New Zealand and India have a lot in common – from their love for cricket to their Commonwealth heritage and much more. Despite this the bilateral trade between the two countries is yet to live up to its potential. In an exclusive interaction with The Dollar Business, Grahame Morton, High Commissioner of New Zealand to India, talks about various ways to improve social, political and trade ties between the two nations.

Ahmad Shariq Khan | October 2016 Issue | The Dollar Business

TDB: India and New Zealand’s ties go back to the 1890s, when the first immigrants from Punjab and Gujarat settled in New Zealand. How do you see this long standing relationship between the two countries shaping up in the new global economy?

Grahame Morton (GM): New Zealand and India share a Commonwealth heritage, legal system, business language, a commitment to democracy and a love for cricket. We also share people. About 4% of New Zealand’s population is of Indian descent. The affinity and warmth between our two countries will deepen further as knowledge collaboration – for example on science, agriculture and education – and people and business connections grow. The relationship with India is a priority for the New Zealand government, that in 2011 committed to developing India as a core trading, economic and political partner, through our negotiations of a mega-regional FTA called the Regional Comprehensive Economic Partnership (RCEP) and our bilateral FTA.

TDB: But don’t you think bilateral trade and economic relationship is currently way below potential, despite strong growth in recent years? What factors could be responsible for this?

GM: We could, and we should be doing more together. Bilateral trade in goods and services between New Zealand and India was worth around $2.2 billion in the last fiscal year. We have ambitions to grow this much further. New Zealand’s trade with India is around a tenth of our two-way trade with China, so there are definitely gains to be made.

New Zealand’s trade and economic relationships are robust and long-term, and are typically fostered by investment. The majority of New Zealand companies are small and medium enterprises, for which building trading relationships under the auspices of an FTA can be very reassuring. FTAs are endorsements by the governments who negotiate and sign them as an expression of their confidence in each other’s markets.

We have seen this in action with a number of our FTA partners. Our economic relationship with China grew significantly after signing of an FTA in 2008. China is now New Zealand’s second largest trading partner, after Australia. Between 2008 and 2016, the two-way trade more than doubled between the two countries, from less than $9 billion to over $22 billion. Imports from China in the last five years have increased by 35%. New Zealand’s investment in China has increased from a low base, to an investment stock in China (excluding financial products) of over $2.8 billion. Our largest investment partner is however Australia, where New Zealand has $114 billion in investment stocks.

A similar growth story could, under the right conditions, occur in India.

TDB: With regards to future economic engagements, what key areas would you like to see India using its expertise in New Zealand so that the two countries enjoy mutual benefits? What major bottlenecks would you highlight?

GM: There are significant opportunities for Indian companies in New Zealand. New Zealand as an investment destination has solid credentials: New Zealand ranks first in the world for protecting investors, and is highly ranked for lack of corruption and starting a business. Overall, we are ranked second in the world for ease of doing business. We are a stable and internationally competitive economy that has grown strongly and towards the top of the OECD for an extended period. We are welcoming high quality domestic and foreign investment.

New Zealand is a competitive producer of high-quality goods and services. We pride ourselves for producing world-class products and services. Our fresh and processed food and beverage products are well known and our services sector constitutes 70% of the economy. Whether it’s booking theatre tickets online, designing high-end shop fit-outs, airport baggage systems, quality kiwifruit, infant respirators, or steel-frame housing with fully integrated design and build systems, we see interest from India in New Zealand’s innovative and quality products and services.

Indian companies too are using their expertise and investing in New Zealand. Indian IT companies such as Tech Mahindra and Infosys are active in New Zealand, and Indian financial software provides the backbone for some of our biggest retailers. Pristine Biologicals, an Indian manufacturer of Bovine Serum used in vaccines, opened a production plant in New Zealand last year. New Zealand also supplies ingredients to India’s flagship pharmaceutical industry, and purchases its products. There is a growing relationship between our film industries and Indian animation companies. Significant opportunities also exist for Indian firms in tourism and hotel market, in agriculture and specialised manufacturing.

TDB: The main reasons highlighted for the current state of limited exports from New Zealand to India are the prohibitive tariff and non-tariff barriers. However, in recent years, India has reduced tariff rates in line with its tariff policy and WTO commitments. What other expectations do you have from the Indian Government?

