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Gaza war hits India-Israel talks, diverts diamond shipments

Mint | 7 January 2024

Gaza war hits India-Israel talks, diverts diamond shipments

by Shashank Mattoo , Rhik Kundu

NEW DELHI: Talks between Israel and India on a free trade agreement (FTA) have hit the skids due to the war in Gaza, two people aware of the matter told Mint. The war, sparked by the Hamas attack on Israel on 7 October, 2023, has consumed much of the focus of India-Israel ties, said one of the people mentioned above, requesting anonymity.

“It has become a major obstacle to the regular pace of talks (on a free trade agreement) between the negotiating teams," the person added.

Normalcy in the FTA negotiations between Israel and India is expected only after de-escalation of the war, said the second person, who too spoke under the condition of anonymity.

Spokespersons of external affairs and commerce ministries and the Embassy of Israel didn’t respond to emailed queries.

India is Israel’s 10th largest trade partner, and third largest in Asia after China and Hong Kong. Bilateral trade was estimated at about $12 billion in FY23.

One immediate fallout of the war has been the trade in diamonds, which makes up over half of the bilateral trade in value terms.

India’s Gem and Jewellery Export Promotion Council (GJEPC) has voiced concerns about the escalating Israel-Hamas conflict.

India buys rough diamonds from Israel, which it then sells back in a polished form. To be sure, Indian exports of diamonds were already declining in FY24 due to a slowdown in the US market and supply constraints when the war broke.

However, former GJEPC chairman and Kama Jewelry MD Colin Shah said diamond exports from India haven’t really been impacted much, as customers are now buying diamonds from Dubai or Antwrep, where more Indian diamond shipments are landing up.

He added that with diamonds attracting zero duty in Israel, the FTA with Israel will benefit trade in other commodities more than diamonds.

Talks between Israel and India on an FTA have moved slowly since starting back in 2010. Key issues included an Indian demand for allowing the movement of Indian IT professionals to Israel.

Further, the Indian side has voiced concerns that Israel was likely to gain far more from an FTA, given the mismatch in the size of the two economies.

But in May 2023 Israel’s foreign minister Eli Cohen pushed the FTA saying a trade deal was essential to strengthen economic relations.

“The scope for trade opportunities between our countries is huge and there is a strong desire to finalise an FTA that hopefully will further strengthen our economic ties," Cohen said. Key Indian exports to Israel include cut and unpolished diamonds, electronics and telecom components, and diesel.

Major imports from Israel include pearls and precious stones, chemical and mineral/fertilizer products, machinery and electrical equipment, petroleum oils, defence, machinery and transport equipment.

According to data from the commerce ministry, Indian export to Israel during the April-November 2023 period stood at $3.51 billion, compared to $4.54 billion during the same period of the previous year.

Israel’s military campaign in Gaza has created other challenges for India. Diplomatically, India has had to balance its relationship between Israel and its partners in the Arab world. The crisis can have an impact on ambitious connectivity initiatives like the India Middle East Economic Corridor, which will connect India to the Middle East and beyond to Europe.

Meanwhile, attacks on global shipping by Yemen’s Houthi militants, due to Israel’s military actions, have also jeopardized vital Red Sea trade routes.

 source: Mint