India-Taiwan Relations: An Idea Whose Time has Come

Geopolitics and geoeconomics go hand in hand. Often, geopolitics steers geoeconomics paving way for new cooperations. The slow and steady expansion of India and Taiwan collaborations is a case in the point. Last week, a Taiwanese business delegation led by, Deputy Minister, Chern-Chyi Chen, Ministry of Economics, attended the 6th edition of the India-Taiwan Industrial Collaboration Summit, in Delhi. This first in-person annual meeting, since Covid was organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Taiwan’s China National Federation of Industries (CNFI) on November 3. The meeting was followed by the first India-Taiwan CEOs Roundtable.

The delegation which included representatives from Foxconn and Pegatron culminated in three MoUs between the Indian and Taiwanese businesses for cooperation in electronics manufacturing and green technologies. Notably, weeks ahead of this meeting, Pegatron, Apple’s Taiwanese subsidiary manufacturer inaugurated its first unit and started assembling of iPhone 14 at Chengalpet, Chennai. Unlike Wistron and Foxconn which have already started production under PLI (Production Linked Incentives) availing the five-year incentives, Pegatron, a late entrant, plans to invest Rs. 1100 Crores in India under PLI in the FY 2023-24.

The Government of India announced the PLI scheme for smartphones in 2020 to wean manufacturing giants from China and Vietnam. Thanks to the PLI scheme, India’s monthly mobile exports touched the $1 billion mark in September led by Apple and Samsung. Boosting electronic manufacturing is among the core objectives of India’s Atmanirbhar or self-reliance agenda. Taiwan is a dominant player in the global semiconductor market with Taiwan Semiconductor Manufacturing Company (TSMC) making up 54% of its foundry market share1.

Deemed the “new oil” of the 21st-century semiconductors are indispensable for modern electronic goods, weapons, space, the defence sector and the automobile industry with vital security implications. Given their increased demand, semiconductors would become a geopolitical tool. Taiwan supplies 75% of semiconductor chips to India2 (factors the demands of the domestic and global manufacturers). Geopolitical tensions and supply chain volatilities during the pandemic have raised doubts over the accessibility of semiconductor chips. With Indian telecom industries foraying into 5G, the demand for semiconductors is set to increase. Experts term semiconductors as “pillars of the modern digital economy”.

Being a nonstarter in this industry, cognizant of the need for building a reliable semiconductor ecosystem in March 2022, India has set up India Semiconductor Mission (ISM) with four embedded schemes-semiconductor fabs; display fabs; Assembly, testing, marking and packaging (ATMP) facilities; design linked incentive (DLC) schemes. The government has also approved the modernisation of the semiconductor laboratory at Mohali. With a total outlay of Rs 76,000 Crores, India envisions emerging as a global hub of electronics manufacturing and design3. Taiwan’s dominance in semiconductors has sparked India’s interest.

“One China Policy” with sovereignty over Taiwan, Hongkong, and Macao as its redline, not keen on ruffling feathers with Beijing, New Delhi refrained from playing the “Taiwan Card”. But the rapid geopolitical events- hot border, US-China trade and technology sanctions, and the military showdown of China over Nancy Pelosi’s visit have invariably influenced both India and Taiwan to recalibrate their positions.

Moreover, the emergence of reunification as the foremost agenda of Xi at the 20th National Congress, asking the nation to gird up loins, “we should adhere to the one-China Principle and the 1992 consensus and implement our Party’s overall policy of resolving the Taiwan question in the new era. We should take resolute steps to oppose “Taiwan independence” and promote reunification, maintain the initiative and the ability to steer in cross-Strait relations, and unswervingly advance the cause of national unification”4.

Troubled by the labour shortage, to cater to the huge Chinese market, Taiwan has set up manufacturing units in China. However, in light of the latest escalations, the US’s adversarial stand towards China, Taiwan’s business interests dependent on China, are planning to relocate to other countries. Further, Chinese companies poaching Taiwanese talent along with the technological know-how of chip manufacturing has compounded Taiwan’s concerns.

India’s huge markets, surging demand, government’s accelerated push for self-sufficiency in semiconductors have opened a window of investment opportunities for Taiwan in India. President Biden has recently invoked the Foreign Direct Product Rule (FDPR) targeting China’s ambitious advanced computing and semiconductor which is still reliant on American technology5. To become self-reliant, China has made semiconductor manufacturing a national mission. Resolutely pursuing Chip manufacturing, China invested $300 billion and is now a few steps away from America. FDPR effectively bans the use of American technology by foreign countries in designing and manufacturing semiconductors.

