5 billion last year). This was a very significant deal, but only one of many being closed between Israel and India on a regular basis. According to the Stockholm International Peace Research Institute (SIPRI), India was the leading importer of weapons from Israel in 2019-2023, accounting for 37% of all Israeli exports. For comparison’s sake, the Philippines (12%) was in second place, and the US (8.7%) in third place.
India also uses its flourishing relations with many countries such as France, and even Russia, to position itself as their leading country for defense exports as well. "One of the important criteria in the strengthening of relations between the US and India was reforms and modernization of the Indian security system," says Dr. Lauren Dagan Amoss, a researcher of India's foreign and security policy at Bar-Ilan University and a member of Forum Dvorah - Women in Foreign Policy and National Security. "For years, Israel has been an asset for India, including transfers of information and defense products. But today it is not its sole dependent, because thanks to its unique position, everyone sees India as attractive - the Americans, French, Russians, and the Singaporeans."
A decade ago, Modi launched the Make in India program, which was designed to encourage local production, create new jobs, and jumpstart the economy. That is why, for example, 35,000 new Kalashnikov rifles supplied this month to the Indian army were manufactured at a factory in Uttar Pradesh, the northern state adjacent to Nepal. This Indian-Russian security cooperation was executed through a joint venture in which the Russian side was handled by JSC Rosoboronexport the state agency for Russia's exports/imports of defense-related products. This deal sheds light on Modi's policy in general, and policy in the security sector in particular.
Not only did the Russians adapt themselves to the defense industries in India itself, the large Israeli companies did as well. In March, IAI launched its Indian subsidiary, Aerospace Services India (ASI), in New Delhi. The company was established in cooperation with the Indian government’s Defence Research & Development Organisation (DRDO). ASI has 50 employees, 97% of whom are Indian citizens. It also enables IAI to comply with India's decision three years ago, according to require that companies become Indian entities, and conduct business in rupees.
Mutual benefit in local production
"The lion's share of trade between the countries is defense, but even there - if we don't wake up - we may lose," says Dr. Birvadker. "Israeli companies have a lot of competition in the Indian defense market, especially against American and French companies."
But the benefit of producing Israeli products outside the country is mutual, and this, as mentioned, has been reflected well in recent months. The "Al Jazeera" report about the shipments mentioned at the beginning of the article, claims that under a confidentiality clause, employees are prohibited from naming IMI, which has been a subsidiary of Elbit Systems since 2018. But India's work with Elbit is far more extensive than just industry. In December 2018, the Israeli company launched a collaborative venture with the defense and space arm of India’s Adani Group to produce Hermes 900 and 450 drones. During the Current war, Hezbollah has intercepted two of each. The price of the Hermes 900, according to foreign publications, can be up to $6.85 million, and a Hermes 450 costing up to $2 million.
"The production of Hermes drones is as important for India as it is for Israel," Zain Hussain, a researcher at the Stockholm International Peace Research Institute (SIPRI), told "Al Jazeera."
"For Israel, it means they have a factory outside of the country. For India, it’s about technology transfer, so that it can also produce drones based on the Israeli model." Indeed, this year, India launched the Drishti 10 Starliner, the first medium-altitude and long-endurance UAV made in India and based on the Hermes model.
"In recent years, India has been going for local production and wants to export to everyone," says Dr. Dagan Amoss. "This trend is not unique to India, but is worldwide, affected by Covid-19, the Russia-Ukraine War, and the Swords of Iron War. It stems from the fact that countries find it hard to trust others, and wartime supply chains are problematic. Israel has difficult challenges in the Indian market, and the defense and security establishment must adapt itself."
She believes that the Israeli companies have not yet "missed the bus" because the Make in India policy is indeed the goal, but still flexible. "The Indians want to make things easier, because they understand their products are not battlefield-ready. On the other hand, where India has weaknesses, Israel has solutions. The matter rests with Israel, and how far it can go with local production."
