Following the conclusion of free trade agreements (FTAs) with Oman and the UK in 2025, India finalized negotiations for an FTA with New Zealand on December 22, nine months after talks began in March. This makes it one of India’s fastest concluded FTAs, reflecting the strong political intent of both sides.
One of the elements of the agreement that gained popularity in India is the elimination of duties on 100% of Indian exports to New Zealand. This includes the immediate removal of tariffs on 8,284 New Zealand tariff lines. Existing New Zealand tariffs – averaging about 10% on key Indian exports such as textiles, leather goods, ceramics and automobiles – will be eliminated, in addition to the average applied tariff rate of 2.2%. The agreement enhances India’s market access to labour-intensive and manufacturing sectors including textiles, leather, footwear, a variety of engineering goods, pharmaceuticals and agricultural products. Zero-duty access is likely to particularly benefit Indian MSMEs in export-oriented sectors.
From New Zealand’s perspective, India has offered market access on 70.03% of tariff lines, covering approximately 95% of New Zealand’s exports, leaving 29.97% of tariff lines that are protected areas. Protected areas include dairy and animal products, agriculture, arms and ammunition, gems and jewellery. There will be immediate elimination of duty on 30% of Indian tariff lines; 35.60% of tariff lines will undergo phased tariff elimination over 3, 5, 7 and 10 years; And there will be reduction in tariff on 4.37% products. Thus, the FTA is a good example of how such Indian redlines can be respected in trade negotiations while also promoting lower tariffs in sensitive sectors.
Beyond trade in goods, New Zealand has committed to invest $20 billion in India over the next 15 years. The agreement also includes a major contract on student mobility and post-study work visas, as well as the first contract on traditional medical services. Meanwhile, PM Modi and his New Zealand counterpart have welcomed the FTA as a catalyst to potentially double bilateral trade within five years. Legislation for the FTA is expected to be introduced into the New Zealand Parliament this year.
The third FTA concluded by New Delhi this year reflects India’s ongoing efforts towards trade diversification and to ease the pain of exporters hit by US tariffs (despite the marginal impact of the FTA given the minimal export volumes). When viewed alongside India’s two other recently concluded FTAs, the New Zealand FTA also holds a significance in sending geopolitical signals to Washington, indicating India’s ability to develop sustainable economic partnerships beyond the US. This is especially important as negotiations on a bilateral trade agreement with the US continue to be at an impasse.
Also, this agreement highlights the sustainable features of India’s trade negotiating posture. The complete exclusion of politically sensitive sectors such as agriculture and dairy – an issue that has attracted political opposition within New Zealand, reflects a long-standing complaint of partners such as the US regarding India’s use of non-tariff barriers (NTBs) and limited reciprocity in sensitive sectors. India’s continued tough stance on ‘protecting’ these sectors is also evident from the fact that this is New Zealand’s first FTA that completely excludes the dairy sector, and agriculture accounts for the largest share of New Zealand’s exports to India and represents its single largest export sector globally. This has generated mixed reactions within New Zealand’s ruling coalition. The New Zealand First Party and Foreign Minister Winston Peters have expressed strong objection to immigration and access to the dairy and farming sector, calling it “neither free nor fair”. Whereas, due to its large market base, the opposition Labor Party and many industry groups have supported the agreement, despite acknowledging its limitations.
Despite its political and strategic signaling value, the utility of FTAs ​​for expanding Indian exports is likely to be limited. While the agreement signals Delhi’s intention to reduce ‘over-concentration’ in export markets, it is unlikely to significantly increase exports given the minimal bilateral trade and exports of $1.3 billion and $711 million respectively.
Field studies further highlight this limitation. In agriculture and dairy – together accounting for about 17% of all product tariff lines and the largest sector within India’s export basket to New Zealand – existing tariffs apply to only 5% of exports worth about $700 million. Similarly, engineering goods face a 10% tariff on exports worth only $68 million. These figures show that tariff liberalization provides very limited benefits to Indian exporters due to the already low tariffs imposed by New Zealand. Furthermore, more than 58% of tariff lines 11 were already duty-free before the agreement.
Accordingly, the value of the agreement for India lies not in tariff cuts, but in regulatory alignment, particularly in pharmaceuticals, chemicals, auto components and machinery. New Zealand’s regulatory regime in these areas is extremely stringent, overseen by specialized agencies that enforce rigorous safety, efficacy and quality standards. Importers require official approval through extensive technical documentation on product safety and performance. Importers must also submit detailed justification, including design registration, to demonstrate that the risk profile remains uncompromised when products do not fully meet the prescribed benchmarks. Therefore, FTAs ​​are likely to shape the composition and quality of India’s exports rather than significantly expand the quantity.
Concurrently, amid Delhi’s diversification efforts, the limited provision of 5,000 temporary employment visas underlines New Zealand’s constraints as an alternative destination for Indian foreign employment. While the contract (New Zealand’s first) signals growing confidence in India’s skilled workforce, it is modest relative to Indian employment in the US and Canada. This is especially important amid the US H-1B visa fee hike and the 2026 expiration of Canadian work permits, which could leave up to one million Indian workers undocumented.
While Prime Minister Christopher Luxon hopes to get enough parliamentary support to legislate the FTA into law, New Zealand First has decided to vote against any such legislation. However, it is likely to be confirmed as the party has only eight seats in Parliament.
The FTA brings some silver linings, including greater predictability in goods, services, mobility and investment, and the FTA is likely to avoid some of the common criticism of the growing trade deficit. It is also a constructive framework to deepen engagement with India, one of the most underdeveloped economic partners in the Indo-Pacific region. Furthermore, criticism within New Zealand of labor mobility provisions as “extremely unwise” due to domestic unemployment does not seem justified. New Zealand faces well-documented skills shortages in a number of sectors, including those covered under the mobility contract i.e. health care, engineering, IT, construction and education. Therefore, mobility arrangements can potentially act as an essential complement to New Zealand’s workforce needs.
The success of FTA will also depend on its utilization. India is known to exhibit a low utilization rate in FTAs ​​of around 25%, while developed economies reach 70%–80%. In this, knowledge and implementation of New Zealand regulations will be important for Indian exporters including MSMEs. Relatedly, making the most of trade agreements will require sharing of responsibility between businesses and policymakers to create awareness and use dialogue mechanisms to address potential challenges. Furthermore, consideration of direct flights and expedited visa procedures by both countries will help in realizing the objectives of the Mobility Agreement.
Overall, while the FTA will not significantly boost trade volumes in the short term, its value lies in the long term. This is likely to expand India’s trade footprint in the Indo-Pacific region. The inclusion of a high-standard based economy also indicates India’s potential to sign ‘high-standard FTAs’ to the international community.
This article is written by Araudra Singh, Research Assistant, Council for Strategic and Defense Research, New Delhi.
