India and Israel Begin Historic FTA Talks, Unlocking a New Era of Strategic Economic Partnership

India and Israel have taken a transformative leap in their bilateral relationship by formally signing the Terms of Reference (ToR) to launch negotiations for a comprehensive Free Trade Agreement (FTA). The announcement marks one of the most ambitious economic collaborations between the two nations, aiming to modernize trade, boost innovation, and expand cooperation across high-value sectors. Indian Commerce and Industry Minister Piyush Goyal hailed the development as “historic,” emphasising its potential to reshape the trajectory of India–Israel economic engagement.

Union Minister Piyush Goyal and Israel Minister of Economy and Industry, Nir Barkat sign a TOR for a trade agreement, in Tel Aviv-Yafo on Thursday.(@PiyushGoyal X) | LiveMint

A Framework Designed for the Future

The ToR sets the foundation for a broad, forward-looking FTA that encompasses trade in goods, services, investment flows, customs modernization, and technology cooperation. Unlike traditional agreements focused narrowly on tariff cuts, the India–Israel framework aspires to create a modern, innovation-centric architecture.

Under this evolving partnership, both countries aim to reduce barriers that hinder the movement of goods while simultaneously strengthening investment rules to protect businesses on both sides. Smoother customs procedures and digital trade facilitation will also be integral to the agreement. The negotiation agenda reflects the strengths of both nations — India’s scale, manufacturing capabilities, and human capital, paired with Israel’s leadership in high-tech, defence innovation, water management, and agri-tech.

Respecting Sensitivities While Expanding Opportunities

A defining feature of the early negotiations is Israel’s decision to refrain from seeking market access in India’s politically and economically sensitive sectors such as dairy, wheat, rice, and sugar. This careful balancing demonstrates a deliberate effort to ensure the agreement remains equitable and sustainable.

By respecting domestic sensitivities, the two countries have built early confidence in the negotiation process, clearing the path for constructive dialogue on more mutually beneficial sectors.

The $50 Billion Metro Project: A Landmark Opening for Indian Companies

One of the most promising signals emerging from the talks is the opportunity for Indian infrastructure giants to take part in Israel’s ambitious $50 billion metro development. Israel has launched its pre-qualification process, inviting Indian firms to participate.

This project is not merely a trade add-on — it symbolizes a new phase of infrastructure partnership. Indian engineering and construction companies, already gaining global credibility, now have a chance to contribute to one of West Asia’s largest mobility transformations. Such collaboration may significantly boost India’s standing in international infrastructure markets.

Sectoral Synergies: Where India and Israel Converge

The FTA groundwork is rooted in shared strengths across multiple high-impact sectors.

Both countries have robust innovation ecosystems and a clear ideological alignment on technology-driven economic expansion. Potential areas of convergence include defence manufacturing, digital economy, water conservation, clean energy, pharmaceuticals, agriculture, startups, and advanced scientific research.

With India emerging as a global hub for AI, deep-tech, and intellectual property development, and Israel already recognized as the “Startup Nation,” the FTA is expected to open the door to unprecedented collaboration in cutting-edge technologies.

Trade Trends and Economic Motivations

Recent trade fluctuations have added urgency to the negotiations. During 2024–25, India’s exports to Israel significantly declined, and imports also saw a steep dip. These shifts have renewed the focus on creating stable trade conditions through a structured agreement.

Israeli Economy Minister Nir Barkat has repeatedly stressed that the FTA will catalyze fresh investment, encourage Israeli firms to establish subsidiaries in India, and position India as a gateway for Israeli companies to expand into Asia.

Simultaneously, India sees Israel as a trusted partner in areas where strategic cooperation is vital — from defence technology and cybersecurity to water recycling and renewable energy solutions. The FTA, therefore, is not just about commercial gains but about strengthening geopolitical reliability.

Historical Context and Renewed Political Will

FTA discussions between India and Israel began in 2010 but gradually stalled after eight negotiation rounds. The new ToR signals a revival backed by strong political will and shared strategic priorities. Both nations have expressed eagerness to finalize dates for the formal negotiation rounds, aiming for faster progress than previous attempts.

Additionally, parallel efforts are underway to finalize a Bilateral Investment Treaty, which would provide legal security to investors and further strengthen long-term confidence.

Challenges on the Horizon

Despite optimism, the negotiation journey will not be without challenges. Balancing domestic interests, ensuring political support, addressing regulatory differences, and creating mechanisms for dispute settlement will require careful diplomacy. Implementation will be another critical stage — reducing tariffs is easy, but integrating systems, aligning regulations, and monitoring compliance is far more complex.

Nevertheless, the political momentum and mutual trust between the two nations provide a strong foundation for overcoming these difficulties.

The MGMM Outlook

India and Israel’s decision to formally begin Free Trade Agreement negotiations marks a moment of strategic maturity between two nations already bound by deep technological, defence, and geopolitical cooperation. The signing of the Terms of Reference reflects not just a trade ambition but a shared vision for a modern, innovation-oriented economic partnership. With India offering scale, manufacturing power, and a rising digital ecosystem, and Israel bringing unparalleled strengths in high-tech, water management, defence innovation, and agri-tech, the FTA represents a blueprint for future-centric collaboration. Notably, Israel’s decision to stay away from India’s sensitive sectors like dairy, wheat, and rice demonstrates rare diplomatic sensitivity, which has laid the groundwork for trust-driven negotiations. At a time when trade fluctuations demand a stabilising framework, both countries see this FTA as a way to expand investments, accelerate technology exchange, and create predictable trade conditions.

The opening of Israel’s massive $50 billion metro project to Indian companies signals the scale of new opportunities this partnership can unlock. For India, this is not merely a commercial moment but a powerful assertion of its growing global engineering and infrastructure capabilities. Broader sectoral synergies—from defence manufacturing and AI to clean energy, cybersecurity, pharmaceuticals, and scientific research—position the India–Israel partnership as one of the most promising bilateral platforms in Asia. With negotiations earlier stalled since 2010, this renewed political will from both sides underlines the seriousness of intent. Challenges will exist in regulatory alignment and implementation, but the trust, strategic alignment, and forward-looking approach of both governments set a strong foundation. The evolving FTA stands as a transformative step toward a deeper economic, technological, and strategic relationship that aligns with India's long-term national interests and global aspirations.

(Sources: LiveMint, India.com, Business Standard)