On Israel, let’s not lose our cunning

The India-Israel $40 million fund “for research and development in innovation” got banner headlines while Nandan Nilekani’s $100 million fund for innovative startups only gets a few lines. This is quite reflective of the hype surrounding our Prime Minister’s first visit to Israel. Mr Nilekani’s fund, which is called Fundamentum, aims to invest in “consumer technology-focused businesses, mainly ventures that are trying to solve problems unique to India. “The focus would be on scaling up startups, an area which India lacks. Fundamentum will start off with a $100-million corpus and the founders hope to scale it up to $200 million in a few years,” a statement spelt out. Clearly, there is a huge excitement coming out of a huge spin.

But let’s get a little realism into this Israel fund. First, the fund is for only $4 million (around `26 crores) a year, and after five years it will only total $20 million, or half what the spin suggests. The joint statement states quite unambiguously: “The two nations agreed to put $4 million a year for five years into the Israel-India Innovation Initiative Fund, or I4F.” Narendra Modi, with his typical flair for sloganeering, coined “I4I” — or India for Israel — for the Benjamin Netanyahu slogan: “Indian talent with Israeli technology equals India-Israel ties for tomorrow.” The I4I fund has now materialised as the I4F. The MoU between India’s department of science and technology and the National Authority for Technological Innovation of Israel expects “will play a seminal role in enabling Indian and Israeli enterprises to undertake joint R&D projects leading to development of innovative technologies and products that have potential for commercial application”. But it seems neither country is putting money where their mouths are?

The Israel-US Bi-national Industrial Research and Development Fund (BIRD) is the model for I4F. BIRD was set up in 1977 and has spawned several successful ventures in several sectors, notably in life sciences, energy conservation and IT. BIRD obviously factored the involvement of Israelis and American Jews in the high-tech startup space, notably in California. Just the kind of role Indians play in it in the US. But to think that 14F will do what BIRD did for America and Israel is a bit imaginative. Let’s hope it works.

A television anchor last week extolled Israel for “giving” us arms whenever needed, and therefore it was a very special relationship. I had to tell him that we paid for everything in hard cash and that nothing was given away. Israel sells arms and technology to whoever can pay. It had collaborated with China on fighter and Awacs (Phalcon) aircraft development. The Chinese Chengdu J-10 is a derivative of the Israeli Lavi, whose designs and technology were sold to China for a reported $500 million.

The Phalcon deal, begun in 1994, was finalised during Prime Minister Benjamin Netanyahu’s Beijing visit in 1998. It was in some ways meant to be the capstone of the economic and military relationship between the two countries. In return, Israel would have received a major defence contract worth $1-2 billion for providing the planes. The Phalcon sale was dropped after the US objected to certain proprietary technologies being transferred to China. Mr Modi’s visit comes 17 years after then Chinese President Jiang Zemin undertook a six-day visit in April 2000.

At a press conference during Mr Zemin’s visit, then Prime Minister Ehud Barak proclaimed: “We attach a great deal of importance to our relations with China and our credibility.” Yet the following year Israel terminated the Phalcon deal with China. China was incensed but has since been somewhat mollified with other military deals.

Incidentally, one of the drone models we buy from Israel Aircraft Industries is sourced by it from a small company in Israel owned by a blacklisted NRI arms dealer. Another NRI arms dealer is being investigated by the CBI for kickbacks in the Barak deal. There is also a big Russia connection. Many of the Israeli arms technologies are of Russian origin and from companies set up by Russian military R&D people who now live in Israel. Many large Russian companies like to subcontract from them, as it is a reliable conduit for kickbacks. We must wonder why India’s MiG-21 modernisation was pointed towards Israel by MiG-MAPO? I have often described the India-Israel military relationship as one strongly cemented by kickbacks. Last year, India imported $5.7 billion worth of arms from Israel.

The really big Israel-India business, I should really say Israel-Gujarat business, is the diamond cutting trade. We import about $1 billion of diamond roughs from Israel and export about $1.05 billion of polished diamonds to it. This represents a value addition of a mere $50 million but the business directly and indirectly employs almost a million people. In contrast, Indian IT services have a value addition of over $100 billion but employ only about four million.

Low labour costs are the big attraction. It costs about $10 per carat on polishing and cutting of diamonds in India, against China’s $17 and South Africa’s $40-$60. One hallmark of the trade in gem-quality diamonds is its remarkable concentration: wholesale trade and diamond cutting is limited to just a few locations, mostly in Antwerp, New York and Surat. In 2003, 92 per cent of the world’s diamonds were cut and polished in Surat, India. Over 80 per cent of the sales of Israel’s Sarin Technologies-made diamond cutting machines are to India. Rightly so, Jews and Gujaratis dominate the global diamond business and they make for good partners.

I have been to Israel several times and have some very good friends there. It’s a beautiful country. They are a great people and who have successfully transplanted a piece of Europe into Asia. They have really high standards of technical and medical education. Their dairy and horticultural industries are top class. But little is replicable here. But farmers like Sharad Pawar and Parkash Singh Badal can get high, hence tax-free, yields with Israeli farming technologies.

Of course, there is much to learn and get from Israel. But they don’t do us or anybody else any favours. It’s all hard cash and the rest is Israeli guile. Let’s never forget the import of the Jewish prayer — “If I ever forget thee O Jerusalem, let my right hand lose its cunning.” It’s the right hand that plays the harp and it’s the right hand that holds up the merchant’s scales. We too must learn some cunning while making music.