India negotiating deal with Taiwan for setting up fab unit to resolve chip shortage: report
28 September 2021
Amidst a looming shortage of electronic chips that is expected to last for another two years, Indian government officials are reported to have met their Taiwanese counterparts recently to discuss a proposal for setting up a $7.5 billion semiconductor facility in India.
With the chip shortage affecting production of everything from smartphones to automobiles, the two countries are in talks for a deal that would bring chip production to the country, as well as reduce tariffs on components used to make semiconductors by the end of the year, say reports.
India and Taiwan inked a bilateral investment agreement in 2018 to increase revenue and strengthen economic cooperation between the two countries. Trade between the two countries totalled $5.7 billion in the year 2020. The new deal could further enhance trade and investment between the two countries, a development that might increase tensions with China
According to reports, India is currently looking at prospective places with enough land, water, and manpower. It is also likely to meet 50 per cent of construction costs, as well as provide tax breaks and other incentives for setting up the facilty that would lead to the supply of electronic chips for everything, including 5G devices and electric cars.
While details about the discussions between the two countries haven't yet been revealed officially, the negotiations that would help set up a chip $7.5 billion semiconductor manufacturing facility in India, are part of a larger trade and investment deal between the two countries. Taipei wants to move quickly on a bilateral investment pact that would involve tariff reductions on dozens of semiconductor-related products, as a prelude to a broader trade agreement that is also being considered, say reports.
The negotiations between Indian and Taiwanese officials gain significance in the context countering an increasingly assertive China. Taiwan, which Beijing claims to be its own territory, has sought trade talks with India for several years, but the government has been hesitant to move forward because it would invite a trade war with China once any pact is registered at the World Trade Organisation (WTO).
However, since the protracted border confrontation in 2020, India has been taking a more assertive stand against China. The move for a comprehensive trade agreement with Taiwan spanning commodities, services and investments, is seen as part of this.
India now imports all semiconductors to meet demand, which is expected to reach $100 billion by 2025, up from $24 billion now.
Worsening chip shortages have impacted automobile production, and it is predicted that in India the supply shortage would further impact passenger vehicles sale volumes in September. It has also pushed back the release of Reliance Industries’ smartphone, which was co-engineered with Google.