India and Taiwan are on the verge of signing a long-awaited Free Trade Agreement (FTA). It will be focused on establishing a Taiwanese company’s semiconductor manufacturing cluster in India. If this passes, it will be a win-win situation for all parties, as India intends to become a global semiconductor manufacturing center, while Taiwan seeks to diversify its industry away from China.
According to sources, India and Taiwan signed a historic Bilateral Investment Agreement in 2018 to encourage investment between the two countries. The agreement aims to ensure that Taiwanese investments are protected in India following international standards, as well as the safety and rights of Taiwanese investors. The recent ‘Act East Policy’ of India and Taiwan, as well as Taiwan’s ‘Southbound Policy,’ both, contribute to the two countries’ economic cooperation.
The most obvious reason for expanding mutual collaboration is that Taiwan, like many other Asian and South Asian countries, including South Korea and Japan, wants to withdraw its investments from Chinese land and minimize its reliance on the country.
This is very much in line with India’s goal of becoming a digital powerhouse. India is making every attempt to improve its technology resiliency.
Taiwan’s main export destination as well as its top importing source is China. Taiwan is experiencing a labor shortage, particularly skilled labor. As a result, the country established manufacturing facilities on Chinese land, which contributed significantly to Taiwanese import value from China. China has been putting increasing political and military pressure on Taiwan in recent months. In the Taiwan Strait, the latter has intensified aviation incursions and heightened tensions.
This is one of the factors that has driven Taiwan to expand and partner with other countries, with its choice to establish a semiconductor hub in the United States being one of them. Given the immense potential for investments and manufacturing in Maharashtra and Gujarat, Taiwan is also considering opening a representative office in Mumbai.
The proposal to develop a semiconductor manufacturing facility in India is at the center of the FTA talks between the two countries
According to a study published by the Observer Research Foundation, the Indian government has identified three locations for the center, and talks are on to bring in one of Taiwan’s biggest semiconductor manufacturers. In recent media reports, organizations such as Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) have been mentioned as probable possibilities for implementing this massive project.
After the United States, India will be the second hub for Taiwanese semiconductor manufacturing if the plan is followed. However, because semiconductor production necessitates a pollution-free environment, an uninterrupted power supply, and the consistent availability of a huge volume of water, choosing a location may be problematic.
As the global shortage of semiconductor chips worsens and demand from Indian automakers and tech firms grows, a Taiwanese manufacturing hub in India appears to be a win-win situation for both countries.
The ORF study found that manufacturing semiconductors are a difficult process in which the producer relies on a large number of components from hundreds of different companies. Setting up a hub in India requires companies like TSMC and UMC to persuade these companies to locate their manufacturing facilities in India.
India’s thirst for semiconductors is also growing rapidly, with sales expected to reach $100 billion by 2025, up from $2 billion now. Separately, the Indian government announced an outlay of Rs 76,000 crore (about $10 billion) for the creation of a semiconductor and display manufacturing electronics ecosystem under its production linked incentive (PLI) scheme.
India has been aggressively developing commerce, investment, tourism, culture, education, and people-to-people ties with Taiwan in recent years. Both countries have also formed teams to expand their productive partnership in the areas of education and skill development.
On some projects, the Indian Space Research Organisation (ISRO) and the Indian Institute of Space Science and Technology (IISST) are already working with Taiwan’s National Space Organization. Green energy is another viable area of collaboration. India is an energy-short country that must move away from fossil-fuel-based energy and toward renewable green energy. Taiwan, on the other hand, is a significant Asian player in green energy and could be a game-changer for India in this interim period.