Whatever’s good for India
India in the Modi era is indeed getting closer to the US, and Israel as well, but, as mentioned, it also cooperates with Russia and in fact, "plays on all sides". For example, this week Modi went to a summit in Moscow with Russian President Vladimir Putin, for the first time since Russia's invasion of Ukraine, which India did not condemn. "India knows how to work with Israel, Russia, and Canada. Why? Because that's what suits India's interests," says Dagan Amoss. "Although it is true for every country, in India, this is deep-rooted."
Modi is indeed a pragmatic leader, but even that has its limits. When US President Joe Biden prepared to present the IMEC - India Middle East Europe Corridor plan to connect India to Europe through the UAE, Saudi Arabia, Jordan and Israel, the Indian Prime Minister made it clear to all concerned that Turkey would not take part in the project. Although it's logical to form a maritime connection from Israel to Turkey, and not to Greece, Piraeus was selected, due to Modi's sensitivities about Turkish President Recep Tayyip Erdogan. Turkey is a very good friend of India's great enemy, Pakistan. According to SIPRI, in 2019-2023, Islamabad was the third largest export destination. (11%) of the Turkish defense industry. On the other hand, Turkey was the third largest source (3.8%) for Pakistan, the fifth largest importer of weapons in the world.
At the same time, Turkey, a friend of Hamas, has a trade embargo on Israel, "until Israel declares an immediate ceasefire in Gaza," (according to Turkey's Ministry of Trade). Turkey, until recently a very significant trading partner of Israel, manufactures cars such as the Hyundai i10 and i20, Toyota Corolla, and Renault Megane. Therefore, as Israel considers reducing its dependence on trade with Turkey, it is possible that Jerusalem will decide to turn to India, a country whose car industry is thriving through the encouragement of extensive foreign investment by huge players, including Volkswagen and Nissan.
In the case of Turkey, it seems that Israel and India’s interests are aligned. But Modi's pragmatism works in all directions, including towards those who are distinctly hostile to Israel. In May, India and Iran announced, with great fanfare, the signing of a ten-year contract, with the option of an extension, for Indian Ports Global Limited (IPGL) to operate and develop Chabahar Port, a strategic seaport on the Gulf of Oman, in southeastern Iran, near Pakistan. As part of the program, IPGL will invest $120 million, and provide an additional $250 million in credit for joint projects.
Dr. Dagan Amoss explains the Indian considerations behind the Chabahar deal. "Since his election in 2014, Modi has positioned India as a global power. Contrary to how Israeli conceives of it, India does not view relations with Iran as a zero-sum game. It recognizes Chabahar Port is a means for reaching Central Asia, as it wishes to inject funds in Indian companies operating in Afghanistan but has been blocked by Pakistan. The port also makes it possible to import cheaper oil from Russia, and transport goods. Chabahar is also part of India’s maneuver to curb China's Belt and Road Initiative. Given its priorities, India is going by China’s rules in playing with China."
Haifa Port is a turning point
The point that made clear the extent to which India sees Israel as a long-term investment was the 2022 Haifa Port tender. The contract was won by a group comprised of the Adani Group (70%) and the Gadot Group (30%), for a huge sum of NIS 4.1 billion, about NIS 1.5 billion more than the competition, and about NIS 1 billion more than the preliminary valuation. As a result, it will operate the port until 2054.
Gautam Adani, who is considered to be very close to Modi, is not just another investor in Israel. Adani is ranked 20th on the "Forbes Richest List," with an estimated fortune of $84.5 billion. The conglomerate he heads controls a double-digit number of ports in India and abroad, and also operates extensively in various sectors such as energy and security. The Adani Group even signed a cooperation agreement with the Israel Innovation Authority, with ambitions to invest in Israeli cybersecurity, artificial intelligence and 5G technologies.
Considering the S&P forecast that the Indian economy will grow to be the world’s third largest by 2030, Adani's presence may benefit the Israeli economy. "The entry of a tycoon like Adani into the country in the form of an investment in strategic infrastructure was supposed to open the door to many Indian investors, and that did not happen," says Dr. Birvadker. "And then of course the war began, as a result of which was that the State of Israel’s positive image suffered a blow."
