Money Control - 1 November 2021
India keen to sign pact with Taiwan to secure microprocessor supply
By Subhayan Chakraborthy
Home to the world’s largest semiconductor and microprocessor manufacturing sector, Taiwan is also a hub for electronics and precision tools. India wants a steady supply of these key items and would like more Taiwanese companies to shift operations to India.
India is looking to quickly sign a preferential trade agreement with Taiwan with a special focus on securing a steady supply of microprocessors, electronic components and precision tools, senior officials said.
Apart from commitments to reduce import duties across key categories, the trade pact will include an investment chapter. This remains the government’s primary aim – to bring in more companies, capital and technical skills from the rich, manufacturing-driven economy.
After having developed cold feet in 2020 under strict opposition by China, India is now again keen to sign a deal with Taiwan by early next year, people aware of the plan told Moneycontrol. With a global chip shortage continuing, India has found more reason to sign the pact, the officials said.
India had earlier decided not to vigorously pursue investments from Taiwan because it did not want friction with China, which considers the island its own and has refused to recognise the Taipei-based government over the past 70 years. But the situation has changed and the trade talks with Taiwan are expected to move smoothly now, a commerce department official said.
Eyes on Taiwan
While no stranger to geopolitical turmoil in its neighbourhood, Taiwanese companies based in China are considering whether to shift out after the pandemic. The latest turmoil in global value chains in the post-Covid world is making Taiwanese businesses rethink their China plans, a senior Taiwanese trade official said.
“As China increasingly dictates the rules of business to companies, our companies now want less political interference in their business and want to operate in markets which are more open,” he stressed.
On the other hand, India has specifically wooed Taiwanese companies, trying to get them to shift their operations to the South Asian nation with cheaper labour costs.
“They have been invited by the government keeping in mind how individual Taiwanese companies completely dominate particular product verticals in the industries they operate in such as microprocessors, original equipment manufacturers (OEMs) for mobile phones and integrated network device producers,” a senior official said.
India wants these crucial components to be manufactured locally or shipped in from countries as it seeks to cut dependence on China. Electronics constitute the third most expensive item on India’s import bill, after crude oil and diamonds.
India’s overall electronics imports stood at $46.6 billion in 2020-21, making up 11.8 percent of inbound merchandise. After production-linked incentive schemes for the sector and logistics challenges brought on by the pandemic, imports fell about 5 percent from $49.1 billion in the previous year.
However, this trickle had begun even before as Taiwanese companies had scoped out India in 2018-end as a result of the then ongoing trade war between the US and China.
A new trade pact could see giant corporations such as Taiwan Semiconductor Manufacturing Company, the largest semiconductor contract manufacturing and design company globally, come to India, officials said.
India also wants Taiwanese companies specialising in heavy machinery and engineering tools to increasingly set up businesses locally, an official said. Taiwan’s Golden Valley region, home to 1,000 precision machinery manufacturers and 10,000 suppliers, has the highest density of any machine tool industry cluster in the world.
The industry is varied across 72 categories, with cutting and grinding tools along with those used for planing, shaping and boring having the majority share of the market.
India’s trade with Taiwan had grown to $7.1 billion in 2018-19, but slid to $5.6 billion in 2020-21. Of this, imports constituted the majority at $4 billion, mostly electronics.
Any trade deal would have to include a commitment by India to significantly slash import duties on components and microprocessors, another official said.
In end-2018, both nations signed a bilateral investment agreement, after which Foxconn, which assembles electronic parts for Apple smartphones, increased the number of facilities it operated in India.
Both nations also signed the Mutual Recognition of the Respective Authorized Economic Operation (AEO) Programs’ pact. The AEO Programs make border processes more efficient for pre-approved businesses recognised as low risk so that it can facilitate trade for importers, exporters, carriers and others in their supply chains, as well as enhance marketability and global competitiveness.