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PP RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0294/01 1960822
ZNR UUUUU ZZH
P 150822Z JUL 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7327
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8564
RUEHBI/AMCONSUL MUMBAI PRIORITY 2549
RUEHCG/AMCONSUL CHENNAI PRIORITY 2076
RUEHCI/AMCONSUL KOLKATA PRIORITY 1864
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 0025
RUEHJM/AMCONSUL JERUSALEM PRIORITY 0012
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 04 MUMBAI 000294 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV EAGR ETRD PTER PREL IS IN
SUBJECT: SHALOM AND NAMASTE: ISRAEL AND INDIA'S BURGEONING BUSINESS 
PARTNERSHIP 
 
MUMBAI 00000294  001.2 OF 004 
 
 
¶1.  (U) Summary.  Following more than forty years of diplomatic 
estrangement, the last fifteen years has witnessed India and 
Israel embarking on a new, multidimensional strategic 
partnership.  The two states have expanded cooperation in a 
number of key areas, with counterterrorism and the sale of 
sophisticated weapons technology becoming two cornerstones of 
the relationship.  While many have noted the burgeoning 
Indo-Israeli security alliance, observers have generally 
overlooked rapidly expanding commercial ties.  In the years 
since India first established full diplomatic relations with 
Israel in 1992, bilateral trade of goods and services between 
the two nations has swelled by nearly twenty percent annually, 
with total trade estimates approaching USD 5 billion for 2009. 
Cooperation and trade in the fields of IT, infrastructure, 
chemicals, machinery, textiles and especially agriculture have 
helped drive the relationship forward at a breakneck pace in 
recent years. Aided by a number of key trade and business 
agreements, India is now Israel's second largest trading partner 
in the developing world and its sixth largest globally for 
non-military goods and services.  Nevertheless, given the 
domestic and international political sensitivities to a closer 
relationship with Israel, India is likely to keep these ties low 
key.  End Summary. 
 
An Estranged Past; A Growing Partnership 
 
--------------------- 
 
¶2.  (U) India and Israel share similar attributes:  a British 
colonial past, hostile neighbors and robust democratic political 
systems originally founded on now-abandoned principles of 
moderate socialism.  Yet despite this, a number of factors led 
India to adopt an unfavorable posture towards Israel following 
the two nations' emergence as independent states in 1947-1948. 
For the first five decades of its independence, India's foreign 
policy towards Israel was guided by Cold War alignments (or 
desire for non-alignment in India's case) and politics, India's 
fear of alienating its large Muslim population over Israel's 
treatment of Palestinians, and New Delhi's strong ties to the 
Arab world. These factors prompted India to reject establishing 
full diplomatic ties with Israel until 1992.  With the collapse 
of the Soviet Union and the launching of the Madrid Peace 
Process in 1991, however, the impetus behind New Delhi's 
Israel-adverse policies quickly dissolved.  India reoriented its 
foreign policy to accommodate to the changing international 
political landscape.  It chose to embark on paths of economic 
liberalization at home and international pragmatism abroad 
(Note:  India's process of economic liberalization of the early 
1990s in many ways reflected Israel's own economic reforms of 
the 1980s.  End Note.) In 1992, India extended full diplomatic 
recognition to Israel, after which ties between the two 
countries accelerated and diversified. 
 
¶3.  (SBU) Bilateral relations between India and Israel today are 
robust and multi-faceted, and are continuing to strengthen. 
According to observers of the relationship, the two states share 
several congruent interests and have acted to expand cooperation 
in a number of key areas. Increasingly, this improved 
cooperation has manifested itself in coordinated 
counter-terrorism projects and advanced weapon systems sales. 
Israeli missiles, rockets, radar and communication equipments, 
ships, assault and sniper rifles, night-vision devices, and 
border monitoring equipment have all been added to the Indian 
arsenal.  Between 2002 and 2007, India reportedly purchased over 
USD 5 billion worth of military weapons and systems from Israel 
(with $1.6 billion in 2006 alone), making Israel India's largest 
worldwide supplier of defense equipment. 
 
¶4.  (U) While this growing military relationship has received 
wide notice, both in the international and domestic Indian 
media, far less attention has been paid to the growing 
non-military business ties between the two countries.  (Note: 
Leftist and Muslim groups in India have vociferously objected to 
the growing Indo-Israeli union. End Note.) From a baseline of 
USD 200 million in 1992, consisting of almost exclusively of 
diamonds and cotton, trade in goods and services grew and 
diversified to surpass USD 3 billion in 2007.  Total trade is 
estimated to exceed USD 5 billion by the end of 2009. India is 
now Israel's largest trading partner in Asia and the developing 
world (behind China), and its sixth largest globally for 
non-military goods and services, according to the Economic 
Division of the Embassy of Israel. 
 
