The Sleeping Giant: Israeli-Indian Business Potential

India's needs match up well with Israel's strengths. Delhi needs advanced agricultural and water technology, as well as biomedical expertise.

AP

There are 300 million debit cards in India. That sounds like a lot, but it’s a paltry figure for a nation of 1.25 billion people, the second largest country in the world in terms of population. Even more paltry: The typical Indian credit card is used on average 1.3 times per year.

That rate reflects the huge disparity between India and other markets when it comes to technology. Even though a credit card seems a rather basic or even an outmoded piece of progress, it’s not considered so in India for one simple reason: cost.

It’s not just the cost of the credit card terminals, which only exist in the country’s seven most important cities. The commissions that banks charge merchants are also high. So what’s considered basic technology in the developed world is simply too expensive for most Indians.

The credit card example was raised last week at the eighth annual conference of the India Israel Forum, which is organized by Tel Aviv University. The forum, which brings together leading businesspeople from the two countries, is trying to address the mystery over why trade between the countries isn’t growing.

The dismal picture is reflected in data presented by Tomer Tzur, the managing director of Boston Consulting Group’s Tel Aviv office. Since the two countries launched diplomatic relations 25 years ago, growth in bilateral trade has been less than spectacular, and since 2008, it has stagnated at around $4 billion to $5 billion annually. Last year it stood at $4.5 billion, about evenly divided between exports to India and imports to Israel.

Even more disappointing is the nature of the trade: 55% of it is in diamonds, which are valuable per se, but their added value in contributing to the economy is low. Another 15% to 18% is in chemicals.

High-tech makes up just 5% of Israel-India trade, even though Israel is considered the Startup Nation and India is becoming a global high-tech power, centered around the city of Bangalore.

In contrast, Israeli trade with China, an Asian giant considered of great potential for Israel, is much larger and growing. Since 2010, annual trade with China has climbed 40% to $11.1 billion, more than double that between Israel and India, the Economy Ministry says. Two-thirds of China trade is made up of imports by Israel.

A theoretical enticement

The disparity with India and China is surprising. From a number of perspectives, trade with India should be more promising.

India’s 1.25 billion people produce an annual gross domestic product of $2.2 trillion. For China, with its 1.35 billion people, the number is $13.2 trillion. Both countries are experiencing accelerated development and both are hungry for technology and investment.

Although China, with a per capita GDP of $13,200 compared with $5,800 for India, is more developed, India is much more enticing theoretically. It’s closer to Israel, English is widely spoken there and it’s becoming a global high-tech center.

Meanwhile, it has the world’s youngest population, it’s investing in its Internet infrastructure and expects to expand its Internet business to $500 billion from $20 billion within a decade. And unlike authoritarian China, India is the world’s largest democracy.

India’s needs match up well with the sectors where Israel is strong. India needs advanced agricultural and water technology, as well as biomedical technology to provide better health care for a billion poor people.

And both countries are knee deep in the computer chip industry. If you did a random sampling of Israeli public opinion on whether India or China was viewed favorably, spiritual, democratic and colorful India would win. Yet China trade is flourishing while India trade isn’t.

The businesspeople in the Israel India Forum strove last week to make sense of this disparity. The Israeli members included Bank Hapoalim Chairman Yair Seroussi, Zim Integrated Shipping Chairman Aharon Fogel, former Teva Pharmaceutical Industries CEO Israel Makov, Israel Aerospace Industries Chairman Rafi Maor and Tel Aviv University President Joseph Klafter, as well as defense and high-tech people.

The Indians included executives of business giants such as Reliance Industries and Tata, as well as journalists, members of parliament and researchers. The meetings included one with the director general of the Prime Minister’s Office, Eli Groner, who promised that an Israel-India free trade agreement would be signed shortly.

That’s important news for trade between the two countries, although there has been talk of such an agreement for years.

And it’s also not entirely clear that the absence of a free trade agreement, which eliminates customs duties and cuts red tape, is the major impediment. Hurdles mentioned last week included India’s laborious bureaucracy in a country where each federal state has its own bureaucracy.

Oh those remote villages

But Indian red tape hasn’t stood in the way of flourishing trade between India and countries like Japan, which in coordination with the United States has started shifting industrial production to India from China. The idea is to create an alternative powerful Asian manufacturing center.

Another difficulty is exemplified by the Indian credit card sector: the country’s slow technology penetration due to grinding poverty and huge socioeconomic disparities. So India is looking for inexpensive, lasting technology that can be rolled out in remote villages and be easy to use, rather than the latest innovation.

That appears to be one reason Israel hasn’t penetrated India in the water and biomed industries: Israeli technology is usually sophisticated, while Indians need simpler, long-lasting and low-cost approaches.

There are other factors, of course, such as cultural disparities, the slow pace at which Indians develop business ties compared to Israelis’ freneticism, the unfamiliarity between the countries’ businesspeople, and even concerns over a lack of trust. (Which is a bit strange considering the trust Israelis have developed with Type A Chinese businesspeople.)

These impediments have surfaced at each forum meeting over the past eight years. The acquaintances forged at the meetings help, but they’re a drop in the bucket. So at this stage, the forum is trying to establish regular meetings.

In India, for example, high-tech entrepreneurs have gotten together to raise problems that require technological solutions. It has been suggested that a similar gathering be organized to bring Indians and Israelis together. A free trade agreement is also considered an important tool, not only in spurring investment but in getting businesspeople from the two countries to know one another.

In fact, Indian businesspeople say the time has come to close the inexplicable disparity between the potential of Israel-India trade and the current reality.

Vivek Gupta, an executive at Reliance, which has a market value of $46 billion, spoke at the forum about the huge opportunities in India. Broadband Internet infrastructure is being constructed at the moment to bring the country into the digital age, he said.

Indian industry is ready to take off, Silicon Valley is teeming with Indian engineers, Indians know how to work with technology and the country has the manpower, he said. Lacking is development expertise.

He says Israeli startups that come to India will find themselves among marketing and development people who can both handle the Indian market and use the country as a launching pad to the U.S. market.

Gupta went so far as to say that if 500 Israeli high-tech mavens came to India now, they could easily create $30 billion to $40 billion in business. The conditions are ripe, it’s just that the word has to get out.