On PM Narendra Modi’s 2017 trip to Israel, the relationship with Israel was described as a marriage in heaven, implemented on Earth. With the stars aligning on the relationship from a geo-political perspective, recent governmental initiatives show promise for bilateral ties in the coming years. Now we ask the question: what else can be done to supercharge relations with one of India’s most important allies today?
This year marks the 30-year anniversary of India’s diplomatic ties with Israel. On the face of it, ties are stronger than ever with around $8bn in bilateral trade in 2022 and close ties across the political and defence leadership. Yet the impressive numbers only tell half the story.
Much has been made of the fact that Israel – nicknamed the ‘Start-Up Nation’ – has innovative technological solutions to some of the toughest issues facing 21st-century India – water scarcity, healthcare, food security, heatwaves, desertification, and many others.
Only a couple of months ago, India and Israel entered into a memorandum of understanding on industrial research and development cooperation that will focus on several key technology areas, with the aim of tackling some of these issues.
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The two countries already have bilateral consultation mechanisms in place to promote innovation and accelerated R&D. On the implementation side, one key challenge lies in this area of financing for Indian importers, especially small and mid-sized entities and startups, who are not able to secure credit on reasonable terms.
The solution to this problem is clear – a financial scheme in which Israeli banks would offer long-term credit to Indian importers for the purchase of Israeli equipment, all of which would be guaranteed by Israel’s state-owned insurance company. This would reduce credit risks and allow Israeli exporters to offer financing to their Indian counterparties on affordable terms.
A financial protocol of this kind would involve significant collaboration among the governments and banks but is achievable and could create billions in new trade deals, thousands of jobs and foster economic development. A similar model has been used by Israel and China for close to twenty years and there’s no reason why it couldn’t be adopted here.
While selling and buying from each other is at the core of the relationship, another key aspect is improving the ability to invest in each other’s economies. In recent years, Israel started to witness an upswing in Indian investors wishing to deploy private capital in Israeli start-ups and forge alliances for technology access and R&D.
While this is a welcome development, the regulatory and exchange control policies in India create layers of compliance that are challenging to manage in minority start-up investments.
In the capital markets, much more can be done to enable investment in each country’s respective stock exchanges. As a start, the Tel Aviv Stock Exchange (TASE)could allow remote membership for Indian brokerage firms, pathing the way for Indian retail investors to benefit from the Israeli tech success story. A dual listing of high-growth Indian tech companies on the TASE is something else that could be explored but probably remains a long-term project for the time being.
Meanwhile, in the post-COVID world, investors have got back into the habit of international travel. But one can’t help but wonder why there are no direct flights connecting two of the key tech hubs in the world today – Tel Aviv and Bengaluru. Certainly, there’s no shortage of demand for such a route from tech executives but such a move goes hand-in-hand with short-term visa reform.
Specifically, Indian executives visiting Israel today need to receive a special business visa ahead of time, a timely and bureaucratic process. The time has come for Israel to liberalize its short-term visa policy for Indian business visitors, something already afforded to many other countries.
Those dealing on a day-to-day basis with this increasingly important business corridor understand that we are at just the tip of the iceberg. There are important initiatives that could ease the legal and financial pain points and take the relationship to the next level.
The first thing that observers point to is the need to sign a free trade agreement (FTA) between the parties. Talks have been ongoing for at least a decade but securing the prize now is a high priority for the recently elected Israeli Government, which appreciates the greater openness of the Modi administration to FTAs.
The key sticking point in the FTA negotiations appears to be the granting of long-term work visas to skilled Indian workers looking to work in Israel’s lucrative tech industry.
Of course, an FTA would help trade relations, principally by bringing down tariffs. But it’s easy to forget that tariffs alone are not enough to spur trade. It’s also time to review past initiatives and consider whether they are appropriate for the size of the opportunity today.
One example is the$40m IF4 Industrial Fund, established in 2018 between the DST and the Israel Innovation Authority. The fund has been a roaring success but is nowhere near large enough for the market opportunity and should target a larger number of projects each year.
Likewise, the India-Israel Tax Treaty of 1996 should be reevaluated. Specifically, the last time the treaty was amended, the parties had intended to include a so-called “most-favored nation” clause but omitted it at the last moment. This clause, had it been incorporated, would have provided Israeli investors with the same tax benefits as those afforded to other OECD countries with which India enters into a tax treaty.
All of the above examples only scratch the surface of what is possible. The governments of India and Israel should hold a consultation with the public in order to identify other pain points in bilateral trade.
Like all good marriages, you must never stop investing in the relationship. Now’s the time to take bilateral ties with Israel to the next level. Over to you Mr. Modi and Mr. Netanyahu.
Adam Salkin is a VC and M&A partner at Herzog Law, a law firm in Tel Aviv, and specializes in cross-border transactions between Indian and Israeli companies. He can be reached at [email protected]
Suraj Malik is the founder and managing partner of Legacy Growth. He can be reached at [email protected].
