India and Taiwan have begun negotiations for a free-trade agreement and the establishment of a semiconductor manufacturing hub in an Indian city, signalling their determination to expand bilateral economic engagement.
According to people familiar with the development, if the semiconductor manufacturing plant is built, it will be Taiwan's second such facility in a foreign country, following its production hub in the United States.
The Indian government has already recommended a number of locations for the facility, and one of Taiwan's leading semiconductor manufacturers, such as Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC), may carry out the mega project, they said.
Taiwan is a major player in the global chip manufacturing industry. According to industry estimates, TSMC manufactures roughly half of all semiconductors produced globally.
"There is a strategic significance to attempting to firm up the FTA and establish the semiconductor hub," one of the individuals cited above stated.
Taiwan regards itself as a sovereign state. On the other hand, China considers Taiwan to be part of its territory.
The decision to build the facility comes at a time when automakers and technology companies, among others, are increasing their demand for chips in India, and there is a global shortage of chips.
According to the sources, the proposal to establish the semiconductor hub is motivated more by the strategic importance of India-Taiwan ties than by commercial considerations.
"The semiconductor plant in the United States was built to reflect the two countries' close strategic ties. The same will be true in India's case "said one of the aforementioned individuals.
In the face of increasing Chinese hostility, the US has been unwavering in its outreach to Taiwan, assuring Taipei of its continued support.
The government unveiled a plan on Wednesday to provide incentives worth Rs 76,000 crore to encourage the establishment of semiconductor design, manufacturing, and display fabrication (fab) units, with the overall goal of making India a global electronics production hub.
In line with their desire to expand economic engagement, India and Taiwan have already held two rounds of talks to finalise an FTA as well as a bilateral investment agreement to strengthen trade ties, according to sources.
India has been promoting its ties with Taiwan in trade, investment, tourism, culture, education, and people-to-people exchanges.
The cooperation in trade, investment, and industry between India and Taiwan has been on an upswing in the last few years.
The volume of bilateral trade has grown nearly six-fold from USD 1.19 billion in 2001 to almost USD 7.05 billion in 2018, and India ranks as Taiwan's 14th largest export destination and 18th most significant source of imports, according to official data.
By the end of 2018, around 106 Taiwanese companies were operating in India, with the total investment amounting to USD 1.5 billion in information and communication technology, medical devices, automobile components, machinery, steel, electronics, construction, engineering financial services.
The two sides have also set up teams for further expansion of ties in education as well as skill development training.
At present, an estimated 2,800 Indian students are studying in Taiwan.
India does not have formal diplomatic ties with Taiwan, but both sides have trade and people-to-people ties.
In 1995, New Delhi set up the India-Taipei Association (ITA) in Taipei to promote interactions between the two sides and facilitate business, tourism, and cultural exchanges.
The ITA has also been authorized to provide all consular and passport services.
In the same year, Taiwan too established the Taipei Economic and Cultural Center in Delhi.