The leaders of Quad nations came together this March (virtually) for a meeting that was veritably 17 years in the making. Launched as a humanitarian response to the December 2004 Tsunami that killed and displaced millions across South and Southeast Asia and Africa, the Quad now met in the wake of another calamity – this time a worldwide one, the Covid-19 pandemic. Appropriately, they pledged to combat the pandemic together through vaccines. This sets an example of concerted action to advance a framework for a free and prosperous Asia Pacific, built on a bedrock of democracy and cooperation.
While the security framework of the group is well-understood, there is also an enormous opportunity here for Quad nations to dramatically alter the global economic landscape. This could go a long way in benefitting all the participating nations, at a time when job creation is paramount for their economies.
What if this alignment of the strategic interests of Quad powers could be extended to bring about significant transformation in the sphere of trade? A July 2020 paper published in the Journal of Economic Structures by Mohammad Masudur Rahman and co-authors, makes some fascinating points. Using econometric modelling, the authors conducted a comparative analysis of the likely impact of tariff reduction and trade facilitation in a scenario of Indo-Pacific regional integration on various macroeconomic and trade variables.
The modelling showed that if Quad countries were to sign a trade agreement where bilateral tariffs are scrapped, India’s real GDP could increase by 0.2% or $2.7 billion a year, while exports could rise by 2.5% or $5.7 billion. Sectors where India’s exports are competitive such as clothing, textiles, and light manufacturing, would benefit the most. On the other hand, US could see an increase of 0.01% or $3.7 billion a year in real GDP, while its exports could rise by 0.6% with heavy manufacturing being the major gainer. If the countries also managed to reduce non-tariff barriers by 25%, India’s real GDP could increase by nearly 2% or $31.4 billion a year, while US’s real GDP could increase by 0.42% or $85.1 billion.
While such an agreement would be advantageous for the other two partners as well, benefits would differ depending on the size of the economy, the levels of tariff and non-tariff barriers. If other nations or groupings – like Asean – were to join such an FTA and engage in reducing non-tariff barriers, the benefits for member countries could be exponentially higher. So, given the economic turmoil the region has faced during an unprecedented year, to emerge stronger from this crisis there is a compelling case for India and its Quad allies to embrace even greater trade, investment, and economic cooperation.
The US-India relationship is a cornerstone of the Quad. Economic and strategic ties between the countries are now deeper than ever before, and the Biden administration has stated its commitment to further enhancing this relationship. From climate change to technology, this partnership has significant potential to benefit both countries.
US-India cooperation on energy and infrastructure can serve as an effective platform to enable greater job creation in India, which is currently on a multi-dimensional energy transition journey towards increasing its renewables capacity. More importantly, extending the partnership across industrial sectors, with a strong focus on reducing carbon emissions, has great potential to transform this economic growth into a more sustainable one.
Japan is already a large investor in India, particularly supporting key infrastructure projects in the country. The capability of a large, young country like India to absorb technology and provide scale economies to Japanese investments is unparalleled. The duo can work together to maintain a free, open and inclusive Indo-Pacific region, as a level playing field to fuel economic activities for countries across the littoral. There is scope to partner on building resilient supply chains – an essential factor to boost business in India’s key industrial sectors.
At the same time, Australia and India are also seeking to grow their trade relationship. India’s Australia Economic Strategy Report 2020, in response to a similar document released by Australia, projects the ambition to place India as Australia’s third largest trade partner by 2035. Raw materials, investments, and access to the Pacific nations are aspects India can benefit from.
In its new avatar, the prosperity of the nations of the Quad will be enhanced by a wider commitment to collaborate with each other. Key areas of such engagement would be trade, investment and financing, and overall economic development initiatives in areas ranging from healthcare to infrastructure.
Among Quad nations, India needs investment, attractive financing for infrastructure, technology, and access to key raw materials, particularly rare earth elements. The other members of the Quad are looking for market access and reliable destinations for investment. In such a scenario, an enlargement of the Quad’s present strategic focus, towards boosting economic ties under the aegis of the partnership, would make for a win-win situation for all the countries involved.
How the Quad process evolves and indeed how other stakeholders in the region, China, South Korea and Asean react to this grouping remains to be seen. But political and economic imperatives suggest that the ‘Confluence of Two Seas’, posited by PM Abe in his address to India’s Parliament in August 2007, could play a critical role in global strategic and economic policies in the years to come.