India and New Zealand in the Asian Century

Opening address of the NZ Institute of International Affairs seminar on relations with India, Turnbull House, Wellington

Introduction

Let me begin by congratulating Brian Lynch and the New Zealand Institute of International Affairs in organising this event. It is timely and the programme looks excellent. A warm welcome to our overseas participants.

Our relationship with India is more important to us than ever. We have achieved a good deal in enhancing our ties with New Delhi over the last few years, but we still have some way to go in taking full advantage of the opportunities India offers. Maximising the potential benefits of the relationship needs a collective effort from Government, the business community and wider New Zealand society, including academia.

Historic relationship

Our relationship with India goes back many years. There was a New Zealand presence in India from 1941, and the first High Commissioner was appointed in 1960. In addition to our multi-agency operation in Delhi, we now have Honorary Consuls in Chennai and Mumbai, and trade and tourism offices in Mumbai.

Common historical links mean that we share the same language, the same democratic traditions and a passion for cricket. But whilst the relationship has been long standing and warm, I think it’s fair to say that for much of the time it has not been particularly active. Historically trade has been minimal. As recently as the 1990s, there were few ministerial visits in either direction.

What has changed – India Rising

All that has changed in the past few years. This change has been driven largely by the dramatic rise of India – its rapid economic growth and associated greater influence in the region and internationally.

At the same time India faces considerable challenges. A quarter of Indians remain below the poverty line mainly in the rural areas. Agriculture is still largely subsistent and pulls the economy down. Massive investment in the infrastructure is needed.

But recent economic facts speak for themselves. In terms of purchasing power parity, India’s economy is the world’s fourth largest – behind the US, China and Japan. Current economic growth is around 9 percent. The average over the past three years was 8.1 percent.

The economy has become more open. Not as open as we would like, but it's moving in the right direction, other than in agriculture. External trade in merchandise goods now accounts for 33 percent of GDP.

Add to this India’s political stability – particularly impressive for a diverse population that is the world's second largest. Indeed India’s strength is its human capital. Its software industry is regarded as one of the most sophisticated in the world – with success of business process outsourcing well known. Indian corporates are increasingly influential on the global scene.

The scale of India can be hard for Kiwis to grasp. Its tertiary institutions – for example - produce over 100,000 engineering and two million non-engineering graduates a year. That’s half the total population of New Zealand graduating annually.

India has firmly established itself as one of Asia’s two major regional powers – the other being China. The two countries are the key drivers in Asia’s rapidly changing geo-political, economic and trade landscape. Understanding and embracing these developments is vital to New Zealand’s interests and future prosperity.

For its part, New Delhi has recognised the importance of East Asia. India has adopted a formal ‘Look East’ policy – and that’s where its trade growth is fastest. And it has joined New Zealand as a founder member of the East Asia Summit established in 2005.

The Government’s response

All this means that India is a priority relationship for us, particularly in terms of our trade and economic interests.

As Foreign Minister, I visited India in 2001 after a gap of nearly 10 years since the last Foreign Ministerial visit. Reflecting this the Prime Minister visited India in October 2004 – the first head of government visit since Rajiv Gandhi visited New Zealand in 1986. This was followed by other Ministerial visits which have contributed significantly to enhancing the relationship in practical ways.

For example, the Government recognised the enormous potential for New Zealand to cooperate with India in the education sector – both in terms of attracting Indian students to study in New Zealand, and in establishing joint education ventures in India.

Following a tertiary education-focussed mission in 2005, we signed an Education Cooperation Arrangement with India. This demonstrates the commitment from both countries to developing a long term education relationship. It led to the establishment of an Education Joint Working Group, the first formal meeting of which will be held in Wellington next month.

I am pleased to note that the number of Indians studying in New Zealand has steadily increased over the last few years. There were over 2,000 Indian students studying here during the 2005 calendar year. Based on the number of student visas issued, we expect the 2006 figure to be over 3,000.

The Government has also established an education counsellor position at the New Zealand High Commission in New Delhi. The new counsellor, Perya Short, whose role it will be to promote and advance the opportunities offered by New Zealand education, will start work in New Delhi next month.

I should add that we have also strengthened our capacity at the High Commission to promote the trade and economic relationship.

We have been working hard to increase tourist numbers. Over the last 12 months, more than 20,000 Indians have visited New Zealand - up 14 percent from the previous year. This includes a significant number of Indian honeymooners - no doubt inspired by some of the popular Bollywood movies made in New Zealand.

There have been visits by over 120 Indian film crews in recent years, with positive spin off for New Zealand's profile in India.

To facilitate tourism traffic we have signed an air services agreement. This would allow for direct flights between Auckland and Mumbai, and code sharing between most major centres using Singapore or Australia as an intermediate point.

The improvement in tourism is part of a bigger picture of huge potential in the new economy – IT, biotech, tourism, film making and education.

But what do the goods trade figures – the “old economy” - look like?

New Zealand exports grew from under $200 million in 2004 to $337 million in the 2006 calendar year. India is now our second fastest growing market – though this is from a low base.

Our main exports are coal, wool, wood pulp, machinery, hides and skins. Coal exports in particular are flourishing, and we welcome recent Indian investment in the sector. As India invests heavily in infrastructure and new manufacturing capacity, New Zealand technology companies are finding India an increasingly attractive marketplace.

