Luxon meets Modi: why a ‘good’ NZ-India trade deal is preferable to a ‘perfect’ one

Some have said Christopher Luxon’s pledge to get a free trade deal between New Zealand and India over the line in his first term as prime minister was overly optimistic. But not all trade deals are the same, and Luxon may yet get to claim bragging rights.

Already he is managing expectations, saying a “good” deal will be better than waiting a long time for a “perfect” one. And with formal negotiations confirmed not long after Luxon touched down in New Delhi, we can perhaps expect genuine movement.

At the same time, India’s negotiating style is notoriously rigid, with its bilateral investment treaty model having proved a stumbling block to deals with many other nations or blocs, including the United Kingdom and European Union.

New Zealand first held formal negotiations with India over a decade ago. But talks derailed in 2015 over the inclusion of dairy products in any agreement. We can be fairly sure this will be the compromise Luxon’s government is ready to make now.

One model might be Australia’s Economic Cooperation and Trade Agreement, which leaves out dairy, too. And New Zealand was able to sign a free trade deal with China in 2008 that excluded diary, with those restrictions removed in a 2022 upgrade.

Beyond the economic implications, of course, lie domestic political calculations. Luxon needs a win to counter flatlining poll numbers and speculation about his leadership future. Good news in India offers just that.

Playing the Indo-Pacific card

Using diplomatic language that plays up New Zealand being part of the Indo-Pacific region – rather than the traditional Western alliance – will be essential.

New Zealand – despite its relatively small size – is still a significant regional player, with the Indo-Pacific’s fourth highest GDP per capita.

In the context of an imminent “Asian Century”, and the region becoming a crucial zone for economic and military power, New Zealand also provides a strategic pathway into the Pacific, where India is becoming increasingly involved.

All of this will influence Luxon’s keynote address today at the 10th Raisina Dialogue, India’s flagship multilateral conference on global politics and economics. He is the first leader not governing a European country to make such a speech, and is also the chief guest at the dialogue.

Luxon is already on the record as saying New Zealand and India are “very aligned” on Indo-Pacific security and concerns over Chinese regional influence, with scope for more joint defence exercises. This linkage between security and trade mirrors Wellington’s recent relations with Beijing, which have become increasingly difficult to navigate.

Solid foundations

But there is a long way to go. In 2024, India-New Zealand trade was worth a combined NZ$3.14 billion – a fraction of the $208.46 billion generated by trade with China in the same year.

Nevertheless, Luxon and his ministers have made undeniable progress. His “recalibration of a relationship that has long been neglected” bore fruit in October last year when he met Indian Prime Minister Narendra Modi at the ASEAN summit, and the countries announced their intention to take the relationship to “greater heights”.

The previous Labour government helped set the scene with a succession of high-level diplomatic visits and parliamentary exchanges. In 2023, the Indian government described relations with New Zealand as having “an upward trajectory”.

And there are clearly good foundations to build on – especially the 292,000 people of Indian ethnicity in New Zealand, who contribute US$10 billion to the New Zealand economy.

Great expectations

Trade is ripe for expansion, too. New Zealand primarily exports wool, iron and steel, aluminium, fruits and nuts, wood pulp and recovered paper, and imports Indian pharmaceuticals, machinery, precious metals and stones, textiles, vehicles and clothing.

There’s potential to grow trade with India in tourism (especially attractive to India’s growing middle class), and collaboration on space technology, renewable energy and agritech.

There were 8,000 Indian students in New Zealand last year, a number that may well grow given a relative drop in student numbers from China. With the US and UK becoming more hostile to immigration, New Zealand can offer a relatively safe and tolerant alternative.

In many ways, India is the new China. In 2023, India’s GDP was US$14.54 trillion, making it the world’s fourth largest economy. New Delhi is on the cusp of becoming a great power, and is being courted by all countries, big and small.

As such, while Luxon has momentum on a trade deal, he is also part of a long queue. Given the relative power imbalance between the two countries, the weight of expectation sits squarely on his shoulders.

Chris Ogden is a Senior Research Fellow with The Foreign Policy Centre, London.