India and Taiwan are marching ahead to ink the much-awaited Free Trade Agreement (FTA). It will primarily focus on having a semi-conductor manufacturing hub in India by a Taiwanese company. If this gets through, it will be a win-win situation for both the parties as India aspires to become a global semi-conductor manufacturing hub and Taiwan wants to move away its business from China.
According to various reports India and Taiwan signed a landmark Bilateral Investment Agreement in 2018 to promote investment flow between the two sides. The Agreement seeks to ensure protection for Taiwanese investments in line with international standards, as well as the safety and rights of Taiwanese investors in India. India's latest 'Act East Policy' and Taiwan's 'Southbound Policy' too buttress the economic cooperation between the two.
The most immediate rationale in expanding the mutual cooperation lies in the setting that like many other Asian and South Asian countries including those of South Korea and Japan, Taiwan too seeks to pull out its investments out of the Chinese soil and reduce its dependence on the country. This very well coincides with India's quest to become a digital hub. India is making all possible efforts to become technologically resilient.
China stands as the biggest export destination and the largest importing source of Taiwan. Taiwan faces lack of labour as an issue, especially skilled labour. This led the nation to set up manufacturing facilities on Chinese soil, which majorly contributed to Taiwanese import value from China. Of late, the island nation of Taiwan has been facing mounting political and military pressure from China. The latter has increased air incursions and been creating tension.
This is one of the reasons that has prompted Taiwan to expand and collaborate with other countries and its move of having set up a semiconductor hub in the US forms a part of this decision. Taiwan is also eyeing the possibility of establishing a representative office in Mumbai given the huge potential for investments and manufacturing in the states of Maharashtra and Gujarat.
The FTA talks between the two nations are strongly pivoted around the proposal to build a semiconductor manufacturing facility in India. According to a paper by Observer Research Foundation, The Indian government has reportedly proposed several sites for the hub and negotiations are on to rope in one of Taiwan's leading semiconductor manufacturers. Names of companies like Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) have come up in media reports as possible candidates for implementing this mega project.
If implemented, India will be the second hub of Taiwanese semiconductor manufacturers after the USA. However, the choice of location may be a difficult one as semiconductor production entails necessities like a pollution-free environment, an uninterrupted power supply, and the constant availability of a large amount of water.
As the global shortage of semiconductor chips continues and demand by Indian auto manufacturers and tech companies rises, an Indian manufacturing hub created by a Taiwanese company seems to be a win-win proposition for both countries.The ORF paper analysed that production of semiconductors is a complicated process where the manufacturer uses numerous components from hundreds of other firms. Setting up a hub in India implies that companies like TSMC and UMC have to convince these firms to set up their production facilities in India.
India's appetite for semiconductors is also rapidly increasing -- estimated to touch $100 billion by 2025 from the current level of $2 billion. The Indian government also announced an outlay of Rs 76,000 crore (around $10 billion), under its production linked incentive (PLI) scheme, separately for the development of a semiconductor and display manufacturing electronics ecosystem. In the last few years, India has been actively promoting cooperation with Taiwan in trade, investment, tourism, culture, education, and people-to-people exchanges. Both the countries have also constituted teams for the expansion of fruitful collaboration in education and skill development.
Indian Space Research Organisation (ISRO) and the Indian Institute of Space Science and Technology (IISST) are already collaborating with Taiwan's National Space Organisation on different projects. Another possible area of cooperation exists in green energy. India is an energy-deficient country but needs to make the transition from fossil-fuel-based energy to renewable green energy. On the other hand, Taiwan is one of the major Asian players in green energy and may turn into a game-changer for India in this transitory phase.
