On 5 May the Government announced that in-person trade negotiations with India would begin the same week in New Delhi. So what are the prospects for New Zealand exporters gaining major new inroads into Indian markets? Daniel Wright takes a look.
When the Prime Minister announced the upcoming free-trade negotiations with India on his recent international tour, this was no surprise – National had signalled before the election that an FTA with India was a major strategic priority, and it also agreed to prioritise it in its coalition agreement with NZ First.
It’s not hard to see the attraction of negotiating better trade access with India. It’s the fifth-largest economy and also one of the fastest growing, and India now has a huge and growing middle class. As Trade Minister Todd McClay said:
“With a population of 1.4 billion and a GDP estimated to grow to USD $5.2 trillion by 2030, India offers significant opportunity for New Zealand exporters.”
Indeed, many other developed countries have attempted to woo India into trade deals. Following Brexit, the UK was quick to start trying to entice New Delhi into talks.
Aside from being an enormous and growing market, India also has high non-preferential tariffs, which means there are high barriers to knock down through trade agreements – and the potential to create significant advantages over other trading nations trying to sell into the Indian market.
The one that got away
We’ve been here before. New Zealand attempted negotiations with New Delhi from 2010, but they stalled after several rounds due to issues with market access, and the emergence of the Regional Comprehensive Economic Partnership Agreement, a regional trade agreement signed in 2020 between ASEAN members and Japan, China, South Korea, Australia, and New Zealand. India pulled out of negotiations for the RCEP in 2019.
Australia was one of the first developed nations to sign a free trade agreement with India, in 2022 after more than a decade of negotiations. This was possibly a sign that the Indian government was willing to start liberalising its trading regime. Since then, India has also made a comprehensive agreement with the European Free Trade Association (consisting of Switzerland, Norway, Iceland, and Liechtenstein). India also has open negotiations with the UK and the EU.
New Zealand’s big opportunity from a low base of trade
New Zealand has relatively little trade with India, especially given the size of the Indian market. In 2024, India was only New Zealand’s twentieth most-important goods export market at around $700 million, and it accounted for only about 1% of our goods exports.
In that same period, we exported 24 times as much – $17.7 billion worth – to China, a country with a similar size population to India, and a similar distance from New Zealand. We also sent more than twice as much, $1.7 billion, to the UK – an economy of similar size to India, but much further away.
Our imports from India are relatively low too. We imported $1.2 billion in goods in 2024, compared to $16.8 billion from China and $2.3 billion from the UK.
Our trade profile
New Zealand’s top four exports to India are forestry ($126 million), iron and steel ($99 m), apples and kiwifruit ($84 m), and wool ($77 m). Notable absences from the list of commodities exported to India are dairy ($57 m) and meat products, despite those being our largest global offerings.
The low trade in dairy and meat most likely reflects the high agricultural tariffs that India imposes – up to 60% on dairy, and 100% on meat products – and of course presents a huge opportunity if New Zealand negotiators could make any in-roads.
Following Australia’s lead
If we look at Australia’s agreement as a starting point for our own negotiations with New Delhi, it’s a bit of a mixed bag. The agreement has significant carve-outs where tariffs weren’t liberalised, and these include several products that are significant global exports for New Zealand – dairy, beef, apples, and aluminium.
On the bright side, Australia achieved phased liberalisation for some goods categories where we have a presence in India already, including forestry, steel, kiwifruit, and wool. Australia also managed liberalisation in other key markets of interest to us, including sheepmeat and fisheries.
The dairy cow in the room
Dairy is a huge and highly protected industry and market in India. India is the largest producer and the largest consumer of milk in the world, but it essentially consumes its own production. It exports only negligible volumes, and imports only about $380 million worth, of which only around 13% comes from Aotearoa.
India’s dairy industry is made up of millions of small rural producers, and represents a critical source of income for poor, underdeveloped communities across the country. Dairy is also of enormous cultural importance for India’s Hindu majority, being integral to their religious beliefs and practices.
The Indian government fiercely protects its dairy industry with a suite of subsidies and high import tariffs. A large, industrial producer like New Zealand with good market access would be hugely disruptive to the domestic industry.
An important step in a long journey
In 2008, the Clark Government signed a trade deal with China. This was revolutionary at the time, and a moment that was significant in shaping the New Zealand economy (and the Chinese) in the years that followed.
You could be forgiven for expecting a similarly momentous moment if New Zealand strikes a deal with India. However, we need to manage our expectations: the Modi government is unlikely to make big concessions on the totemic and highly protected industries that New Zealand is most interested in. Our negotiators should be ambitious, but they also need to be realistic, as any trade deal will most likely be just one step in a long journey to closer trading ties with India.
Our negotiators should look for opportunities to make stronger connections with Indian officials with an eye to ongoing liberalisation into the future. And once the deal is inked, emphasis should immediately shift to opening doors for our traders.
