India-Israel trade and the FTA

The India-Israel commercial relationship is the smallest of the five tracks of the Special Strategic Partnership relative to the relationship's other dimensions. Bilateral merchandise trade was USD 3.62 billion in FY 2024-25, an order of magnitude smaller than India's trade with the United Arab Emirates and a small fraction of India's trade with the United States. The strategic ambition has materially exceeded the commercial scale for most of the past two decades. The 2025-26 cycle is the first sustained attempt to close that gap, anchored on a long-stalled Free Trade Agreement (FTA) that was unblocked in late 2025.

This piece sets out the trade composition, the FTA negotiating frame, and the constraint the relationship is now trying to relieve.

Bilateral trade composition

India and Israel publish separate trade data on each other, with the typical small disagreements between source figures. The Indian Brand Equity Foundation (IBEF) summary, which aggregates Indian Ministry of Commerce data, shows the following:

• FY 2024-25 bilateral merchandise trade: approximately USD 3.62 billion.
• FY 2025-26, April to November 2025 (most recent partial-year data): Indian exports to Israel approximately USD 1.45 billion; Indian imports from Israel approximately USD 1.12 billion.

The composition of the goods trade is concentrated on both sides:

Indian exports to Israel. Polished diamonds dominate, accounting for a substantial majority of total Indian exports to Israel in most years. Other significant export categories include pearls and other gem stones, refined petroleum products, organic chemicals, and a long tail of industrial and consumer goods.

Indian imports from Israel. Defence and aerospace systems (see the Defence and security cooperation explainer), unmounted diamonds (the rough-stone counterflow to the polished-stone export), electronic equipment, machinery, fertilisers (notably potash), and high-tech components.

Services trade, much of which sits in software, cybersecurity and R&D licensing rather than the goods register, is materially larger than the headline merchandise figure but harder to measure precisely. It is the area where the relationship's commercial picture most closely tracks its strategic depth.

The FTA: a long story moving fast

A Free Trade Agreement between India and Israel was first discussed in the late 2000s, with negotiations formally launched in 2010. The process stalled for nearly fifteen years, with multiple rounds opened and closed without convergence on either tariff schedules or services chapters.

The 2025-26 cycle is the first sustained progress in fifteen years:

• November 2025: Terms of Reference (ToR) for FTA negotiations signed between the two governments. The ToR signalled political alignment to actually conclude an agreement, not merely to continue talking.
• 23 to 26 February 2026: First round of negotiations concluded successfully in New Delhi during the Modi visit window. Indian Commerce Ministry summaries describe the first round as covering trade in goods, trade in services, investment, government procurement, intellectual property, and digital trade.
• 17 pacts signed at the February 2026 summit. Most are framework agreements rather than the FTA itself; the FTA process continues bilaterally.

The FTA is expected to cover an unusually broad scope by Indian standards: goods, services, investment, intellectual property, digital trade, and explicit cooperation chapters on infrastructure, manufacturing, artificial intelligence, fintech and agritech. The second round of negotiations is scheduled for mid-2026 in Jerusalem.

A 50,000-worker quota

The February 2026 visit also produced an agreement on Indian worker mobility to Israel: a quota of 50,000 Indian workers across construction, agriculture and care sectors, expanding an existing programme. Indian workers have been entering Israel in growing numbers since the late 2023 disruption to the existing Palestinian workforce; the 2026 quota formalises and expands what had been operating as ad-hoc arrangements. The mobility agreement is not technically part of the FTA but operates alongside it.

Why the commercial scale has lagged the strategic depth

Three structural reasons explain the gap between India's strategic depth with Israel and the modest commercial scale:

Geography. India-Israel merchandise trade depends on shipping through the Red Sea and the Suez Canal, which has become more expensive and slower since late 2023 due to the Houthi disruption in the Red Sea. The India-Middle East-Europe Economic Corridor (IMEC) is designed to address this constraint; see the I2U2 and IMEC explainer.

Composition. India and Israel each export to large categories where the other's market is small (Indian textiles, garments; Israeli specialty chemicals). The complementarities are real but smaller in absolute scale than India's with the UAE or the United States.

Services-data gap. Much of the deepest commercial activity, particularly in technology, is not visible in the goods-trade data. Indian IT services exports to Israel and Israeli software licensing into India together are substantially larger than the goods figure but enter different statistical reports.

What the FTA would change

The FTA, if concluded in the scope currently being negotiated, would address two of those three constraints directly. Tariff reductions would lift the goods composition in both directions; services-chapter coverage would bring more of the technology-track value into the visible bilateral figure; investment-chapter protections would lower the friction for further industrial joint ventures.

The optimistic projection from Indian and Israeli officials is a doubling or tripling of bilateral trade within five years of FTA conclusion, drawing on the precedent of similar India FTAs (UAE 2022; Australia 2022). The independent literature is more measured: scale-up will depend on how aggressively each side concludes specific tariff lines.

In one paragraph

India-Israel bilateral merchandise trade was USD 3.62 billion in FY 2024-25, with polished diamonds dominating Indian exports and defence systems plus unmounted diamonds dominating Indian imports. The commercial scale has lagged the strategic depth for two decades, constrained by shipping geography, complementarity gaps and services-data invisibility. The 2025-26 cycle is the first sustained attempt to close the gap: Terms of Reference for an FTA signed November 2025, first round of negotiations concluded successfully in New Delhi on 23 to 26 February 2026. The February visit also produced a 50,000 Indian-worker quota and 17 framework agreements. The optimistic projection is a doubling or tripling of bilateral trade within five years of FTA conclusion, with IMEC as the geographic enabler.

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Sources

[1]: "Exploring India-Israel Trade and Economic Relations." India Brand Equity Foundation (IBEF). https://www.ibef.org/indian-exports/india-israel-trade

[2]: India-Israel trade data tables, Indian Ministry of Commerce and Industry. https://commerce.gov.in/

[3]: "India-Israel FTA history and current cycle." Business Today briefing. https://www.businesstoday.in/latest/economy/story/india-israel-fta-soon-heres-whats-on-the-table-which-goods-could-benefit-next-round-of-negotiations-and-more-518246-2026-02-27

[4]: "First round of India-Israel FTA talks concludes successfully." The Hans India (February 2026). https://www.thehansindia.com/news/national/first-round-of-india-israel-fta-talks-concludes-successfully-1052086

[5]: "17 pacts, 50,000 worker quota: India-Israel ties enter new strategic phase." Business Today (February 2026). https://www.businesstoday.in/india/story/17-pacts-50000-worker-quota-india-israel-ties-enter-new-strategic-phase-518223-2026-02-26

[6]: "India-Israel Relations: trade and economic ties." Drishti IAS overview. https://www.drishtiias.com/daily-updates/daily-news-analysis/india-israel-relations-2

[7]: "India-Israel trade composition and constraints." ICRIER working paper. https://icrier.org/

[8]: "I2U2 and IMEC." KnowIsrael explainer (companion piece). https://www.knowisrael.org/explainers/i2u2-and-imec

[9]: "Free Trade Agreements of Israel." Israeli Ministry of Economy. https://www.gov.il/en/departments/ministry_of_economy_and_industry

[10]: "India-UAE CEPA performance and lessons for India-Israel FTA." Indian Ministry of Commerce review. https://commerce.gov.in/