India and New Zealand have agreed on a landmark Free Trade Agreement (FTA) that seeks to reshape economic interaction between the two democracies and boost bilateral commerce. Announced by leaders of both countries, the deal was finalised in record time after negotiations were launched in March 2025, marking a renewed phase in economic cooperation between New Delhi and Wellington.

The agreement, expected to be formally signed in early 2026 after legal review and parliamentary processes, eliminates or significantly reduces tariffs on a large proportion of traded goods. For New Zealand, approximately 95 per cent of its exports to India will see tariff elimination or cuts, with nearly 57 per cent becoming duty-free immediately and the share rising to 82 per cent once fully implemented. The remaining 13 per cent will face sharply reduced tariffs.

Under the terms agreed and announced by Prime Ministers Narendra Modi and Christopher Luxon, India will offer duty-free access to its market for all New Zealand exports, while New Zealand’s concessions will cover 70 per cent of Indian tariff lines, collectively encompassing around 95 per cent of bilateral trade. Key New Zealand sectors gaining access include forestry and wood products, sheep meat, wool, coal, seafood and industrial goods. India has also negotiated preferential market access for products such as apples and mānuka honey, a first in any Indian FTA.

An important feature of the agreement is the deepened cooperation in services and people mobility. The pact covers a broad range of services sectors, with enhanced provisions for market access and Most-Favoured-Nation (MFN) treatment across numerous sub-sectors such as IT and IT-enabled services, professional services, education, financial services, telecommunications and tourism. As part of mobility arrangements, the deal includes pathways for skilled Indian professionals and expanded post-study work visas for students in STEM and doctoral disciplines. A temporary employment entry visa stream for thousands of professionals and provisions for working holiday visas also form part of the arrangement.

Investment flows are positioned to grow alongside trade. New Zealand has committed to facilitating up to USD 20 billion in investments into India over the next 15 years, covering manufacturing, infrastructure, services and innovation-related initiatives.

Critically, the agreement reflects a negotiated balance on sensitive sectors. India has excluded several politically sensitive agricultural products from tariff liberalisation, particularly dairy, coffee, onions, sugar, spices, edible oils and rubber, underscoring New Delhi’s intent to protect domestic farmers and MSMEs.

The FTA comes against a backdrop of steady growth in India–New Zealand trade. Bilateral merchandise trade surged nearly 49 per cent in FY2024-25, with services contributing further to overall engagement. The pact’s proponents believe that the FTA could double bilateral trade within five years, catalysing growth in goods and services exchanges, enhancing supply chain linkages and expanding two-way investments.

Why it matters

This agreement marks a strategic shift in India’s trade architecture. For India, diversifying trade partnerships beyond traditional markets remains a policy priority, especially as global economic uncertainty and protectionist pressures—such as higher tariffs in some developed markets—persist. The pact adds to India’s growing portfolio of trade agreements concluded in recent years and broadens access for Indian exporters in sectors like textiles, engineering goods, seafood and leather. For New Zealand, duty-free and reduced tariff access to India’s vast and rapidly growing consumer market presents a significant export opportunity, especially for horticulture, forestry and specialty foods.

Market Impact on India

From an Indian market perspective, sectors well-placed to benefit include labour-intensive manufacturing such as textiles, leather, footwear and handicrafts, which stand to gain from preferential access to New Zealand. Engineering goods, automotive components and marine products could see greater penetration as tariff barriers ease. Service exporters in IT, professional services, education and tourism are likely to experience expanded opportunities under the broader services framework. Conversely, agricultural segments that are sensitive to import competition could see limited exposure due to protective exclusions maintained by India.

Bull Scenario

Proponents argue that the FTA provides a structural boost to bilateral trade and investment, unlocking new export destinations and enhancing competitiveness for Indian SMEs and services firms. Increased foreign direct investment and inflows into key sectors such as manufacturing and technology could contribute to job creation and wider economic linkages. The enhanced mobility provisions could deepen human capital exchange and support knowledge flows between the two markets.

Bear Scenario

On the downside, full realisation of trade benefits depends heavily on implementation timelines and regulatory harmonisation. Domestic sectors wary of import competition, particularly agriculture, may exert political pressure that could constrain future liberalisation phases. Additionally, New Zealand’s market remains relatively small in absolute trade terms compared with larger partners, potentially limiting the upside impact on India’s overall export trajectory.

Risks

Key risks include implementation challenges, such as customs procedures and regulatory alignment across goods and services. Protection of sensitive sectors could evolve into ongoing negotiation points, potentially diluting long-term liberalisation. Further, external factors—such as geopolitical shifts or global economic slowdowns—could affect investment flows and demand dynamics, moderating the pact’s expected gains.