Moody’s sees Quad boosting India’s trade and investment flows

The rating agency points to the country’s ‘relatively protectionist’ approach, as well as regulatory and infrastructural constraints as key determinants of the magnitude of the gains

The rating agency points to the country’s ‘relatively protectionist’ approach, as well as regulatory and infrastructural constraints as key determinants of the magnitude of the gains

India’s membership in the Quadrilateral Security Dialogue would provide it with an opportunity to benefit from increased trade flows and investment, as economic ties are expected to deepen among members seeking to reduce their dependence on China, but the country’s protectionist stance and “weak” business climate could limit those gains, Moodys’ Investors Service said Tuesday.

“India is poised to become a growing destination market for goods from other Quad countries, including raw materials, machinery and chemicals,” the rating agency said in a note on ratings. geopolitical risks arising from the Quad alliance. “The United States and Japan will continue to be the main sources of foreign direct investment (FDI) in India in services, telecommunications and software, while Australia’s presence will increase thanks to a free agreement. -exchange with India,” he added.

Trade and investment gains would accrue to India, Moody’s observed, adding that regulatory and infrastructural constraints still remained, however. . The magnitude of changes in trade flows would also depend on the improvement of India’s business climate and the level of investment attractiveness, which “remains low” compared to that of other Asia-Pacific and other economies. other members of the Quad – Japan, United States and Australia.

“India also stands out as a relatively protectionist market for goods and capital, reflected in its high weighted average import tariff,” Moody’s pointed out.

Yet as economies diversified production of critical products and technologies, the Quad would continue to drive long-term supply chain shifts to Southeast Asia and India, Moody’s estimated.

“These changes may include increased Australian exports of commodities including copper, energy and agricultural products to these economies. Financial services companies in the United States, Japan and Australia will benefit from these changes, which will also support the industrial and capital market development of India,” he said.

India stands to benefit from Quad-related supply chain changes by increasing trade with member economies and diversifying its sources of imports from China, the ratings firm said.

“For India, the costs of pivoting China to Quad members as priority markets for trade growth will be relatively low, given that only a small share of its exports currently goes to China. As evidenced by its reluctance to join the RCEP trade deal, India wants to reduce its dependence on imports from China while expanding its market access to Australia, Japan and the United States. United,” Moody’s said.

Although a further increase in tensions between Quad members and China would accelerate the companies’ plans to diversify their production centers in Asia, Moody’s said such changes may only happen “slowly as Quad governments would be careful not to antagonize” China because of their already entrenched trade relationship. ties.

“A lack of cohesion among Quad members on any given issue, exemplified by India’s withdrawal from the trade pillar of the IPEF (Indo Pacific Economic Framework), can also hamper the alliance’s ability to find ground agreement on an economic strategy to counter China,” the company said.

“Overall, we expect Quad members to carefully consider the trade-offs of the grouping against national considerations, given the negative effects that a more vocal Quad alliance could have on each member’s relationship with the community. China,” he concluded.

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