The 75th year of Indian Independence can be an inflection point in the India-New Zealand ties through constructive steps in bilateral trade deals and companionship to harness a plethora of opportunities between the two countries. Although the second wave of Covid-19 and the triple mutant coronavirus variant have put an abrupt halt on the near-term growth prospects of the country, the recently united Quad leaders and the increased gravity of the Indo-Pacific strategic edge have put India on the centre stage of bilateral trade deals. With NZ promising to provide $1 million in direct aid to India to fight against the novel virus, there is rising hopes of a tectonic shift in the way India sees NZ as a global partner.
The much proclaimed thriving economy of the eastern world, India has been following a spinoff strategy since the start of the pandemic to build robust indigenous manufacturing capabilities by incentivizing foreign players. Emulating China, India has gained priority in any country’s foreign trade policy, and there are economic reasons for the same. India provides a ready-to-enter market for private players with the potential to target a customer base of 1.3 billion, a demographically diversified marketplace and a resilient technological infrastructure. Besides this, the expanding scope of foreign direct investments has attracted numerous capitalists to bet on the Indian growth story.
The iron is hot to hit, but New Zealand’s approach towards a foreign trade agreement (FTA) with India is on a “slow boil”. Even after 30 years and 10 rounds of negotiations for an FTA, the Kiwis have fallen short of agreements and maintained a status quo with India. This is despite the fact that Indians contributed 3% of the total NZ GDP in 2019 and as of September 2020, India was NZ’s 11th largest trading partner with a two-way total trade value of $2.4 billion. NZ has been an active partner of India in multiple fields like sports (cricket), higher education, tourism, hospitality and cybersecurity networks. All these fronts have so far been fruitful for both the countries and generated economical returns along with a cohesive cultural understanding in the past.
New Zealand has always been an active multilateralist, working closely with countries to form conducive and mutually beneficial policies. But India is different with its approach and action. Unlike with China, NZ should not expect the same deal terms with India, which has faced severe trade asymmetries in its past trade deals with ASEAN, SAFTA and RCEP, and hence will now make new FTA deals with scrutiny.
So far the bottlenecks in the FTA deal are the high-tech dairy and agricultural products, which NZ wants to push in the Indian markets. This is because India sees business and trade liberalisation with a protectionist angle and believes that such inflow of imports will have a detrimental effect on small and medium enterprises, especially marginalised farmers.
Recently, India also opted out of RCEP negotiations to safeguard the interests of industries like agriculture and dairy and over “significant outstanding issues” with China, a co-partner in RCEP. India feared that there was “inadequate” protection against surges in imports and there was a possible circumvention of rules of origin, the criteria used to determine the national source of a product.The exit from RCEP has freed a market of worth $30 billion-plus in India to fill in. This includes value-added sectors like chemicals and plastics and rubber, minerals, leather, textiles, gems, jewellery and animal products.
This posts a significant scope for expansion and diversification for businesses involved in the New Zealand-India bilateral trade in goods. This is over and above the existing scope in the high-end education services which NZ provides to Indian students and which has grown to 79% of the total services exported. To reap the benefits, New Zealand needs to showcase poised political diplomacy with swift actions on unconventional measures to solve the FTA gridlocks.
Plan B must find alternatives to the dairy and agricultural products, which NZ initially stressed upon and posed a major consensus barrier, in favour of the newly freed markets due to India’s exit from RCEP. This will promote high trade complementarities for India, matching the import pattern of India with the export pattern of NZ, hence, increasing the chances for a successful trade arrangement. In exchange, the NZ foreign trade policy should also provide a margin of preference to India in terms of a favourable rate of import duty on pharmaceuticals, machinery and textiles. Apart from this, a De Maximus provision can be adopted to enforce strict rules on exporters’ goods to qualify as NZ origin, which has been a major concern for India. Various countries have been dumping their products in India by routing them through other countries that enjoyed lower tariffs.
The bottom line is that New Zealand has to first build trust with India before entering into an FTA. The New Education Policy and the Science, Technology and Innovation Policy (STIP) passed by India in 2020 needs to be embraced by the Kiwi government to get the first-mover advantage. Through this NZ can get access to the IT powerhouse, new technology of India along with an entry into the ed-tech solutions space. The Indian diaspora, which constitutes 5% of the population and has been the fastest-growing ethnic group, has to play a proactive role to persuade the NZ government to form a correlative partnership with India.
In the near future Kiwi officials need to explore offbeat channels of trade and need to learn from trade giants like the US, Singapore and Australia, who have been strategic partners of India on multiple fronts. NZ needs to understand that India has so far little to gain from a 5 million population market and hence it demands favourable trade policies to make it economically beneficial for the country.
Rajesh Mehta is a leading consultant and columnist working on market entry, innovation and public policy. Uddeshya Goel is a financial researcher with specific interests in international business and capital markets.
NZ has been an active partner of India in multiple fields like sports (cricket), higher education, tourism, hospitality and cybersecurity networks. All these fronts have so far been fruitful for both the countries and generated economical returns along with a cohesive cultural understanding in the past.