 
MUMBAI 00000294  002.2 OF 004 
 
 
¶5.  (U) While the majority of Indo-Israeli bilateral trade 
continues to be in diamonds (65 percent of total trade in 2007), 
the diversity of trade goods has increased rapidly in recent 
years.  New industries and sectors are replacing the established 
commodities of years past.  Twenty two percent of Israel's 2007 
exports to India came from the high-tech sector, a remarkable 35 
percent increase from 2006.  Telecommunications, one of the new 
centerpieces of Indo-Israeli trade (accounting for 14 percent of 
total Israeli exports to India), registered a 15 percent growth 
rate in 2007 from the previous year.  As a leader in rural 
telephone networks, Israel is helping India develop its 
telecommunication capabilities outside urban network hubs.  Both 
Israel and India have increased trade of sophisticated chemicals 
to one another, with a dramatic increase of 65 percent in total 
sales over the past two years. 
 
A Match Made In Heaven? 
 
--------------------------- 
 
¶6.  (U) The sharp increase in trade and investment has been 
driven in part by a complex mix of geo-political considerations. 
  However, most observers agree that the rapid growth is a 
result of ordinary economic pragmatism on the part of both 
governments, as trade in most goods is complementary. India, in 
spite of its impressive economic performance in recent years, is 
still predominantly an underdeveloped country in need of foreign 
investment and technology transfer.  Many in the business 
community in India believe that Israel's advanced industries and 
technological expertise are well-suited to serve the needs of 
India's expanding -- yet still immature -- market.  Indian 
business contacts report that Israel is looking to India both as 
a source of inexpensive labor for manufacturing Israel's 
products, either for the Indian market or export globally. 
Moreover, India's budding middle class represents to Israeli 
businesses - as it does for much of the industrialized world - a 
virtually untapped and unlimited well of potential new 
customers. 
 
¶7.  (U) In turn, Indian businesses have begun to look to Israel 
as a profitable export market and investment destination. 
Israeli imports from India have grown at an impressive annual 
rate of more than 24 percent since 1992, higher than the annual 
average growth rate for total trade.  Foreign Direct Investment 
(FDI) - which for years almost exclusively flowed from Israel 
into India - is today moving in both directions.  The Tata Group 
and the State Bank of India have taken their businesses to Tel 
Aviv and Haifa.  Moreover, as a Free Trade Agreement (FTA) 
signatory with both the US and the EU, Israel has for years 
functioned as a conduit by which Indian businesses sell goods in 
what would otherwise be inaccessible or unprofitable foreign 
markets. Joint ventures (JV) between Israeli and Indian 
companies have also proliferated; it is reported that over a 
thousand Indo-Israeli JVs have been launched in India. 
 
 
 
Bilateral Trade and Investment Advanced by Key Agreements and 
Delegations 
 
------------------------------------ 
 
¶8. (U) A number of key bilateral trade and business agreements 
have helped encourage and sustain the over 20 percent rate of 
trade growth.  Beginning in 1994, Israel and India entered into 
a Most Favored Nation (MFN) agreement, which stated that India 
and Israel were obliged to offer each other the most preferred 
treatment in all trade negotiations.  In other words, all 
favorable trade policies (such as a low tariff) extended to 
foreign nations must also be offered to India or Israel, 
respectively.  The MFN agreement set the stage for a series of 
key agreements signed in the following years, the most important 
of which were the Avoidance of Double Taxation agreement, the 
Bilateral Investment Protection agreement, and the Customs 
Cooperation agreement, all signed in 1996.  In 2002 and 2003, 
the governments continued to move their bilateral relationship 
forward by signing an Agreement on Cooperation in Peaceful Uses 
of Outer Space, an Agreement on Cooperation in the Field of 
Health and Medicine, an Agreement on Cooperation in the Field of 
Protection of the Environment, and a Memorandum of Understanding 
(MoU) on India-Israeli Research and Development.  Since 2006, 
discussions concerning a full-fledged Indo-Israeli Free Trade 
Agreement (FTA) have begun but were put on the backburner while 
 
MUMBAI 00000294  003.2 OF 004 
 
 
the two governments prepared for their respective national 
elections. 
 
