India and Israel are strategic partners. It is evident in trade and economic activities between both countries as well. While Israel can support India in various sectors, it has chosen sectors that will be beneficial for the Indian populace at large — agriculture, and water management, homeland security — as priority sectors. However, there are more areas both countries can grow in. To understand the hurdles in this relation, The Free Press Journal-SIES in association with Invest India organised a panel discussion under its ‘Financing India’ webinar series which focused on Israel. The experts for the session were Advocate Anat Bernstein-Reich, Chairperson, Israel-India Chamber of Commerce; Advocate Benjamin Grossman, Partner and Head of Indian, Legal Practice, APM & Co; and Sagi Itcher, Economic Consul, Israeli Consulate General, Mumbai.
The opening remarks were delivered by Ya'akov Finkelstein, Consul General for Israel in Mumbai. The session was moderated by RN Bhaskar, Consulting Editor, Free Press Journal and the closing remark was given by Vaneeta Raney, head, BMM at SIES College.
Below are edited excerpt compiled by Jescilia K:
India-Israel together
Ya'akov Finkelstein, Consul General for Israel in Mumbai: India cannot overemphasise the significance Israel attaches to relations with India. For Israel, India is the strategic partner and this relationship has to be translated into business as well.
While the cooperation between the heads of both countries is strong, it needs to be seen in people-to-people cooperation too.
The potential for the relationship is immense as Israel and India are not competing with each other, but completing each other. Israel has the technology and India provides the upscaling option. There is a lot both can do together. India is more than just a market. It is a partner.
We are working together even during COVID-19 times. When we needed to collect data for scaling and test technologies for COVID-19, we came to India.
Business and economy are important in a relationship as it connects people and governments.
Anat Bernstein-Reich, Chairperson, Israel-India Chamber of Commerce: Currently, the trade between India and Israel is around USD 4.5 billion. However, I believe that the potential is thrice the amount. But somehow we are unable to fulfil that potential. Israel has the technology and India has the market, management skill, manpower etc.
Benjamin Grossman, Partner and Head of Indian, Legal Practice, APM & Co: While India and Israel's relations are strong, the new accord with UAE will further help businesses to grow. India-Israel-UAE — a new trilateral relationship can give an impetus to investments.
Sagi Itcher, Economic Consul, Israeli Consulate General, Mumbai: Israel regards India very highly. India is one of the most prominent partners of Israel in this part of the world. Our trade is around USD 4.5 billion and doubling it should not be a challenge. We are not there yet, due to some reasons.
Hurdles in achieving opportunities
Anat Bernstein-Reich: Years ago, I came to India to build a telecom company, Crossworld which had a presence in India and the US. Today when I look back, it is safe to say that it has become a lot easier to do business in India. Still, as investors, we feel there are a lot of challenges.
It is not simple when Israeli companies come to India. There is a business and cultural mismatch, even though both countries are friendly with each other and will have common topics to talk on.
A lot of deals fall apart mainly because Israelis are very direct. Most of the time, we do not have a subtext to what we say. Most of the Indians do not know how to respond to the frankness of Israelis. This at times can hinder the relationship.
Intellectual Property (IP)
Anat Bernstein-Reich: Unable to protect Intellectual Property (IP) is definitely an issue for the Israeli companies in India. For instance, a diamond tech company, Sarine Technologies, is still struggling in India to protect its IP — knocking the door of courts, government bodies and various authorities. This company has not found any relief. This reflects badly on the industry. India needs to address this issue more seriously.
Benjamin Grossman: It is critical to protect IP. But the situation around IP in India is different from what it was ten years’ back.
More partnerships between various Indian and Israeli companies at the equity level will encourage Israeli companies to share IPs to be developed in India.
Legal system/arbitration
Anat Bernstein-Reich: India is doing a lot to improve the legal system. But not many Israeli companies want to opt for Indian legal system, but prefer arbitration in Singapore, Hong Kong or the United Kingdom. This is a sad scenario. There is a wonderful legal system. But it is intimidating to approach the legal system in the country at the same time.