GM: International benchmarking shows that India’s business environment is changing for the better. Through ‘Make in India’, a range of sectors are being opened up for greater international investment or involvement – whether in part or in full. Bureaucratic systems based around more customer-centric models are also being introduced through ‘Digital India’. This is not easy and we commend the government for the efforts it is making.

New Zealand, along with the international community, has welcomed these steps towards creating a more business and investor friendly environment. We know, for example, that FSSAI and the Indian government are working hard to address some of the challenges that companies have faced in order to make trading with India easier while also ensuring the sacrosanct mandate of food safety.

Further, while some tariffs have reduced, India does still maintain high tariffs on a range of goods that are normally of trade importance to New Zealand. In many areas these raise the costs to consumers well beyond normal international prices. Wine tariffs, for example, add over 100% to the cost of a retail product and this undoubtedly restricts the growth of the market. Lower tariffs in the food and beverage area would see an increase in trade, and be ultimately beneficial for consumers who would enjoy a wider range of product offerings at more affordable prices.

TDB: In order to provide an impetus to bilateral trade and investment, India has had several joint trade committees with New Zealand. In fact, there have been many joint study groups and joint working groups meets as well in the past. Do you think these forums are doing their job well? 

GM: New Zealand and India have several joint forums that are useful to ensure a continued dialogue. Joint forums such as the Economic Dialogue between our two Finance Ministries, and the Foreign Policy Consultations held annually between our two Ministries of Foreign Affairs, are an important part of the relationship as we seek to learn from each other, strengthen cooperation on issues, and understand our respective perspectives on key issues of interest.

TDB: India has been negotiating a free trade agreement (FTA) with New Zealand for long now. Both the countries are also part of the ongoing negotiations on Regional Comprehensive Economic Partnership (RCEP). Can you please update us on the developments on both accords? 

GM: New Zealand and India have been negotiating a FTA since 2010. As you have noted, those discussions are ongoing, and remain a priority for the New Zealand government. We are also negotiating regionally and the last round of RCEP negotiations, involving India and 14 other countries, took place in Auckland this June.

RCEP has the potential to increase business across a very large region. RCEP countries have a total population of more than 3 billion, a total GDP of around $23 trillion (2015 IMF data), and account for 27% of global trade (2014 UNCTAD data). New Zealand sees great value in RCEP as a comprehensive agreement, covering trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, e-commerce (digital trade), dispute settlement as well as legal and institutional issues.

TDB: How do you view the Indian government’s ‘Make in India’ initiative? Has New Zealand planned investments to make the most of it?

GM: The government’s ‘Make in India’ initiative, along with the range of initiatives it has launched over the past couple of years, sets an important direction for the modernisation of India’s economy. The policy has sent a strong message that India is open for international investment, which we welcome, and that its policy settings will be fundamentally open, which is also positive.

Companies from New Zealand are already investing in information and communications technologies, fruits, financial services, dairy farming and quality manufacturing in various parts of India. And business will continue to see new possibilities going forward. Consistent with our economic history, we expect growing trade to beget more investment activity. We also welcome Indian investment in New Zealand.

New Zealand believes that free trade agreements can play a key role in amplifying the gains from domestic initiatives like ‘Make in India’. But to produce tangible benefits for India, and its regional partners, these agreements need to be of good quality and commercially meaningful. New Zealand looks for tariff elimination on all key items of export interest in its FTAs, as well as substantial improvements in the conditions facing our services exporters and investors.

TDB: Both India and New Zealand are economies characterised by a large number of small and medium enterprises (SMEs). How do you see SMEs- MSMEs associations between the two countries gaining momentum?

GM: SMEs and MSMEs play an important role in both countries through job creation and innovation. In New Zealand, small enterprises account for 29% of all jobs and contribute an estimated 26% to New Zealand’s gross domestic product (GDP). Given this contribution, it’s important for New Zealand, and for India too, to constantly refine the business environment so that it is simple, transparent and helps small businesses thrive. In India, initiatives that simplify the business environment, such as the Goods and Services Tax (GST), will be of great help for small businesses.