But the Adani Group is not the only Indian giant with a presence in Israel. The list includes Yavne-based TCS Israel, a subsidiary of the Tata Group, India’s largest corporation, which develops and maintains data systems. In 2017, Indian engineering company Larsen & Toubro (L&T) also established a development center in Jerusalem and Wipro, which deals in IT and industrial production, acquired Givon in Kiryat Bialik, which manufactures structural parts and mechanical systems for the aviation sector.
Jerusalem also attaches great importance to trade with India, as reflected by the efforts made by the Foreign Trade Administration at the Ministry of Economy and Industry. For many years, India has been among Israel's ten main export markets, and the Foreign Trade Administration operates three economic offices there: New Delhi, which is responsible for the north and east of the country; Mumbai, which is responsible for the west and the center; and Bangalore, for South India.
2023 actually saw a significant decline in exports and imports from India, both in goods and services. In total, Israeli exports fell 24% to $3.49 billion, and imports 23% to $2.58 billion. The fall in exports was mainly due to a drop in the export of goods by 31% to $2.3 billion. This may be attributed to the war, and the damage by the Houthis to maritime trade between Middle Eastern and Indo-Pacific countries, through attacks in the Red Sea, as 99% of Israel's international trade is carried by sea.
Central Bureau of Statistics data show that 53% of goods exported to India last year included electrical and mechanical machinery. This category is also the most significant area of imports (28%). What stands out is that no less than 24% of imports fall under the "other" category. It is worth noting that defense products are not included in any of the other main import areas.
A huge and unrealized market
As mentioned, the bulk of Israel’s trade with India is currently concentrated in the defense sector, but it is a huge potential market for other industries as well. In GDP per capita terms, India, which in 2023 became the most populous country in the world, still lags at only about $10,100 dollars (compared to about $55,000 in Israel, for example). But already in 2022, India overtook the UK as the world's fifth largest economy, with a GDP of $3.55 trillion, according to the World Bank.
Exports from India last year totalled $765 billion, and imports reached $700 billion. At the Israel Export Institute conference last April, Head of the Economic and Commercial Mission at the Embassy of Israel to New Delhi Natasha Zangin, presented the main areas where Israeli companies could integrate, chiefly solutions for the agriculture, telecom, and retail industries.
India’s agricultural market is worth an estimated $370 billion, as the world’s second largest producer of rice and wheat, with 43.2% of the workforce engaged in this field. However, its contribution to GDP is low (17%). Therefore, India needs precision agriculture, post-harvest technologies, field management, and AI applications.
India is also the world's second largest telecom market. This sector, which is dominated by three major providers: Jio, Vodafone, and Bharti AirTel, needs big data solutions, cloud services, and cybersecurity solutions for critical infrastructure.
India’s retail and online commerce market is estimated at more than $800 billion, and is 10% of GDP. It is the world’s fourth largest retail market, in need of AI solutions, data analysis tools for user characterization, and database management.
Although, according to Foreign Trade Administration data, close to half of all Israeli exports are services and not goods, Dr. Dagan Amoss explains that these are not necessarily what India wants. "Trade with India has always been good, but local production does not end with defense production and India puts up barriers to entry. The war didn’t do damage, but keep in mind that the Indian and Israeli markets don’t really know how to work together. The Indian market is interested in off-the-shelf products, while Israel knows how to provide high-tech and systems, which is not really what’s needed."
Dr. Birvadker also notes the complexities of working with the Indian market and its unrealized potential. "Trade relations between the countries have expanded significantly in recent years, but they are far from realizing their potential. There is still a lot to do, including diversifying trade relations. For example, in tourism. Relations are, for the most part, not realized due to, among other things, stereotypes, cultural differences, and difficult experiences of Israeli companies working with India. This is often the story for Israeli companies that consult with me. It takes work on both sides to build trusted professional relationships. I think we are a three out of 10 in terms of reaching our potential, while we have full support of the leaders, and the blame here rests squarely on the Israeli side. Israel still fails to understand the vast scale of India, and what it has to offer."
Published by Globes, Israel business news - en.globes.co.il - on July 16, 2024.
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