India’s trade ties with Israel and Iran

Context

The recent attack on Israel by Iran has raised significant concern among the neighbouring countries which puts a question mark on India’s trade ties with Israel and Iran.

Trade relation between India-Israel and India-Iran

• India-Israel trade has experienced significant growth over the past five years, doubling from around $200 million in 1992 to $10.7 billion (excluding defence) in FY 2022-23.
• The main components of India’s exports to Israel, classified under India’s 8-digit Harmonized System code, include diesel, diamonds, aviation turbine fuel, radar apparatus, Basmati rice, T-shirts, and wheat.
• In contrast, the value of India-Iran trade has decreased over the last five years, with an uptick noted in FY 2022-23, rising by 21.77% to reach $2.33 billion.
• Israel’s contribution to Foreign Direct Investment (FDI) in India has been relatively low, accounting for only 0.4% of total FDI inflows between April 2000 and December 2023, amounting to $288 million.
• Conversely, Indian firms have invested more in Israel, with cumulative Overseas Direct Investment (ODI) reaching approximately $383 million from April 2000 to May 2023.
• India is actively involved in developing the first phase of the Shahid Beheshti Port at Chabahar in Iran, aiming to enhance connectivity and trade with the Middle East and Central Asia.
• Despite the growing trade ties, both Israel and Iran have not made significant Foreign Direct Investments (FDI) in India.
• India’s trade with Israel and Iran reflects the diverse range of commodities exchanged, including high-value items such as diamonds and strategic resources like aviation turbine fuel.
• The uptick in India-Iran trade in recent years suggests potential opportunities for further economic cooperation between the two countries.
• Enhanced connectivity projects, such as the development of the Shahid Beheshti Port, demonstrate India’s commitment to fostering regional trade partnerships and expanding its influence in the Middle East and Central Asia.

About the recent attack of iran on Israel

• Israel responded to the attacks at Iran’s Embassy in Damascus with strikes that had the outcome of the deaths of 7 military diplomats, the most senior of which was a General. Iran vehemently protested the situation, and questions arose about the threat of escalating conflict.
• Iran answered by taking an India-linked ship with 17 crews, which was used later as a launching of an important missile attack on Israel, although it’s accused of being disrupted by Israel’s aircraft and missile defence systems, and, in return, Israel launched strikes on inside Iran despite Mr. Biden’s appeal for restraint.

Impact of the recent middle east issue on India’s Economy

• Political tensions in the Middle East could be responsible for disruptions in major trade routes of the world, giving rise to the likelihood of a slowdown in India’s trade. Yemen militants that bring harm to ships in the Red Sea are already messing up the ways which traders can use to transport goods to India. 
• The result is that they have just made things even worse in the limitation of trade between India and other countries. West Asia confronting familiar problems like Iran-Israel discretional fighting would also hinder projects of global significance such as the Middle East-Europe trade corridor, to add more to the instability in the region. 
• The role of crude oil and gas production won’t be affected by the conflicts but if the disruptions to shipping in the Red Sea occur, the prices of oil and gas can rise. While this might have some effects on them, the government is capable of lowering taxes to a minimum. 
• Nevertheless these forecasted effects are likely not to have a great impact on Indian residents because the government steps which might be taken can help lessen the price rises experienced in petroleum products.

Conclusion

• The trade ties between India and Iran along with Israel are going through periods of uncertainty as a result of divisions between the two countries. 
• In spite of the fact that Iranian trade with India is blossoming, trade has been witnessed to be unstable. 
• Projects as Chabahar Port indicates India’s engagement in regional connectivity, on the other hand, conflicts may hamper the trade routes and economic stability. 
• The Indian government has taken certain measures to ensure security of its economic interests in the form of economic policy, diplomatic moves, and multilateral activities while political instability prevails.

Source: The Indian Express

UPSC Mains Practice Question

Q.Discuss the impact of recent Middle East tensions on India’s trade relations with Israel and Iran. Analyse the implications for India’s economy and propose measures to mitigate potential risks.

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