Deepening India-Israel Ties: Changing landscape of the Indian defence sector

Indo-Israeli relationship is booming like never before. Prime Minister Modi’s recent visit to Israel was termed historic by many observers and was much talked about in the global media. After all, this was the first visit by a serving Indian Prime Minister to the Jewish stronghold in the 70 years of Indian independence. During the visit, India signed several agreements with Israel on science, agriculture and technology. The agreements also included the decision to create a bilateral technology innovation fund worth USD 40 million for research in industrial development, among other deals.
Though India formally recognized Israel after independence in 1950, but it followed a balanced foreign policy towards West Asia with a pro-Palestine stand. India’s full diplomatic relationship with Israel were established only in 1992. Kargil war in 1999 was a landmark moment in India-Israel defense cooperation as Israel supplied India with mortar ammunitions, drones and laser guided missiles along with intelligence inputs. In 2003, Ariel Sharon (President of Israel at that time) visited India becoming the first Israeli President to do so. Multiple bilateral visits by Ministers of the two countries have also happened in the last 10-15 years to discuss mutual areas of cooperation- defense, agriculture, science and technology.
A number of bilateral agreements and institutional arrangements have been executed between India and Israel over the years. Table below lists out some important commercial and economic agreements between the two countries.

There has been a substantial growth in trade, economic ties and cooperation between the two countries since the establishment of formal diplomatic ties in 1992. Bilateral trade (excluding Defense) has grown from USD ~200 mn in 1992-93 to USD ~6.1 bn in 2012-13. Trade has come down slightly in last 4 years with USD ~5.0 bn worth of Bilateral trade in 2016-17. The trade balance stood in India’s favour at USD 1.1 billion in 2016-17. Mineral fuel/oil (33%) and Pearls/ Precious Stones (33%) were the key items exported by India to Israel in 2016-17. India majorly imported Pearls/ Precious Stones (57%), Electrical Machines (11%) and Fertilizers (9%) from Israel in 2016-17.



India-Israel Defense Ties

India is the 6th largest country in terms of defense spending, with defence sector accounting for ~2% of India’s GDP. However due to lack of indigenously designed weapons, India has to primarily rely on imports for meeting its defence capital acquisition requirements. India is currently the world’s biggest importer of Defense Equipment. As per Stockholm International Peace Research Institute (SIPRI), India accounted for 13% of global arms import during the period 2012-16.

Defense has traditionally been the biggest area of cooperation between India and Israel with annual defense deals worth over USD 1 bn in the last few years. Israel has emerged as the third biggest supplier of defense equipment to Indian armed forces after USA and Russia. For Israel, India is the top destination for its arms exports.

Recent Defense Deals between India and Israel

Israel is especially well entrenched in the areas of Air Defense Systems, Unmanned Aerial Vehicles (UAV), Electronic warfare equipment and Special forces equipment. “The Big 4” Israeli Defense companies – Elbit, Israel Aerospace Industries (IAI), Israel Military Industries (IMI) and Rafael have in recent years signed numerous defense projects for the Indian armed forces.

•In July 2017, Indian government is looking to purchase Spike, an Israeli anti-tank guided missile, developed and designed by Israeli company Rafael Advanced Defence Systems. Spike LR II is an advanced multi-purpose missile, and can be launched from any Spike launcher. Estimated size of the deal is USD ~1 billion. Under the deal, the Indian Army will procure 321 Spike ATGM launchers, 8,356 missiles, 15 training simulators and associated accessories from Rafael on a single-vendor basis.
•In May 2017, IAI was awarded USD 630-million contract for the supply of Barak-8 Long-Range Surface-to-Air Missile System (LRSAM) for four ships of the Indian Navy.
•In May 2017, Indian Air Force (IAF) conducted successful tests of the Israeli-made SPYDER (Surface-to-air Python and Derby) missile system. SPYDER missile system also features on-board radar for increased accuracy.
•In April 2017, India inked a USD ~2 billion missile defence contract with Israel for supplying advanced medium-range surface-to-air missile systems (MRSAM) to India. Barak-8, also known as MR-SAM/LR-SAM, is designed to defend against any kind of airborne threat- aircraft, helicopters, anti-ship missile, and UAVs as well as cruise missiles and combat jets. It is equipped with advanced phased-array radar, command and control, mobile launchers and missiles with advanced radio frequency seekers. This deal was the single largest contract in Israel’s defence industry’s history.
•In February 2017, ELTA Systems (subsidiary of IAI) designed Integrated Underwater Harbor Defense and Surveillance System (IUHDSS) was strategically installed around the Mumbai Naval Harbor to deal with asymmetric threats and to provide comprehensive, real-time situational awareness for monitoring and analysis. IUHDSS consists of integrated radars, electro-optic cameras and sonars.
•India ranks first among drone-importing nations with 22.5% of world’s UAV imports between the period 1985-2014. India has relied almost completely on Israel for its UAV needs over the years. Of 176 UAVs imported by India, 108 are Searcher UAVs and 68 are Heron UAVs. Indian government had cleared a deal for the procurement of 10-armed Heron TP UAVs worth USD 400 mn from Israel Aerospace Industries in September 2015. The Heron TP is a medium-altitude, long endurance UAV with a range of around 7,400 kilometers and a maximum flight time of around 36 hours.

