New Zealand takes on India - but it’s complicated

Saturday, 15 March 2025

The prime minister is leading a high profile business delegation to India this weekend with a key goal in mind: bolster its relationship with India in a bid to secure a trade deal. Luke Malpass reports.

During a 1News debate for the 2023 election campaign Christopher Luxon got ahead of himself. The National Party had been prioritising getting the better relationship with India after what were perceived as years of slippage and lost opportunities.

But in the heat of the moment, Luxon went one step further, promising a free trade deal in the first term of government, saying that “we are going to get a free trade agreement with India in our first term”.

This may or may not turn out to have been a misjudged commitment from the then greenhorn Opposition leader and one he will be held to account for. Luxon is no Donald Trump and doesn’t go round bragging about deals - but he does lean heavily on a ‘gets things done’ business.

However, the promise will likely prove both good and bad for Luxon - and the India relationship. On the one hand, making such a bold promise raises the political heat. On the other, it sets the terms of the political narrative around New Zealand’s relationship with the world’s most populous nation into a mercantile one of trade: New Zealand is small and even a small amount of extra access to India’s markets could boost exports significantly.

This, however, is what has been the problem in the past. India has any number of free trade deals in the pipeline - and none of them are really progressing.

Australia managed to get one in 2022.

More than trade

In short, even though New Zealand is seen as very small, a broader relationship appears to be what the India system craves. The question is the extent to which New Zealand’s focus has been too narrow in being focused exclusively on trade.

“It’s not so much that we’ve necessarily had a narrow focus – but rather that we’ve had a very strong trade game with talented trade negotiators who have had a lot of success across Asia,” says Suze Jessep, chief executive of the Asia New Zealand Foundation.

“They have successfully delivered a number of comprehensive, high quality agreements and made the most of regional conditions – which have been favourable to globalisation and trade connectivity – over the past 60-70 years.”

Jessep, a former senior diplomat who was posted to the New Zealand High Commission in New Delhi, says that, understandably, NZ tried the same approach with India over the years - but that it has not really worked, a dynamic often driven by India’s domestic political economy.

“It [India] judges that many of its domestic sectors are not ready to be exposed to international competition. In agriculture, for example, many farms in India are made up of just one or two cows or very small herds. Cool-chain delivery is still developing. And production is low-tech compared to NZ agriculture,” she says.

India also has a political constituency not especially amenable to too much freer trade. There is a large, well-run corporate class that has been less enthusiastic about potential competition from outside, and India remains a large rural economy of strip farmers which, as Jessep says, comprise a couple of cows. Over two-thirds of India’s 1.4 billion people are considered rural.

These form Prime Minister Narendra Modi’s political power base.

All of this, Jessep says, has resulted in New Zealand sending trade negotiators elsewhere, resulting in the overall relations - not just trade - being put “into a kind of hibernation”.

“In effect, this has meant trade with India has developed, but at nowhere near the pace or depth of other trading partners across Asia.

“It’s been important to us and we’ve done great things together, but not at the scale or breadth you would expect for a country of India’s size.”

Modi’s India on the rise

The prime minister is visiting India at a fascinating time. Narendra Modi, the 74-year-old prime minister, has dominated politics, leading as prime minister for over a decade. Yet his Bharatiya Janata Party - commonly known as the BJP - now appears to be past the current cyclical peak of its political power.

Modi has weaved a resurgent Hindu nationalism into liberalising economic reforms which have helped to fuel growth. The complexity of the country has seen fast uptake of mobile phone technology for payments and services, while cash has remained a key part of the economy.

The place has been modernised, liberalised and grew by 8.2% in 2023. Its economic growth has averaged between 5% and 10% since about 2010, with the exception of Covid-19.

India is a complicated country. Briefly, it is made up of 28 states - all democratically elected with various levels of corruption, although much of that has been rooted out over the past decade or so.

Before the British withdrawal, Indian encompassed modern India, Pakistan, Bangladesh and Nepal. After independence and partition in 1947, India became what is basically its modern size.

In the early days of independence India was governed by primarily socialist governments, with a heavy emphasis on central planning. Post-independence, India was closer to the Soviet Union than Western-aligned countries.

The state of West Bengal, for example, was governed by the Communist Party of India for the 34 years to 2011.