TDB: How do you see the growing culture of start-ups in India? What’s your message to New Zealand’s innovators in this regard? Please tell us about your efforts aimed at future collaborations in this direction.

GM: We understand ‘Startup India’ aims at promoting new and innovative enterprises, and linking ideas to a supportive eco-system that converts good ideas into real businesses. The Indian government’s endorsement that entrepreneurship is an important part of the economic ecosystem is useful in creating a competitive and innovative economy. Entrepreneurs need to take risks and grow their businesses. They need the space to take risks and a business ecosystem that is sufficiently developed to identify, finance and develop ideas. Entrepreneurship also comes with the risk of failures – for every big success there will be many small successes and a few failures. People need to know that the environment is such that it welcomes those trying to build the next big success. It is worth noting that India and New Zealand are both strong in the ICT (information and communications technology) sector, which is witnessing maximum innovation at the moment. New Zealand was ranked eighth for Global Patent Activity in 2015 by Bloomberg, and fifth in the Asia-Pacific region on the Global Innovation Index, behind United States, but ahead of Japan and China. Innovations developed in New Zealand are increasingly used in India, from jet propulsion engines, to airport equipment and design, to IT solutions, food technology, innovative clean technology, etc.

TDB: How lucrative is New Zealand as an investment destination for Indian businesses and investors? 

GM: We rank second in the world for ease of doing business after Singapore. New Zealand ranks first in the world for protecting minority investors and for ease of starting a business. We rank second in the world for honesty and integrity. The country has a straightforward, business-friendly taxation system that supports capital investment, research & development, and foreign investment. Pro-competitive regulation, an efficient tax code, an open political system and absence (in almost all sectors) of import tariffs or government subsidies, have given rise to an efficient, globally competitive economy that facilitates both domestic and foreign investment. We have extensive FTAs in place with our Asia Pacific partners, which has supported the growth in our trading networks.

TDB: What kind of high-level engagements can India expect from New Zealand in the near future? 

GM: New Zealand has actually been actively engaged with India in the recent past, including several ministerial visits. In November 2015, the government’s Special Agricultural Trade Envoy, Mike Petersen, visited India to explore opportunities for agricultural cooperation. He visited Himachal Pradesh, where New Zealand’s PipFruitNZ Inc. is working with the World Bank to improve the local apple industry’s productivity.

Among other several ministerial visits were Hon. Amy Adams, Minister of Justice, Courts, Communication and Broadcasting who visited India in September 2015, while leading a Clean Tech Business Mission to explore opportunities with India. The Minister of Agriculture, Nathan Guy, travelled to Delhi and Mumbai in 2014. Minister Guy was accompanied by the Education Ambassador, and former New Zealand Cricket Captain, Stephen Fleming, and a large business delegation. New Zealand Minister of Immigration Michael Woodhouse has visited India on more than one occasion. The Prime Minister of New Zealand last visited India in 2011 and has expressed a clear intention to visit India again with a senior business delegation in 2016. In between high level visits, we have had a range of very senior government officials and delegations visiting India on a host of issues, including on science collaboration, education, biosecurity, agriculture, economic and finance, and food safety.

We were very greatly honoured to host in New Zealand in 2016 the first ever visit to New Zealand by the President of India. This was the first Head of State or Head of Government visit from India to New Zealand since 1986, when Prime Minister Rajiv Gandhi visited.

 TDB: NZ Inc. is the Government of New Zealand’s plan to strengthen the country’s economic, political and security relationships with key international partners. The NZ Inc. India strategy was the first NZ Inc. strategy to be launched, highlighting the importance of this relationship to New Zealand. How has been the progress so far?

GM: NZ Inc. strategies, including the one for India, were developed because New Zealand recognises that organising the country’s resources in ways that maximises the development of stronger political and trade and economic relationships will in turn create jobs, boost incomes, and raise living standards of citizens of New Zealand.

The NZ Inc. India strategy too recognises that India is emerging as an active international power and outlines why our government and companies should be engaging with India. New Zealand wants India to become one of its core trading, economic, and political partners. The government is currently reflecting on what we achieved in the first years of strategy implementation and is taking stock of the structure in which future ambitions will be pursued.