¶9.  (SBU) On June 2, EconOff met with the Israeli Consul 
General, Orna Sagiv, to discuss the proposed FTA and to hear her 
take on the current state of the Indo-Israeli business 
relationship.  Sagiv explained that the Government of Israel 
(GOIS) has been actively promoting increased investment and 
trade in Asia, and that in recent years India has increasingly 
become the focal point of that campaign.  The GOIS has launched 
a number of initiatives to encourage trade growth, and has sent 
scores of high-profile government and business delegations to 
India to sell the Israel brand.  "Asia is the future of Israeli 
business," Sagiv observed.  "In India we're working hard to 
shift away from a diamond dominated relationship to a 
multifaceted one.  We want to expose Israeli high-tech know-how 
and capabilities to the Indian market." Since 2007, Israel has 
sent dozens of delegations to India, representing business 
opportunities as diverse as water management, financial 
consulting, high yield agriculture, IT, telecommunications, and 
infrastructure.  "The problem," Sagiv lamented, "is in the 
branding."  Very few businesspeople in India have dealt with 
Israelis.  Those who have still tend to think of Israel only in 
terms of defense or drip irrigation. "Few Indian business 
leaders are aware of all that Israel can offer in terms of 
high-tech or infrastructure," Sagiv continued.  Israel hopes 
that these delegations and trade missions will help change that 
limited view and "show that Israel has the experience and 
expertise to manage projects as well as provide niche services." 
When asked about the likelihood of an Israel-India FTA coming 
into being in the near future, Sagiv noted optimistically that 
the necessary ingredients are all in place.  The FTA was held up 
by the two countries' election cycles, but "it is only a matter 
of time" until it is expected to become a reality. 
 
¶10. (SBU) Note:  At a June 25 lunch with the American Jewish 
Committee's India representative, Priya Tandon, EconOff learned 
that a number of these JVs and business partnerships have been 
launched by members of the Indian-Jewish Bene Israel religious 
community.  The Bene Israel, who number nearly 70,000 (of which 
all but 5,000 have emigrated to Israel), trace their history in 
India back to the Second Century A.D. Jewish exile. They 
resemble the Maharashtra state's Marathi majority in appearance 
and customs, but have over the centuries maintained a resilient 
Jewish identity by keeping traditional Jewish laws and 
practices.  Tandon - not a member of the Bene Israel community 
herself - noted that while most Bene Israel have left for 
Israel, strong bonds continue to connect the Bene Israel of 
India - particularly of Mumbai - with those who have left. 
These bonds have helped establish and sustain vibrant business 
partnerships.  End Note. 
 
Agricultural Ties Growing, Hoping to Surpass Diamonds as 
Dominant Trade Sector 
 
--------------------------------------- 
 
¶11.  (U) Observers have highlighted the agricultural sector as 
one of the new driving forces behind the expansion in trade, and 
an area with enormous potential for expansion.  At a recent 
seminar on Indian-Israeli agricultural partnerships in Mumbai, 
leading Israeli agricultural scientists explained that Israel 
has been a leader in low-water farming methods and technologies 
since the 1960s.  In recent years, however, the country has 
diversified its expertise to include a number of other 
agricultural practices, including food storage, food processing, 
fertilizers, desalination technologies, and genetically modified 
seeds.  Israel has been looking for foreign trading partners and 
has been encouraged by India's agricultural reforms of the past 
few years, especially the adoption of liberal policies in the 
food processing industries and in agricultural research and 
technology transfer, with 100 percent foreign direct investment 
permitted. 
 
¶12.  (U) To this end, Israel and India culminated more than 
three years of negotiations with the signing of a far-reaching 
Agricultural Work Plan in 2006.  Sharad Pawar, the Indian Union 
Minister of Agriculture 
 , 
led a delegation of farmers, agricultural scientists, and 
politicians to Israel in May of that year to hammer out the deal 
with his Israel counterpart, Shalom Simhon.  The plan calls for 
a number of cooperative measures, including the establishment of 
 
MUMBAI 00000294  004.2 OF 004 
 
 
a joint fund for collaborative research on agriculture, 
development of energy efficient greenhouses for semi-arid 
tropical climates, numerous studies on recycling of domestic 
wastewater for irrigation, post harvest processing and storage 
subsidies, and enrollment of Israeli and Indian students and 
scholars of agriculture in each other's universities and 
research institutions.  The panelists at the Mumbai seminar 
bemoaned the fact that the implementation of the Work Plan has 
been sluggish, but are satisfied nonetheless that the Plan has 
laid the foundation for a potentially mutually beneficial 
partnership in agriculture. 
 
Potential for Advancement - But Tread Cautiously 
 
------------------------------------- 
 
¶13.  (SBU) Comment:  Since India's full diplomatic recognition 
of Israel in 1992, the relationship between the two countries 
has quietly expanded, diversified and solidified, due to a 
complex mix of geopolitical considerations and economic 
expediency.  As India continues its quest to secure more 
advanced technologies in a variety of sectors, it will likely 
continue to look for opportunities with an economically 
aggressive Israel, which has its own reasons to look towards 
India as a trade and investment partner.  In addition, in Mumbai 
many corporations have turned to Israeli security experts to 
improve their security profile in the aftermath of the November 
2008 terrorist attacks, a more strategic tie-up that will likely 
grow.  Nevertheless, given the sensitivities of India's 
relationships with Arab countries, where most of its oil imports 
originate, and the concerns of its own large, Muslim community, 
India's public acknowledgement of this increased coziness will 
remain muted.  End Comment. 
FOLMSBEE