Moody’s sees Quad bolstering India’s trade, investment flows

Rating firm flags country’s ‘relatively protectionist’ approach, regulatory and infrastructure constraints as key determinants of extent of gains 

India’s membership of the Quadrilateral Security Dialogue would give it an opportunity to benefit from greater trade and investment flows 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 constrain these gains, Moodys’ Investors Service said on Tuesday.

“India is poised to become a growing destination market for goods from the other Quad countries, including commodities, machinery and chemicals,” the rating agency said in a note on geopolitical risks stemming from the Quad alliance. “The U.S. and Japan will continue to be major sources of foreign direct investment (FDI) to India in services, telecommunications and software, while Australia’s presence will grow as a result of a free-trade agreement with India,” it added.

Trade and investment gains would accrue to India, Moody’s observed, adding that regulatory and infrastructure constraints, however, remained . The magnitude of the trade flow shifts would also depend on improvements in India’s business climate and the level of investment attractiveness, which ‘remains weak’ compared with that of other Asia Pacific economies and other Quad members – Japan, U.S. 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. 

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

“These shifts may include greater Australian exports of commodities including copper, energy and agricultural goods to these economies. Financial services companies in the U.S., Japan and Australia will benefit from the shifts, which will also support India’s industrial and capital market development,” it said. 

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