India and New Zealand have the potential to become strong partners in the Indo-Pacific. Rahul Sen explores what can be done to build on this partnership further.
Indian Prime Minister Narendra Modi met the New Zealand counterpart Chris Hipkins on this recent visit to Papua New Guinea.
In terms of building India’s strong economic and strategic relationship bilaterally within the Indo-Pacific, one of the countries with whom the trade and economic relationship holds immense potential but remains largely untapped is that with New Zealand. As of December 2022, New Zealand’s bilateral trade with India was a little over 1% of its total trade. Bilateral exports from New Zealand to India of goods and services declined by NZ $ 1 billion over 2017-2022, with India ranking 15th among New Zealand’s trading partners, slipping below the top 10. On the investment front, New Zealand’s share in India’s Foreign Direct Investment (FDI) as of the same period is just 0.01% of the total. Such statistics, in the face of the IMF projections that India will be the second largest contributor to global growth this year, clearly demonstrate that New Zealand needs to prioritise its economic relationship with India to take it to the next level, with a clear strategy and a view to develop a long-term partnership.
What ecosystems exist to build on to the existing relationship and take it to the next level ? For a start, the India diaspora in New Zealand has been rapidly growing and actively contributing to the growth of the New Zealand economy over the past decade. According to a report on the Economic Contribution of New Zealand Indians, as of 2019, Indians constituted 5% of the population up from 2% in 2001. Contributing to the work in retail, accommodation, logistics, health, business support, finance, IT and professional services, they were upwardly mobile and contributed NZ $10 billion to the economy, apart from an additional NZ $825 million through international education and tourism. Second, the representation of Indian ethnicity community leaders in New Zealand across a spectrum of political parties is gaining more visibility, and engaging more deeply with this growing diaspora.
Third, the India-New Zealand Business Council (INZBC), working closely with the High Commission of India, is very active in promoting the interests of New Zealand businesses in India and working with all important stakeholders to ensure that this relationship progresses at a dynamic pace. In a recently released comprehensive report by the INZBC, they highlight that while there’s a clear consensus that a strong long-term development partnership with India is vital for New Zealand’s long-term economic growth, there’s some catching up to do, with India to be seen as a diplomatic priority for New Zealand. The report highlights that while trade and economic relationship needs strengthening, it will require frequent dialogue and build-up of mutual trust to create an environment that might create opportunities for a formal trade agreement. Frequent high-level engagements between both governments, are crucial, to begin with.
What needs to change? From New Zealand’s perspective, as a small open economy, market access to large countries to sell its agricultural exports are vital and it’s with this premise that most of its erstwhile Free Trade Agreements (FTAs) have been negotiated in the past. However, as highlighted by the INZBC report as well, this “trade-first” approach will not work with India. For one, FTAs are viewed in India mostly as an instrument to extract tariff concessions and provide market access for goods trade. This stirs up protectionist sentiments and with New Zealand’s tariffs mostly zero or at the lower range, there’s no value proposition that’s seen from India’s perspective in terms of a simple FTA around trade in goods. More so, as India’s comparative advantage lies in services trade, and not in manufacturing, unlike New Zealand’s existing FTA partners. This further suggests that one of the key ways to take this relationship to the next level would be to abandon the word FTA in trade discussions with India and replace it with a Comprehensive Economic Partnership (CEP), involving an understanding and demonstrating concrete policy actions towards what India can do for New Zealand, and vice versa.
Valuable lessons can be learnt here from Australia. The word “FTA” doesn’t feature in their agreement with India. It is an “Economic Cooperation and Trade Agreement (ECTA)” that has been entered into force, which lays down the foundation for its ongoing negotiations towards a Comprehensive Economic Cooperation Agreement (CECA). Why this nomenclature matters from India’s perspective is that the agreement is no longer a trade deal about exchanging tariff concessions, but broad-based focussed on mutual economic gains. The words “comprehensive” and “economic cooperation” sends strong signals about an intent towards a long-term commitment to the bilateral economic relationship around investment, technology, and skills.
The reasons for advocating this different approach in negotiating with India are two-fold. First, New Zealand needs vital skills and technology for sustaining its long-term growth, and India’s demographic dividend and growing capabilities in digital technologies offers this opportunity to tap on. A win-win situation can result if New Zealand’s CEP approach involves a mobility, technology, and skills partnership agreement involving mutual recognition of qualification and training and development across key service sectors, alongside an early harvest trade agreement that allows tariff concessions in key goods that are traded with India. This will result in spurring of goods, services, and investment flows bilaterally. This is the approach that Australia has adopted, and valuable lessons could be drawn here. While doing so, we will also need to be mindful that Australia had a clear India Economic strategy 2035 envisioned, well before the ECTA was negotiated, New Zealand does not yet have a strategy or a vision on how it views its economic relationship with India in the longer term.
A key element of the above has to be introduction of direct air connectivity between two countries as quickly as possible to signal the seriousness of building this relationship for businesses from both countries in the longer term. It is regrettable that with a sizeable and growing presence of the diaspora and its business and travel activity, such a connectivity remains non-existent. This increases travel costs and creates an additional barrier to develop stronger economic and trade ties. There’s increased direct connectivity to major Indian economic growth hubs from Australia, and once again these didn’t wait for a formal trade agreement to be entered into force.
Second, New Zealand needs to recognize from its post-Covid experience of supply chain disruptions and production delays that economic risk diversification is crucial for its long term sustained economic future. Relying heavily on one single trading partner could be risky in the event of a range of disruptions that affects future economic activity, be it due to health, environmental or geo-political reasons, a back-up option is always useful.
Third, the investment opportunities for New Zealand businesses in India can be much better tapped through a CEP approach. Some key areas where mutual benefits can be reaped through a long-term development partnership goes beyond Agricultural products and includes, Forestry, Agri-tech, Fintech, Education, Digitization, Traditional Medicines and Renewable Energy. These areas will certainly generate strong value propositions for mutual economic gains for both countries. One of the good examples of such a partnership is in the state of Himachal Pradesh where Horticulture New Zealand and partnered to improve the productivity and yield of apple production in the state. Further, New Zealand agriculture season being counter seasonal to that of India, offers opportunities for investment partnerships to improve the yield of specific fruits, such as Kiwifruits in India, with a room for tariff reduction as mutual trust and confidence grows.
The above-mentioned opportunities are growing in the services sector with India now internationalizing its education sector under its New Education Policy (NEP) since 2020. Australian universities are already opening foreign campuses to offer their programmes, and ECTA will be utilized as a pathway to strengthen bilateral education relationships. With ECTA building onto a CECA, this presents growing risk of trade diversion for New Zealand education businesses in the Indian market if they do not prioritize their trading relationship with India through a CEP.
As discussed, there’s a thriving eco-system in New Zealand terms of a growing and actively contributing Indian diaspora, the strong engagement between the business stakeholders and the diplomatic community over the past decades. A blueprint for the future and what governments and stakeholders need to focus on is provided through the INZBC report. The political will to take the economic relationship to the next level has been hitherto lacking, but the recognition is there that post-COVID, geopolitical risks require economic diversification for the longer term, and the opportunities that exists are too big to be ignored.
Rahul Sen is a senior academic faculty at the AUT Business School in Auckland, New Zealand, a Senior Research fellow at Infinite Sum-Modelling inc. and an Adjunct Researcher with the INZBC. He can be contacted via Linkedin . The views expressed here are personal.