Benjamin Grossman: The legal disputes in India are fair and transparent. In the past, we used to take it to other countries, now we have arbitration in Mumbai as well. But there is a perception that Indian arbitration awards are not as clear as Singapore. Thus, there is a need to create awareness that if foreign companies opt for arbitration in India, they should not worry about it.
Entry-Exit strategy
Benjamin Grossman: Registering a company in India is a nightmare. With KYC I can register a company in Singapore within 24 hours, in India it takes no less than 90 days. It is a long and tedious process — it takes three-six months to register a company with a bank account.
Authorities can do a high-level of audits but India will need to trust its investors.
The clause of permanent establishment is a challenge — an investor should be allowed to enter and exit the country in a seamless way.
Anat Bernstein-Reich: Another area that is depriving India-Israel relation from reaching its true potential is the repatriation of funds. There was an instance when we invested in a township in South of India, everything was done as per law and banking channels. And when we tried to repatriate the funds, it took us over a year to do so.
When an investor comes to the country, he also wishes to know the exit strategy and how he gets his money back. This is also an area India needs to look into.
Taxation
Benjamin Grossman: There is a high level of uncertainty when it comes to taxation in India. In the case of tax deduction at source (TDS), the law was changed in the 2020 budget, yet tax authorities find some way to deduct at the source. This leads to uncertainty for a company that is entering the market after reading the rulebook.
Dues
Sagi Itcher: Foreign companies, in our case Israeli companies, have to struggle due to non-payment or delay of dues by state-run entities, state governments and the federal government. This is hurting businesses. India is undergoing a lot of changes, but if some elements in business are faster, it will be highly appreciated by businesses.
Why India
Sagi Itcher: India has witnessed a 20 per cent growth in terms of FDI coming into the country. India is ranked 12 in terms of FDI inflows, according to a UN report.
In 2019, India attracted around USD 50 billion FDI. This shows the potential.
India has a market that is growing daily, a lot of highly-skilled manpower and English-speaking people. The country has everything that can attract investment.
But then come all the hurdles mentioned earlier.
Benjamin Grossman: India has improved dramatically in the ease of doing ranking from 132 to 63. Today, India has changed a lot from the early perceptions. But there is a lot more that needs to be done.
Defence sector: A strategic sector
Anat Bernstein-Reich: India made a major change in FDI norms. Due to COVID-19, not many deals are happening. But new regulations will allow more Israeli companies in defence space to come to India.
In the next six to eight months (after the implementation of FDI norms), we will see more Israeli companies coming to India as they can now hold major stakes in an Indian company.
Benjamin Grossman: While there are more partnerships between various Indian and Israeli companies in the defence sector already, I do not think this will generate more business. The reason is that business is dictated by the volume of what the Indian government needs. Meanwhile, in this partnership, Israeli companies will be involved at the equity level. So, this will encourage Israeli companies to share IPs to develop in India. The government also allowed small and medium enterprises (SME) in the defence sector — it is an interesting development.
In Israel, many of the non-defence technologies have evolved from the defence sector. It will be interesting to see if it happens in India as well in the future (considering SMEs are allowed in defence space).
Free Trade Agreement: What is the progress
Sagi Itcher: The discussion on FTAs (Free Trade Agreements) has been going on since 2005. These agreements usually cover everything —- investments, customs, duty and many other areas of trade.
With UAE, we have established an agreement in terms of investments only. However, there is nothing else there yet, though more is expected. So, we can do that in India as well. We can just take one part of the agreement and agree up on that, and then reach a consensus on other aspects later. Such deals will allow both countries and bilateral trade to grow significantly. Having an FTA is critical —sooner the better.
Ya'akov Finkelstein: India has always maintained reserved policies when it comes to FTA. The discussion has been going on between two friends for some time now.
Benjamin Grossman: Due to COVID-19, there might be something good that will come out. One aspect of FTA was the grant of expert visas and how do you define that. Post-COVID-19, the need for experts to physically come to Israel and vice versa will significantly decrease (thanks to video conferencing). So, some of the issues that were critical in 2005, may not be even relevant in 2021. I hope something positive will come out of this COVID-19.