Looking Ahead – taking the relationship forward

How do we more forward from here?

We need to increase the breadth and intensity of our interaction with India across the board. This involves both government and non-government sectors.

I was pleased to learn recently of the formation of the Auckland-based India Trade Group. It joins the India – New Zealand Business Council in providing support for businesses involved in, or wishing to enter, the Indian market. Plans are underway for New Zealand to host the next meeting of the New Zealand - India ‘Joint Business Council’, back-to-back with officials’ trade talks.

We can do more to enhance contacts between New Zealand universities and institutes and their Indian equivalents. The Government is providing support for these linkages, for example through ‘Seriously Asia’ programmes. The New Zealand Institute of International Affairs itself is developing institutional links with its counterpart, the Indian Council of World Affairs.

We also have the benefit of a growing and active Indian community that makes a very positive contribution to New Zealand. This is particularly so in my own electorate of Mt Roskill where many of my schools have Indian enrolment levels of more than a third of their students. The annual Diwali festivals are increasingly popular, as are Indian cultural events and cuisine.

Returning to the government-to-government level, personal contact remains important. In this regard I am pleased to say that I will be visiting India in two weeks time. It will be my third visit to India as a Minister. It’s a short visit and my focus will be on how to advance New Zealand’s trade interests in India.

The issues here are not new. We have been talking to the Indian Government about them for some time. Of most concern are the non-tariff barriers that impede our dairy and meat trade. India’s standards are not consistent with international practice and we continue to make that point. It is in both countries' best interests to review these barriers. New Zealand meat and dairy products will not flood the Indian market but they could make a valuable contribution to the hospitality and emerging retail sector there.

We are working through some issues connected to our timber trade too.

India is an important emerging market for New Zealand forest products, worth just over NZ$50 million at the end of 2006. Seventy-six percent of total New Zealand forest product exports to India are raw logs. Ideally, we would like to be able to supply India with a range of other products of interest to India (for example in the construction sector, providing sawn timber, mouldings and builders joinery). But so far, India’s high tariffs on value-added products have been a damper on the potential for this market.

Obviously one of the key ways to advance a trade relationship would be to negotiate a quality free trade agreement with India. We have been looking at this possibility and the Business Council has formally raised the issue with me.

It’s not a matter of ‘if’ we seek an FTA with India, but rather ‘when’. We need to assess realistically what an FTA with India might deliver were we to enter negotiations. Would the gains be significant given India’s current positions on key issues for us – especially agriculture? We are likely to be in a better position to assess this following the outcome of the WTO Doha Round negotiations.

Given our limited negotiating resources, where would India come in terms of other possibilities? We have negotiations with China, Asean and Malaysia well under way; and have recently launched negotiations with the Gulf Cooperation Council. Other priorities are the US, Japan, Korea, and Mexico. There is also the contribution we want to make to current EAS and APEC FTA initiatives.

Having said that, the possibilities of negotiating an FTA with India is under consideration. I discussed the issue with Indian Finance Minister Chidambaram when we met in Wellington last November, and will follow up with Commerce Minister Nath during my forthcoming visit to New Delhi.

As members of the East Asia Summit, New Zealand and India both strongly support the concept of an EAS-wide FTA. We are participating together in a non-government study to look at the benefits of an FTA, commissioned by EAS leaders when they met in January. As we undertake this work it may be useful also to consider what scope exists for initiatives bilaterally.

I will also be talking to Indian counterparts about how we can advance the Doha negotiations. Key stumbling blocks remain, particularly in domestic support for agriculture, market access for agriculture and non-agriculture market access.

We recognise that agriculture is a real challenge for India. But in the longer term it has more to gain (for example in services) than to lose from a more ambitious approach to the Round.

India is a member of the G4 negotiating group that includes the other major players, the EU, US and Brazil. Currently this group is undertaking an intensive series of bilateral meetings to try to reach agreement on a breakthrough package for discussion with the wider membership.

I will be interested to discuss progress in the G4 talks when I am in New Delhi. If negotiations are to bear fruit, concessions will be required among the major players. And there will need to be real gains in trade liberalisation for developing countries such as India.

Defence Ties

A word on defence cooperation. Whilst our links with India are modest in this area I am keen to ensure that these develop in line with our overall bilateral relationship.

Past defence cooperation has focused on naval ties. Last year the Chief of Navy visited in conjunction with the ship visit by HMNZS Te Mana to Mumbai and Kochi. The Chief of Navy's visit resulted in an undertaking to foster closer training and joint exercise opportunities, and usefully exposed our Navy to the high level of professionalism in the modern Indian Navy. A Navy exercise with India is planned for mid year.

I am scheduled to meet the Indian Defence Minister Anthony in New Delhi next month, and to call on the Indian Navy. We are keen to broaden cooperation and in this regard I am pleased that the Indian Defence College will visit New Zealand in May. Early next year the Chief of Army plans to visit India to explore cooperation among our ground forces.

India has a long tradition of making significant contributions to UN peacekeeping operations. New Zealand and Indian service men and women are currently serving side by side as part of UN missions in Sudan and Kosovo.

Conclusion

In conclusion, the Indian economy has taken off and India, with a population of over 1 billion, is now one of the region’s two major powers. It is becoming more outward looking. I look forward to our building stronger relations with New Delhi in trade and across the wider spectrum of issues where we share common interests and where we can work together for mutual benefit.