Driving around Kerala, hammer and sickle flags are not uncommon.

There were apocryphal tales of needing permits to move sewing machines within garment factories, a huge amount of regulations and government planning. The result was a culture of bribes, graft and tax avoidance that built up in order to get anything done.

In 2016, in order to root out corruption, Modi sensationally embarked on a policy called ‘de-monetisation’. Essentially, overnight the government banned the two most ubiquitous banknotes in a cash society. Queues stretch down the street outside banks and ATMs as citizens scrambled to obtain new, legal, banknotes.

In the 1990s, India began to liberalise and set itself up as a market economy, ready to begin the long, slow march into global integration and actually profiting from globalisation.

The historic relationship

In the early 2010s, foreign investment was liberalised. And off the back of some of these changes, former prime minister John Key arrived.

New Zealand has an historic relationship with India. AIIMS - the All India Institute of Medical Sciences, India’s most prestigious hospital - was started from cash donated by New Zealand under the Colombo Plan, which was set up to help fight against communism in developing and Asian nations.

There is a foundation stone outside the main entrance that reads: “The foundation stone of the All India Medical Institute (towards which the Govt of New Zealand has contributed £1 million).” The stone was laid in 1952.

Sir Edmund Hillary was high commissioner to India as well as Bangladesh and Nepal for four and a half years from 1985. Most Indians would know who he is, because of his mountaineering exploits.

Even the green, leafy Wellington suburb of Khandallah bears the names of Indian states and places such as Mysore St, Calcutta Rd, Lucknow Tce, Ganges Rd, Simla Cres and so on. It is believed to have been originally named after Khandela in Rajasthan.

As well as having the largest population in the world, India also has one of the youngest, with a median age of 29.5 years. That means that half the population is younger than that. It has 10 million people entering the workforce every year and is generally considered to need a growth rate of 6% in order to keep living standards increasing.

Its biggest industries are tech, and there is a whole phalanx of government-run companies - an estimated 1900 of them. And despite having extremely cheap labour, India is now moving up the supply chain. Some 15% of new Apple phones are now produced in India and the goal is to get that up to 25%.

There are enormous tech campuses for the big consumer-facing brands such as Apple and Google but also business-to-business outfits, such as Infosys.

It has a class of mostly well-governed corporates and huge brands and companies of its own - the likes of conglomerate Tata, Hero Motorbikes, Reliance Industries, Hindustan Unilever and a swag of banks - as well as a growing pharmaceutical manufacturing sector.

Some 40% of generic pharmaceuticals sold in the United States are produced in India.

Add to that food, cricket and some of the most gorgeous textiles in the world - including cottons and linens - and it’s quite a mixture.

Geopolitical challenges

But India is also a country that will become increasingly important in the geo-strategically contested world.

It shares a border with China and Pakistan and the China border has been a flashpoint in recent decades.

“There’s a lot of concern in Delhi about China’s growing economic and political influence in South Asia and its maritime power projection into the Indian Ocean,” David Capie, director of the Centre for Strategic Studies and Professor of International Relations at Victoria University of Wellington, said.

Capie said India’s posture had changed in recent years.

“It still proclaims its commitment to be non-aligned but the nature of its relations with other big powers has changed quite dramatically, especially with Washington.

“India would like to see the emergence of a multipolar world, where it is one of the big powers that gets to set the rules. So it's active in Brics but also arrangements like the Quad,” he said.

Brics is a grouping of Brazil, Russia, India China and South Africa, while the Quad is a security arrangement involving India, Australia, Japan and the United States.

As for New Zealand’s security relationship with India, which has one of the largest armies in the world, measured by personnel, more work is needed.

“The New Zealand Government knows that a deeper relationship with India can’t just be about trade, it also requires people to people and defence and security ties,” Capie said.

“There’s some easy wins that NZ could pursue to show a desire to do more. We could base our defence attache to India in Delhi not in Canberra,” he said.

In the end, Luxon is leading a big delegation of politicians, business leaders, leaders from the Indian community and others in tow.

India is a big, democratic, but complicated country.

A good result will be putting New Zealand higher up on the list of Indian priorities. And that feted trade deal. Well, it depends in part, on how this trip goes.