India and Taiwan in talks for $7.5 billion chip plant deal

India and Taiwan are in talks on a deal that could bring chip manufacturing to South Asia along with tariff cuts on components for manufacturing semiconductors by the end of the year, people informed of the matter told the media.

Officials in New Delhi and Taipei have met in recent weeks to talk about an agreement that will bring a chip plant worth an estimated $7.5 billion to India to provide everything from 5G devices to electric cars. India is presently considering possible locations with sufficient land, water and manpower while saying it would render financial support of 50% of capital expenditure from 2023 and tax breaks and other incentives.

Officials in Taipei needed quick progress on a bilateral investment deal that would involve tariff reductions on dozens of products used to produce semiconductors -- a precursor to a comprehensive trade deal also under consideration, the people said.

The trade talks come at a time when democracies across the world are expanding economic and military links to stand up against an increasingly aggressive China. While Taiwan has long asked for a trade agreement with India, authorities in New Delhi had been reluctant to anger Beijing, which claims the island democracy as its territory.

The discussions have quickened in recent weeks as U.S. President Joe Biden aims to strengthen supplies of chips, enhance supply chains among democracies and improve military capabilities in the area. On Friday, he met Prime Minister of India, Narendra Modi along with the leaders of Japan and Australia as part of the Quad meeting, a group that is countering China’s influence.

India has also taken a stronger stance against China because of the protracted border standoff following violent clashes in 2020 in which at least 20 Indian and four Chinese soldiers were killed.

While India and Taiwan are setting the groundwork to talk about a broad trade agreement including goods, services and investments, authorities in Taipei are trying to revise the investment agreement to present some early progress.

India has asked to lure high-technology investments as it tries to become more self-reliant on chips, while Taiwan wants to increase its diplomatic presence around the world as it pushes back against the pressure from China. Beijing has promised to work toward uniting the island democracy with the mainland, even by force if needed.

Chip shortages have delayed the much-expected start of a smartphone by Reliance Industries that has been co-engineered with Google. Presently, India imports almost all semiconductors to satisfy demand estimated to touch about $100 billion by 2025 from around $24 billion now.

Taiwan has welcomed cooperation between the two sides on semiconductors although it is still assessing the project given a lack of ecosystem for installing a chip fabrication plant in India. The Taiwan side has raised concerns on water and electricity supply and suggested that it may be more fit for India to start building a chip design sector first before moving to construct fabs.

In 2018, India and Taiwan inked a bilateral investment deal to boost investment flows and develop economic ties between the two countries. Trade between them reached $5.6 billion in the fiscal year ended March, as per India’s trade ministry.

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