Troubled by the frequent covid lockdown and the export control of technologies, tech giants like Apple and Google in China are expediting their relocation and diversification plans. India is sensing an opportunity for building a vibrant tech ecosystem. The official finalisation of the first semiconductor fab unit, a display fab unit and a semiconductor testing and assembling unit worth $20 billion at Dholera, Gujarat, the joint venture between Vedanta and Foxconn has thus been a welcome step in India’s pursuit towards self-reliance in semiconductors. The joint venture plans to set up the semiconductor manufacturing plant in the next two years.

Semiconductors are strategically important and critical components of emerging technologies. The criticality of semiconductors can be assessed from the fact that the Quad has constituted a working group on Critical and Emerging technologies. Dominance in this field is crucial for securing national interests and having equal footing with developed countries. Having had a past experience of denial of technology by America, the latest US tech sanctions on China have spurred the government to prioritise semiconductors.

In the aftermath of US tech export control, Gujarat has announced a sector-focused semiconductor policy (2022-27). With Dholera, India has just made a beginning. It needs a trusted entity that can cater to India’s growing technological needs. Besides being democratic entities, the complementarities between India and Taiwan can bode well for an energised friendship and cooperation. Both India and Taiwan share a common concern about China’s aggressive posturing and militarization. While Taiwan is facing a looming annexation threat, India is bothered by China’s power projection, a live confrontation at the LAC, undeterred assistance to Pakistan and a growing presence in the Indian Ocean Region (IOR).

Though India and Taiwan didn’t formally establish diplomatic ties, India started India-Taiwan Association in 1995 in Taipei to promote non-governmental relations. Similarly, its counterpart Taipei Economic Cultural Centre in New Delhi was established the same year. Both countries signed Bilateral Investment Agreement (BIA) in 2002 which came into force in 2005. In December 2018, both sides signed an updated BIA. Taiwan is India’s 16th largest trade partner with bilateral trade volumes reaching $5.7 billion in 2020, a growth of 185% from 2006. Taiwan’s investment in India stands at $1.5 billion6.

India’s engagement with Taiwan is constrained by its bilateral ties with Beijing. After China’s stealth incursion and Galwan incident as a message to Beijing, two Indian MPs virtually attended the swearing-in ceremony of Taiwanese President Tsai Ing-Wen in May 2020. In a major policy change, in July 2020 New Delhi appointed an envoy to Taiwan. China’s obdurate stance on the restoration of status quo ante has inadvertently catalysed India-Taiwan engagement.

Shedding conservatism, India issued a guarded statement on China’s response to Pelosi’s visit appealing “avoidance of unilateral actions to change the status quo” and refused to mention “one China policy”. This consciously set a pragmatic narrative. Though India’s statement wasn’t forthcoming, it reflected a sense of solidarity. While economic cooperation can be the major binding factor, shared values of democracy, freedom and rule of law can keep the entities together.

For long, India has adopted a cautious towards Taiwan aware of China’s reddest line. Recalibrating its policy towards Taiwan, New Delhi can begin extending support for Taiwan’s membership at various platforms, revamp the India-Taiwan Parliamentary Forum established in 2016 and restore political interactions. As a part of the “New Southbound Policy” (NSP) Taiwan focuses to increase cooperation with India. Similarly, India can rejuvenate its engagement with Taiwan under the “Act East Policy”.

Last month Taiwan-Asia Exchange Foundation (TAEF) conducted the 6th edition of the Yushan Forum to foster sustainable cooperation with like-minded countries7. This was followed by the inaugural Taiwan-India Dialogue which emphasised harnessing the complementary strengths of both sides8.

Being the fifth largest economy with huge potential for growth and business opportunities, India is now the target country under Taiwan’s NSP. The recently concluded Taiwan delegation visit has added fresh momentum to the engagement. Besides palpable public enthusiasm in both entities for expanded cooperation evidenced by Netizens’ rousing support for the “Milk Tea Alliance”, they must actively pursue the Free Trade Agreement. FTA can attract Taiwanese companies to set up production bases in India.

Taiwan’s position as a dominant manufacturer and supplier of semiconductors makes it a valuable partner for India’s pursuit of self-reliance. India must seize this opportunity with both hands as reiterated by Taiwanese speakers at the Yushan Forum, as “an idea whose time has come”9.

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