India and Taiwan have advanced their talks on for an agreement that could bring chip manufacturing to our shores by the end of the year. The deal will come along with tariff reductions on components for producing semiconductors. Further, it will be a move that may spark fresh tensions with China.
The new developments come days after the leaders of the Quad alliance agreed at a recent summit to form a supply chain initiative aimed at countering Chinese chip-making. Modi Government is taking long steps to become the next semiconductor manufacturing hub. As per the reports, it is going to be a US$7.5 billion (Rs 55,000 crore) deal and is part of Modi's "Aatmanirbhar Bharat" (Self-Reliant India) vision.
India’s semiconductor demand is said to be valued at around US$24 billion and is expected to reach US$100 billion by 2025. The country’s semiconductor demand currently is entirely met through imports. But like elsewhere, chip shortages in India have crippled companies ranging from local carmakers to smartphone manufacturers. Chip shortages have delayed the much-anticipated launch of a smartphone by billionaire Mukesh Ambani’s Reliance Industries that has been co-engineered with Google.
Semiconductors, also known as chips, power everything from smartphones to computers, advanced medical equipment, and 5G devices to electric cars, making them one of the most important components of electronic devices.
This bilateral co-operation would encourage semiconductor giants such as the Taiwan Semiconductor Manufacturing Corporation (TSMC) and other players to diversify their production beyond their geographical location. The deal could see tariff cuts on components and other raw materials. A mega IT park with space for 100 Taiwanese companies is also planned as part of the project. India is currently studying possible locations with adequate land, water, and manpower while saying it would provide financial support of 50% of capital expenditure from 2023 as well as tax breaks and other incentives.
The trade talks come at a time when democracies across the world are boosting economic and military links to stand up against an increasingly assertive China. While Taiwan has long sought a trade deal with India, officials in New Delhi had been hesitant to anger Beijing, which claims the island democracy as its territory. India has sought to lure high-technology investments as it seeks to become more self-reliant on chips, while Taiwan wants to strengthen its diplomatic presence around the globe as it pushes back against the pressure from China. Beijing has vowed to work toward unifying the island democracy with the mainland, even by force if necessary.
At the same time, Japan's tech firms are consolidating their grip on the components and chemicals vital for the manufacture of the most advanced chips and it gives Japanese manufacturers an advantage at a time of deepening US-China rivalry and geopolitical concerns facing other producers such as Taiwan and South Korea. At least five Japanese firms have significantly stepped up output at existing plants or invested heavily in new facilities to keep pace with demand for components and chemicals that only they can deliver.