Data and Intelligence Sharing

Defense ties between the two nations also extend to intelligence sharing on terrorist groups and joint military training. On the counterterrorism front, both countries face significant terrorist threats, particularly after the 2008 Mumbai attacks in which several Israeli citizens were also killed. Both the countries are today sharing real-time intelligence on issues crucial to national security and boosting the counter-terrorism cooperation.
•Recently both countries signed a “white shipping” agreement for data sharing on non-classified merchant navy ships or cargo ships. The agreement was signed during the meeting of the Chief of Indian Navy with Israel Defense Forces (IDF) Chief of Staff in June 2017.
•Starting from 2017, Indian Air Force fighters will join Israel and five Nato air forces in the so-called “Blue Flag” joint air force exercises. it is one of the biggest multinational aviation exercises in the West Asia. Israel will host air forces from France, Germany, India, Italy, Greece, Poland, and the US.
•Indian and Israeli government officials signed an intelligence-sharing agreement in July 2014, to fight radical Islamic extremism in the region together.
•The Barak 8 long-range surface-to-air missile, developed jointly between India and Israel, was successfully tested on December 30, 2015. The test of the missile system was carried out on the Indian warship INS Kolkata. India again successfully tested the Barak 8 on June 30, 2016.
•India has been holding regular talks with Israel on counterterrorism within the framework of a Joint Working Group set up in the year 2000

Recent Defense Joint Ventures/ Manufacturing Alliances

Israeli defense companies have also emerged as the preferred partners for private Indian companies looking to expand their presence in the Global A&D supply chain. Many joint ventures/ technology alliances have been inked to produce small arms and defense systems in India in accordance with the ‘Make in India’ policy.


Defense Offset Contracts

Indian Defence Offset policy, was formally announced for the first time in 2005. Over the period 2005-2016, the Defence Offset Guidelines have been revised multiple times based on feedback from various stakeholders.

Current Defense Offset Guidelines (as per DPP 2016)

•The current DPP 2016 lays down various categories of procurement processes namely, in priority, Buy Indian – IDDM (Indigenously Designed, Developed & Manufactured), Buy Indian, Buy & Make (Indian), Buy & Make (Global) and Buy Global*
•Offset clause is applicable for ‘Buy (Global)’ or ‘Buy and Make’ categories of procurements where the indicative cost of acquisition is INR 2,000 crores or more
•30% of the estimated cost of the acquisition in ‘Buy (Global)’ category acquisitions and 30% of the foreign exchange component in ‘Buy and Make’ category acquisitions will be the required value of the offset obligations
•The offset condition forms a part of the Request for Proposal (RFP) and subsequently of the main contract. A separate offset contract is executed simultaneously with the main contract.

With India signing multiple deals with Israel to procure military platforms, A&D players in India also benefit from the Offset obligations for the global vendors. Recently awarded offset contracts by Israeli vendors to Indian players include:

Conclusion

PM Modi’s historical trip is likely to give an unprecedented push to the efforts in building new bilateral relations and further solidify defense ties between the two countries. While security partnership may not be the only factor binding the two countries, but it is the most important considering the alarming regularity of terrorist attacks happening in India. Prevailing security dynamics and challenges in both the countries, clubbed with the rising forces of anti-state actors and terrorism, will likely make the relations stronger.

Israel has become a prominent defense partner for India in recent times. A string of defense deals between the two countries have benefitted Indian companies seeking advanced manufacturing technologies and Israeli companies looking at new defense markets. Israel has also been able to provide Indian armed forces with weapons which it could not directly buy from its usual defense partners- Russia and US.

Future defense cooperation between India and Israel is expected to focus on joint development of military products that include transfer of technology (ToT) and R&D from Israel, emphasizing Modi’s ‘Make in India’ initiative. In fact, Israeli and Indian companies can also explore joint production of military arms and ammunition for other countries. Indian companies looking for higher-end defense technologies could also look at acquisitions in Israel. In 2016, Wipro Infrastructure Engineering (WIN) acquired Israel-based H R Givon, supplier of metallic parts and assemblies to the aerospace industry. More such acquisitions may take place over short to medium term.

Rapid digitisation in India has also made it susceptible to targeted cyberattacks. With advancement in technology, India should also look at institutionalizing cooperation in the field of cyber security with Tel Aviv. This could especially help India meet its immediate goals of securing its cyber infrastructure and expanding opportunities for the country’s technology sector.

This article was originally published in the Indian Defence Review.