India-NZ FTA Signed: Boosting Exports Amid Trade Gap and FDI Skepticism

The recent Free Trade Agreement (FTA) between India and New Zealand is positioned as a strategic move to diversify exports, but it also serves as a response to India's persistent trade deficit.

For fiscal year 2025-26, India's trade deficit is estimated to have widened to approximately $119.30 billion, largely because imports grew faster than exports. Merchandise imports climbed sharply to $774.98 billion, contributing to a merchandise trade deficit of $333.19 billion in FY25-26. This gap highlights India's need to boost its trade performance, a goal the New Zealand FTA aims to address by offering immediate duty-free access for 100% of Indian exports to New Zealand. This agreement is part of India's accelerated FTA strategy since 2021.

Key Sectors to Benefit

The FTA is expected to bring benefits to several Indian sectors. Industries like garments and textiles, which previously faced tariffs up to 10% in New Zealand, will now compete more easily with rivals from China and ASEAN. India's textile exports, including handicrafts, saw a 2.1% growth in FY26, reaching ₹3.16 trillion, with ready-made garments leading the expansion. The pharmaceutical sector, which exported $31.12 billion in FY26, also stands to gain from New Zealand's recognition of approvals from major international regulators, potentially speeding up market access for medicines and medical devices. Computer and business services, a key area for India's services exports which grew by 11% to $222 billion in FY25, are also expected to grow.

FDI Target Questioned Amid Low Investment

A key feature of the pact is New Zealand's commitment to facilitate $20 billion in FDI into India over 15 years. However, this target seems ambitious, given that New Zealand's cumulative FDI into India since 2000 has been minimal, reportedly around $88 million. Historical data indicates FDI inflows from New Zealand have averaged only a few million US dollars annually in recent years. Achieving the $20 billion target will require a big change in investment patterns and substantial effort from both governments and industries.

Furthermore, New Zealand's main export markets are China, Australia, the United States, Japan, and South Korea, with India not featuring prominently on this list. While the FTA provides New Zealand with improved access to the Indian market, it is less extensive than some of its other agreements, notably excluding core dairy products.

Challenges and Risks Ahead

The India-New Zealand FTA, while a step toward diversification, is overshadowed by India's trade deficit, which strains its finances. The $20 billion FDI commitment from New Zealand is particularly questionable, representing a huge leap from historically negligible inflows, and its realization remains uncertain. This over-ambitious target risks becoming a symbolic placeholder rather than a driver of substantial capital infusion.

Increased competition from New Zealand's specialized imports could pressure India's MSMEs in certain sectors. The exclusion of sensitive sectors like dairy from tariff liberalization highlights the limitations of the agreement and potential issues. Experts describe the FTA as a risk management strategy for both nations, suggesting its success depends more on follow-through, extensive export promotion, and robust business-to-business engagement than on the tariff concessions themselves. Geopolitical tensions and global demand slowdowns also present challenges, affecting export forecasts.

Outlook: Success Hinges on Execution

Analysts see the India-New Zealand FTA as a framework whose success depends on follow-up actions, including export promotion and investment facilitation. The significant gap between the aspirational FDI target and historical investment realities suggests that achieving the agreement's full economic potential needs combined effort from both governments. While immediate duty-free access is positive for specific Indian export sectors, the broader impact depends on India's ability to use these terms in a challenging global trade landscape and alongside New Zealand's established trade relationships with its core partners.