In present day world economy has become the most dominant component of national power and thus forms the prime focus of any nation's strategic interests. Hence economic relations have to be the principal driving force in fostering strategic partnership between two nations.
Normalisation of relations in 1992 nearly coincided with liberalization of Indian economy. However, economic relations beyond arms trade did not initially form the main impetus for improved ties  . There was no substantive increase in economic cooperation until 2002, which is termed as a bounce-back year when the bilateral trade took a quantum leap with 43 percent growth mainly to recover from the global recession as Israel's main trading partners USA and European Nations were greatly hit by the slowdown. 2003 and 2004 were consolidating years. The growth in the year 2003 reached 25 percent to touch the US$1.5 billion mark and in 2004 the growth reached 36 percent to touch US$2.15 billion bilateral trade and another 10 percent growth in 2005 for trade to reach US$2.4 billion.During the year 2006, the bilateral trade reached US$2.7 billion  .
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As of 2009 the bilateral trade amounted to $ 4.1 Billion excluding arms trade and India became Israel's second largest trading partner in Asia after China. Current bilateral trade between the two countries forms a very large basket of articles ranging from precious stones & diamonds, through chemicals, telecom equipment, agriculture inputs, precision tools and medical equipment to the high-tech sector. Over 100 Israeli companies are operating in India either directly or through joint ventures, collaborations, and technological ventures and as many seeking opportunities in India. Various specialised delegations from both countries visit each other every year to promote trade and investment in fields like telecom, agriculture, environment, home security, venture capital. In 2008, PBEL, a joint venture of two Israeli real estate firms and an Indian developer, announced an investment of $1 billion in real estate projects in India. The plan is to build 10 million square feet of world-class residential and business space in three cities  .
The economic cooperation between companies from both countries was supported by bilateral visits and trade frameworks such as Most Favored Nation Agreement, Tax Agreement, Investments Protection Agreement, Industrial R&D Cooperation Agreement, and many others  . During Israeli Prime Minister Ariel Sharon's visit to India in September 2003 he was accompanied by a large delegation of about 30 influential businessmen, eager to forge new contracts and open new markets in India an agreement was signed to set up a joint Industrial Research and Development Fund to encourage investment and joint ventures  . An Indo-Israeli CEOs forum comprising influential business heads from both countries has also been established to deliberate on trade and economic matters. In 2005 a Joint Study Group (JSG) was established in order to boost bilateral trade to $ 5 billion by 2008 and it was agreed to implement an action plan proposed by the JSG for finalising a comprehensive Economic Cooperation Agreement between the two countries to further boost trade in goods and services, mutual investments and cooperation in R&D.
Israel's minister for industry, trade and labour, Benjamin Ben Eliezer visited India in January 2010 he was accompanied by a delegation of business executives from leading 25 Israeli companies in the fields of agriculture, infrastructure, alternative energy, water, internal security, communications and services to include Motorola, ECI, Rafael, Elbit Systems, Magal, Naan Dan Jain and Netafim. Mr Eliezer termed India as a key state in global economy and said  during a meeting that Israel aspire to increase the volumes of trade between the countries and improve the trade infrastructure and Israel views its economic relations with India as extremely important and seeks to strengthen them and will make every effort to negotiate a Free Trade Agreement (FTA). The visit was reciprocated by India's commerce minister, Mr Jyotiraditya Scindia visited Israel in February 2010 for further negotiations on Free Trade Agreement (FTA)  for a two way agreement that would give Indian industries access to the Israeli high technology sector, and Israel access to Indian domestic market. It is estimated that bilateral trade would cross $12 billion in 5 years with the Free Trade Agreement (FTA) coming into being. The current areas that are to be given focus are software, communication, homeland security, science and medicine, bio and agro-technologies, water management  .
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India's strength is its robust economy and high economic growth. India is trying to diversify its trade and commerce to maintain its high growth rate of its economy and also to create redundancy to safeguard the economy from any apartheid by developed nations or a Global Slowdown in future. The look East Policy and increased economic engagements with the Arab and African nations are primarily aimed to achieve the same. India's economic cooperation with Israel assumes a special importance in this regards as India benefits from the transfer of hi-tech Israeli technology and expertise, which will contributes to the modernization of and strengthens the Indian economy. It also provides Indian goods an indirect access to the markets of United States and the European Union because of Israel's trade agreements with them  . Enhanced economic engagement with Israel will also provide India with leverage to play an effective role in Middle East Peace Process in future and to garner Israel's support on various other world issues like climate change and UN reforms.
Israel like Japan is a small country with limited natural resources and relatively small domestic market thus making it highly dependent on foreign trade, both for supply of raw material to its industry and market for its value-added products. Foreign direct investments (FDIs) play an important role in Israel's economy. There are over 60 venture capital funds in Israel, providing the necessary resources into its technology sector. On the NASDAQ, there are more Israeli companies being traded than any country outside North America.
Israel has the highest rate of R&D investment in the world amounting to about 4.8 percent of its Gross Domestic Product (GDP)u. Top Companies of world have established their R&D facilities in Israel due a highly educated, talented and diverse workforce, proven track record of developing profit-driving technologies, high-level of scientific research, modern infrastructure and supportive government programmes create a fertile enviornment for innovation. Microsoft, Cisco, Motorola, Intel, HP, Siemens, GE, Philips Medical, IBM, and eBay are just a few of the internationally renowned multinational companies that have already chosen to invest in Israeli technology. Israel offers substantial investment grants, tax benefits, and exemptions for foreign investors through the Law for the Encouragement of Capital Investments. The Law for the Encouragement of Industrial R&D offers conditional R&D grants of up to 50 percent of approved programmes. Israel has emerged as a world leader in Profit Driving Innovations and has the highest concentration of hi-tech companies in the world, outside of Silicon Valley  .
Israel has an extensive network of agreements with countries throughout America, Europe, and Asia, that includes Free Trade Agreements that cover close to 80 percent of Israel's foreign trade. Joint R&D programs to promote industrial cooperation that provide up to 50 percent of costs for projects  .
There are several interests underlying the Indo-Israeli economic relationship  . The limited size of the Israeli domestic market is a major constraint on Israel's economic development. It is imperative for Israeli companies to generate profits through exports to foreign countries or the cost per unit of research and development of innovative products and technologies remains too high to allow firms to prosper and expand their activities. The huge size of the Indian market and the high prospect of sales thus make India particularly attractive to Israeli companies. Cooperation with Indian firms also facilitates Israel's entry into the Indian market and enhances Israel's access to Southeast Asia and the Third World through India's economic ties with these countries.
In words of Amir Hayek  is the former Director General of the Israel's Ministry of Industry &Trade and currently he is the President of Israel - Asia Chamber of Commerce; When Israel looks at India, it sees the enormous potential mainly while comparing it to other markets. Enormous population of young workers (50 percent are under the age of 25). The largest English speaking IT talent pool in the world - over 120,000 trained IT professionals. Over 380 universities, 11,200 colleges and 1,500 research institutes. Annual growth of 30-40 percent in the telecom sector. 2.5 million new mobile subscribers added every month and growth is 60 percent per year and infrastructure requirements of US$250 billion in the next five years.
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The major constraints on the expansion of economic cooperation between the two countries are the red tapism & corruption in Indian bureaucracy, dissimilarities in business culture and competition from other foreign countries mainly from the European Union (EU)  .
Still economic cooperation does not constitute the core of the bilateral relationship  . Bilateral trade is not commensurate to the vast potential. Precious stones and diamonds form the major share of the total trade.