India and New Zealand have successfully concluded negotiations for a free-trade agreement (FTA), marking a significant advancement in their economic ties. However, experts indicate that the immediate effect on merchandise trade may be limited, with bilateral trade projected at only $2.1 billion for FY2025. The agreement was finalized on December 22 after discussions between Prime Minister Narendra Modi and New Zealand Prime Minister Christopher Luxon and is expected to be signed in the first quarter of 2026. Analysts regard this FTA as a framework for deeper cooperation rather than a transformative trade deal.
Limited Immediate Impact on Trade
The newly negotiated FTA is anticipated to have a minimal effect on the current trade dynamics between India and New Zealand. A report from the Global Trade Research Initiative (GTRI) estimates the total bilateral trade for FY2025 to be $2.1 billion, encompassing both goods and services. India’s exports to New Zealand are projected to reach $711.1 million, primarily consisting of aviation turbine fuel, textiles, pharmaceuticals, and machinery. Conversely, New Zealand’s exports to India, valued at $587.1 million, consist mainly of raw materials and agricultural inputs like wood products and coal. The report underscores that while the FTA seeks to enhance trade relations, the scale of current trade suggests it may function more as a foundation for future cooperation.
Dairy Sector Remains Sensitive
A contentious point in the negotiations was the dairy sector, which holds political sensitivity in both nations. During FY2025, New Zealand’s dairy exports to India totaled only $1.07 million, indicating that this sector remains commercially marginal. India has consistently resisted opening its dairy market, crucial for millions of small farmers. Ajay Srivastava, founder of GTRI, pointed out that India has successfully maintained its policy space in sensitive areas like dairy, which will not experience significant market access under the new agreement. This cautious strategy reflects India’s commitment to safeguarding its agricultural sectors while pursuing broader trade objectives.
Comprehensive Coverage of the FTA
The FTA consists of 20 chapters covering various trade aspects, including goods and services, customs facilitation, and dispute resolution. Notably, the tariff concessions are asymmetrical; New Zealand will eliminate duties on all its tariff lines from the agreement’s commencement, including approximately 450 lines that previously attracted tariffs on Indian exports. In contrast, India will offer market access on 70% of its tariff lines, managing sensitive agricultural products through specific measures. This structure illustrates India’s strategic approach to selectively opening its markets while protecting politically sensitive sectors.
Investment and Services Opportunities
Investment is a key element of the FTA, with New Zealand committing to facilitate $20 billion in foreign direct investment into India over the next 15 years. This pledge is backed by a rebalancing mechanism akin to those found in India’s agreements with other countries. Moreover, the FTA includes provisions for services and mobility, enabling student work rights and temporary employment pathways for skilled Indian professionals. India has also offered market access in 106 service sectors. Experts stress that the true potential of the India-New Zealand economic relationship will depend on how both nations utilize this agreement to strengthen supply chains, enhance services trade, and cultivate educational partnerships. Doubling bilateral trade by 2030 will necessitate improved business engagement, connectivity, and streamlined visa processes.
Digihunt is not a financial advisor and this is not investment advice.