Mint Explainer | Will the proposed India-Israel FTA be a game-changer for bilateral trade?
India and Israel have finalized the Terms of Reference for a long-pending FTA, aiming to revive shrinking bilateral trade, deepen technology ties and open new markets beyond the US.
India and Israel have moved a step closer to signing a long-pending Free Trade Agreement (FTA) after finalizing the Terms of Reference (ToR) for formal negotiations.
The push comes at a time when bilateral trade has contracted sharply and India is looking to diversify export markets beyond the US.
What the pact aims to achieve, and why it matters now—Mint explains.
What the FTA aims to achieve
Both sides signed the ToR for the India-Israel FTA during Union commerce minister Piyush Goyal’s recent visit to Israel. According to a PIB release dated 19 November, Goyal led a large business delegation, accompanied by a 60-member team facilitated by CII, FICCI, Assocham and Start-up India.
During the signing, ministers reaffirmed their commitment to boosting trade, investment and technology cooperation, expressing confidence that negotiations would move forward constructively toward a balanced and mutually beneficial FTA.
“The Terms of Reference mark a decisive step in shifting the India–Israel partnership from a largely security-driven relationship to a broader economic engagement," said aid Dattesh Parulekar, assistant professor, International Relations, Goa University.
The timing is significant because bilateral trade has contracted sharply over the past year, and India is taking every possible step to diversify its goods to potential markets and reduce its dependency on the US market. India’s exports to Israel dropped from $4.52 billion in FY24 to $2.14 billion in FY25, while imports fell from $2 billion to $1.48 billion during the same period.
The proposed pact aims to cut tariff and non-tariff barriers and establish predictable rules for goods, services and investment, covering areas such as intellectual property, customs cooperation, digital trade, rules of origin and regulatory alignment.
While current trade is dominated by diamonds, defence supplies, fertilisers, machinery, electronics and chemicals, both sides want to broaden the basket into more technology-driven sectors. Israel’s strengths in semiconductors, sensors, irrigation, cybersecurity and med-tech align well with India’s manufacturing and services capabilities, creating scope for deeper collaboration.
Which sectors could gain
The diamond industry may see immediate gains as Israel is a major hub for polished stones, and lower duties could help Indian cutting and polishing units—particularly in Gujarat—regain competitiveness.
Agriculture is another promising area. Israel’s strengths in drip irrigation, seed technology, desert farming and post-harvest infrastructure align with India’s needs to boost farm productivity and manage water stress.
Electronics and semiconductors could see deeper partnerships through co-development and design collaborations. Pharmaceutical and chemical exporters may benefit from streamlined regulatory processes. Startups in both countries could gain from improved access to innovation networks and cross-border digital trade frameworks.
“An FTA will help both sides move beyond the traditional trade basket and build deeper linkages in high-technology, innovation and manufacturing, where the complementarities are very strong," said Parulekar.
What challenges remain
Despite progress on the ToR, several issues remain. India is expected to shield sensitive farm sectors from aggressive tariff cuts. Aligning digital trade and data governance rules could require careful negotiations. Both sides must also establish robust rules of origin to prevent third-country goods from entering India via Israel.
Ensuring balanced market access could be challenging given the structural differences between Israel’s export-driven, high-tech economy and India’s more diversified and partly protected market.
Who stands to gain or lose
Technology firms, semiconductor and electronics companies, agritech startups, pharmaceutical exporters and MSMEs in textiles, gems, engineering goods and chemicals stand to gain if negotiations progress smoothly.
Conversely, some domestic food-processing units, smaller agricultural segments and importers benefiting from current tariff structures may face stiffer competition once the pact is operational.
What next
With the ToR finalized, India and Israel are expected to begin formal negotiations over the next few months. Talks will be reviewed periodically, and both sides may aim to announce a framework agreement during a high-level visit or major regional event.
The move signals intent to accelerate a long-delayed trade pact at a time when global supply chains and strategic technology ties are being reshaped. The proposed FTA could expand cooperation across agriculture, electronics, semiconductors, digital services and startups—while helping stabilize a trade relationship that has weakened sharply over the past year.
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