1.4 billion reasons to cheer: Luxon and McClay’s India trade deal

Tuesday, 23 December 2025

ANALYSIS: When Christopher Luxon promised in a TVNZ debate in 2023 that he would get a trade deal within his first term of government, it seemed fantastical. Trade talks with India had more or less been shelved for a decade.

But with trademark enthusiasm, Luxon dispatched his Trade Minister, Todd McClay, to get it done. On Friday, December 12, 2023, McClay met Indian Minister for Commerce and Industry Piyush Goyal for the first time. Two years later to the day, a deal was agreed — and announced on Monday night.

When Luxon travelled to India in mid-March, a trade deal on which there had been precious little progress was suddenly back on the agenda. Amid the bonhomie, back-slapping and never-ending meals, there was a real appetite to get the deal done.

There was an opening and a propitious political alignment. Liberation Day had not yet happened, but it was clear a major round of Trump tariffs was coming. India, proudly non-aligned for decades, wanted to continue bolstering its global position vis-à-vis China and the United States (and Russia, for that matter).

However, it had to be quick. Both countries had elections looming. New Zealand faced a general election later in the year, while India had state elections scheduled from May through July. The deal needed to be well out of the way by then.

Add to that that India’s Goyal was considered a pretty tough nut.

New Zealand officials knew there was a window, and that momentum had to be maintained to get it done while enthusiasm was ripe.

And so it has come to pass - a deal completed in about nine months after negotiations began in earnest.

And it looks pretty good. It covers a huge amount of goods (plus essentially all services) and delivers steadily lower tariff barriers over the coming decades.

In a deal like this there is no downside — just relative upside. For sheep products, tariffs are slashed to zero from day one, as they are for forestry. For dairy, high-end products and ingredients for Indian export are the main winners. That is, frankly, more than most would have expected, given India’s political sensitivity around dairy.

For years now, the Indian Government has run a “Make in India” campaign, and the dairy inclusions can be seen through that lens. India wants to make more, and this is a signature Narendra Modi initiative. Anything that assists in the “make” part — whether ingredients, parts or talent — is likely to be welcomed.

It will be easy to pick holes in this. When Jacinda Ardern signed the European free trade deal, the then Opposition quietly complained about how underwhelming it was, before later embracing and taking advantage of the upside in government. This deal will no doubt be treated the same way.

And of course, the odd industry will probably be cross that New Zealand’s negotiators were not able to extract more from the Indians.

But stepping back for a moment, at the start of 2025 virtually no one — or probably absolutely no one — would have thought New Zealand could wring this good a deal out of India, let alone in nine months.

This is unambiguously good news for New Zealand. The sheer size of India’s population, and its messy democratic path to growth, is something worth a small trading nation hitching its wagon to.

The China Free Trade Agreement outperformed expectations, and so will the Indian deal. While the Indian economy is more centrally planned than New Zealand’s, India’s growth story is far more predicated on consumer preferences than on government investment, as was the case in China. In the long run, that is likely to make it more sustainable.

This also partly explains the relatively small number of three-year skilled worker visas New Zealand agreed to — just under 1700 per year — as well as the provision allowing Indian postgraduate students to stay and work in New Zealand for two or three years under the deal.

As befits a rising power and growing economy, India’s political economy has changed. The country — where education is extremely highly valued — is building universities as fast as it can. It does not want to be a nation where its people feel compelled to travel overseas for undergraduate study. Many foreign universities are also setting up in India, including Australian ones.

This is quite different from the stereotype many hold of India as a chaotic place that simply wants to send as many people abroad as possible to generate remittances.

Overall, the deal means that, at the very least, New Zealand will enjoy a level playing field with India’s other trading partners. And the sheer scale of India — 1.4 billion people, rising to around 1.7 billion by 2050 — means that even small inroads could translate into very large growth for New Zealand companies.

In a world where the international order is under strain, and where the mercantilist, America-First trade posture of the United States is generating enormous uncertainty, this is good — and relatively low-risk — positioning for India, which is pursuing other trade deals, and of significant advantage to New Zealand.

There will no doubt be a thorough raking over of the deal in the coming weeks, before it goes to Parliament for ratification.

New Zealand First has opposed the deal - even though the migration provisions look very small, but it will pass Parliament on Labour’s say so. Winston Peters has done this before, and it conveniently give him something to campaign on. But he was keen to note, at some length, that this in no way reflected badly on the NZ-India relationship.

But at first blush at least, full credit is due to Christopher Luxon and Todd McClay for getting this done. It looks a real achievement. The Luxon promise was treated with scepticism at best and outright derision at worst. Without their single-minded focus, it would probably have continued to languish in the too-hard trade basket.