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A free trade agreement has been an important agenda for both the Indian and the Taiwanese government. Baushuan Ger, Taiwan’s ambassador to India, said that both nations should sign the FTA at the earliest. Ger stressed that the agreement could eliminate all barriers to trade and investment and help in the creation of a resilient supply chain.
Taiwan, with whom India already has a ‘Bilateral Investment Agreement’, has been actively pursuing FTA with like-minded trading partners and India could stand to gain a lot from such an agreement. Taiwan, a small island nation located in the western Pacific Nation, is a semiconductor powerhouse and India is likely to benefit significantly from its chipmaking capabilities.
India’s semiconductor ambition
Earlier this year, while speaking at the Semicon India Conference 2022 in Bengaluru, the Indian Prime Minister urged the industry to establish India as a global manufacturing hub.
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With chips quickly becoming a geopolitical tool, India wants to become technologically resilient when it comes to chip design and manufacturing and avoid a future chip cold war.
“We are committed towards the acceleration and growth of the chip design and manufacturing ecosystem in the country. An ecosystem that is built on the principle of hi-tech, high quality and high reliability”, Prime Minister Modi said.
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India is not a well-known name in the semiconductor space currently, but Taiwan is. With the FTA, India—in addition to benefiting from Taiwan’s semiconductor technology—could also make a name for itself in the near future.
India does not have the technology or the bandwidth to produce advanced semiconductor chips yet. Comparatively, India’s semiconductor chip-making ability right now would appear much like a bullock cart in front of Taiwan’s F1 car.
Ger added that Taiwan is willing to share its expertise with India in critical sectors such as semiconductors, 5G, information security, and artificial intelligence.
Today, over 60% of the global foundry market is dominated by Taiwan. It has a monopolistic hold regarding the advanced technology nodes, which are used in many electronic devices and even military tech. Taiwan Semiconductor Manufacturing Company (TSMC) is one of the most established enterprises in the world in the semiconductor space. Several major automobile and phone manufacturers are dependent on TSMC for their chips.
Further, according to the Indian Cellular and Electronics Association (ICEA), more than 75% of the chips used in mobile devices made in India are imported from Taiwan.
To establish India as a semiconductor manufacturing hub, the government is making efforts to entice global chipmakers such as Intel Corp., GlobalFoundries Inc., and TSMC to set up fabs in the country. Earlier this year, Vedanta and Foxconn announced that they would establish a fabrication and semiconductor manufacturing facility in Gujarat, India.
However, neither Intel nor TSMC have announced anything with regard to their plans to set up fabs in India yet. With the FTA in place, that is likely to change.
“The FTA will help attract Taiwan companies to invest in India to establish production bases, sell India-made products to the world, and help India transform into a global manufacturing centre,” Ger told PTI.
Currently, TSMC has an office in Bengaluru, India. If they decide to establish foundations here, India will become the second hub for TSMC following the US.
Taiwan’s third largest chip maker—Powerchip Semiconductor Manufacturing Corporation (PSMC), has also explored opportunities and partnerships to enter India but no concrete steps have been taken as of now.
Besides TSMC and PSMC, other Taiwanese chip makers such as United Microelectronics Corporation (UMC), MediaTek, and ASE Technology could also be persuaded to set up hubs in India.
India could benefit from China–Taiwan tensions
Over the years, Taiwan has been plagued by labour shortages, especially skilled workers. With China being one of the biggest markets, Taiwan consequently set up manufacturing facilities on Chinese soil. However, in the light of recent escalating tensions between both nations, Taiwan is looking to move its establishment away from China.
Further, it has also expressed concerns about Chinese companies trying to poach talent from Taiwan along with the technological know-how of chip manufacturing.
Considering the global geopolitical situation, India is well-positioned to benefit from Taiwan’s desire to shift its manufacturing facilities away from China.
India is also a big market for Taiwan. “Indian advantage is its vast, bustling market, which many other countries embarking on semiconductors do not. Besides, India has significant local demand justifying the volumes required to drive this kind of initiative and a great workforce pool required to drive such an initiative, which many other countries don’t have,” Prof. Mayank Shrivastava of the Indian Institute of Science (IISc) stated.
US–China trade/chip war
When former US President Donald Trump introduced multiple sanctions against China, tensions worsened between the two nations further. As two of the world’s largest economies tussle for global influence, the war has shifted from trade to tech. The US recently introduced a provision called the ‘foreign direct product rule’ (FDPR) which allows the US government to control the trading of US-developed tech.
Tech companies such as Apple and Google have concurrently shown desires to move their manufacturing units out of China. Now, with tensions further escalating in the light of US’ efforts to block the use of US-tech for semiconductor manufacturing in China, India could take advantage of this opportunity to attract companies such as Intel to establish domestic chip manufacturing facilities.