10-year hiatus to handshake: India-New Zealand trade pact nears finish line

The impending Free Trade Agreement (FTA) between India and New Zealand marks a significant development in India's evolving trade policy and international economic relations. After a decade-long hiatus, the resumption of negotiations underscores a renewed strategic intent from both nations to deepen their economic engagement. This pact is not merely about exchanging goods; it's a strategic move reflecting India's calibrated approach to global trade post-RCEP withdrawal and New Zealand's ongoing search for diverse market access.

**Background Context and Historical Threads:**

India's journey with FTAs has been dynamic. While it has aggressively pursued bilateral FTAs with countries like the UAE, Australia, and the UK in recent years, its withdrawal from the Regional Comprehensive Economic Partnership (RCEP) in November 2019 signaled a more cautious, yet strategic, approach to multilateral trade blocs. The primary reasons for India's RCEP exit included concerns over potential surges in imports, particularly from China, and inadequate protection for its domestic industries, especially agriculture and dairy. This context is crucial for understanding India's current bilateral focus. Negotiations for an India-New Zealand FTA first began around 2010 but stalled due to significant differences, particularly regarding market access for New Zealand's highly competitive dairy products, which India's large but often unorganized dairy sector views with apprehension. The decade-long pause highlights these sensitivities and the complexity of aligning diverse economic interests.

**What's Happening Now: Renewed Momentum and Divergent Priorities:**

The recent development indicates a positive shift, with both countries signaling their readiness to bridge previous gaps. New Zealand, a small but advanced economy heavily reliant on trade, is keenly interested in securing greater market access for its high-quality dairy and fruit products in India's vast and growing consumer market. New Zealand is a global leader in dairy exports, and access to India would be a significant win. Conversely, India's priorities reflect its strengths and aspirations: enhanced movement of skilled professionals and greater market access for its burgeoning IT services sector. This aligns with India's broader strategy of leveraging its demographic dividend and expertise in the services economy to boost exports and remittances. The services sector, particularly IT, is a major contributor to India's GDP and employment, and securing preferential access in developed markets like New Zealand is a key objective.

**Key Stakeholders and Their Interests:**

On the Indian side, the **Ministry of Commerce and Industry** is the primary negotiating body, representing the government's strategic and economic interests. Domestic dairy farmers and agricultural producers, represented by various industry bodies, are significant stakeholders, advocating for protection against cheaper imports. The **IT industry** (e.g., NASSCOM) and professionals' associations are strong proponents of the agreement, seeking easier visa regimes and market opportunities. For New Zealand, the **Ministry of Foreign Affairs and Trade** leads negotiations, with dairy giants like Fonterra and fruit exporters being key industry stakeholders pushing for market access. Consumers in both countries could benefit from a wider range of goods and services at potentially lower prices.

**Significance for India: Economic, Geopolitical, and Policy Implications:**

This FTA holds multi-faceted significance for India. Economically, it offers diversification of trade partnerships beyond traditional blocs and enhances market access for India's services sector, which is a major revenue earner. It could boost India's 'Make in India' initiative by attracting New Zealand investment and technology in certain sectors. However, it also presents challenges, particularly for India's dairy and horticulture sectors, which would face increased competition. Politically and geopolitically, strengthening ties with New Zealand, a member of the Five Eyes intelligence alliance and a key player in the Indo-Pacific, aligns with India's 'Act East' policy and its broader strategy to foster partnerships in the region. This helps balance influence and promotes a rules-based international order. From a policy perspective, it reinforces India's preference for bilateral FTAs as a more manageable and tailored approach to trade liberalization compared to large multilateral agreements.

**Constitutional and Legal Framework:**

The power to enter into and implement international treaties and agreements, such as FTAs, primarily lies with the executive branch of the Union government. **Article 73** of the Indian Constitution states that the executive power of the Union extends to matters with respect to which Parliament has power to make laws. More specifically, **Article 253** empowers Parliament to make any law for implementing any treaty, agreement, or convention with any other country or any decision made at any international conference, association, or other body. This constitutional provision provides the legal basis for India to ratify and enact necessary domestic legislation to give effect to the provisions of an FTA. Furthermore, the **Foreign Trade (Development and Regulation) Act, 1992**, provides the statutory framework for the promotion and regulation of foreign trade in India, under which specific provisions of an FTA would be implemented.

**Future Implications:**

The successful conclusion of the India-New Zealand FTA could set a precedent for India's engagement with other developed economies, especially those with strong agricultural sectors. It signals India's capacity to negotiate complex trade-offs while protecting sensitive domestic interests and promoting its strengths in services. It could lead to increased bilateral trade and investment, fostering innovation and economic growth. However, the true impact will depend on the specifics of the final agreement, particularly the extent of market access granted for dairy and the ease of movement for skilled professionals. This pact is a crucial test of India's ability to balance protectionism with liberalization in its pursuit of global economic integration.