China’s rise has led to a revival of interest in the role of rising new powers. In this context, we see the geopolitical term “Indo-Pacific” creating a buzz worldwide. The objective behind the idea of Indo-Pacific is to curtail China’s economic, political and military expansion across the Pacific and Indian Oceans. China’s rapid ascent as a great power and its ambitions is a significant new development in world affairs. China’s incremental strategy that kept it rising was pursuing economic growth with trading partners while simultaneously conducting “wolf-warrior” diplomacy. Although China has territorial disputes with many states in the South China Sea (SCS), the two states who are facing the heat of China’s assertiveness the most are Taiwan and India.
China’s People’s Liberation Army (PLA) has launched multiple intrusions across the Line of Actual Control (LAC) with India in the Himalayas that have led to recent violent clashes. In June 2020, the Indian and Chinese soldiers’ confrontation at the Himalayas soured the bilateral relationship, alarming India with growing Chinese threats to its national security. Meanwhile, China claims Taiwan as its territory, in spite of Taiwan never being part of the People’s Republic of China (PRC). The extensive literature on globalization and interdependence of bilateral trade suggests that it reduces the chances of interstate political conflict. However, what has not been discussed in the context of globalization and further economic integration is the correlation between the economy and national security. This article intends to underscore that although trade and capital flow shape ` contours of the relationships between the nations and while they lead to overall economic development, national security risks remain the foremost factor that cannot be compromised. Taking the case of the India-China bilateral relationship the (economic) interdependency model is a risk to national security. The existence of both trade and conflict with China should propel India to tailor its Taiwan policy towards fostering stronger bilateral economic relations to alleviate security concerns.
National security is not only intended to safeguard a state from external aggression and infiltration from terrorist groups but also to protect the economic stability of a state’s institutions. Despite having regional ambitions to balance against China there are challenges on India’s path. An underacknowledged challenge is India’s economic dependence (pharmaceutical raw materials, telecommunication devices, etc) on China is a national security concern. India should look towards a partner like Taiwan which is willing to strengthen economic relations; a win-win situation for both countries.
The Taiwan-India friendship was initiated in 1995 when both states established representative offices—the Taipei Economic and Cultural Center in Delhi (TECC) and India Taipei Association in Taipei. Since then, the Taiwan-India bilateral relationship has been on a steady upward trajectory. However, with changing contours in the international community, India needs trustworthy and reliable partners to consolidate resilient globalization and stable regional order. The current economic crisis has created winners and losers. States in the post-pandemic era will be competing to tackle sluggish economic growth and India needs to channelize its resources towards economic development. Under the broader framework of diplomacy and economics, India should consider enhancing economic dialogues with Taiwan. The Taiwan-India bilateral partnership could deliver more benefits to India than is commonly stated.
Both states are natural partners–they share democratic values and uphold the rule of law. Additionally, Taiwan’s flagship New South Bound Policy (NSP) shares similar synergies with India’s Act East Policy (AEP). A robust partnership between Taiwan and India can play a role in shaping the order in the region with mutual economic and social successes. The NSP is a diplomatic initiative introduced by President Tsai Ing-wen in May 2016 to redefine Taiwan’s economic and soft power role in Asia. NSP is targeted towards establishing partnerships across ten Australasian states (including ASEAN) and eight South Asian states. India is a top priority and Taiwan is working to collaborate in areas such as education, health infrastructure, science and technology, trade relations, and sharing resources. Although NSP is not new (Taiwan had a ‘Go South Policy’ in the 1990s) Tsai’s revival of the policy puts more emphasis on lessening economic dependence on China while aiming for further economic development. China has been interfering to reduce Taiwan’s international recognition on the world stage and using economic leverage to undermine its functional capabilities as a state. Thus, NSP’s initiative to skillfully identify and fulfill economic niches is a significant move.
The AEP introduced by Prime Minister Modi in 2014 emphasized placing greater significance on regional cooperation. The AEP is a rebranding of the erstwhile Look East Policy (LEP) but with a recommenced vision of promoting economic, cultural, and strategic relations with the Asia-Pacific region. The evolution of AEP from LEP is a consequence of China’s rise and in response to security threats in Asia’s regional structure. It also embodies the realization that India needs to focus on its own growing ambitions and market-driven approaches to shape the situation that is advantageous for its interests. However, India will have to make decisions prioritizing bilateral relations with particular countries in Southeast Asia and Taiwan because of their strategic significance and importance in the global supply chain. The AEP’s objective is to boost India’s regional image and to establish bilateral and multilateral cooperation that acts as a counterbalance against China. India needs to scrutinize whether the AEP is successfully reducing India’s economic dependency on China. And, if this is not the case, then overcoming structural problems should be prioritized, striving to strengthen the bilateral relationships with like-minded states, and updating trade negotiations and cooperation.
It will be advantageous for India to partner with states similarly concerned with China’s rise and engage in establishing economic and strategic partnerships. With Taiwan, there are numerous potential drivers in improving economic relations, as India cannot afford to get left behind by changing geoeconomics conditions. Academicians have advocated this idea of establishing a robust partnership between Taiwan and India for a very long time but at the policy level, few bold decisions have been taken. Figures show that bilateral trade relations between Taiwan and India stood at US$7.5 billion in 2018 with the expectation to reach US$10 billion in the coming years[1]. However, these estimates are still very low compared to the potentialities the bilateral relationship could deliver.
India has rejected the Regional Comprehensive Economic Partnership (RCEP) initiated by China, thwarting Beijing’s hopes to integrate India into its regional economic structure. Now it is essential that India should think about its own economic growth. In the last few years, India’s economic growth has recorded a substantial decline with GDP contracting by 7.3% in 2020-2021[2]. To reverse this scenario, imports need to be reduced and manufacturing boosted. Why should India miss an opportune moment of signing a Free Trade Agreement (FTA) with Taiwan, which has enormous economic potential to deliver cooperation in high-tech manufacturing? India has been struggling to build up a manufacturing base because it lacks competitiveness and FDI; partnering with Taiwan will definitely attract some investments which will boost the ‘Make in India’ initiative enabling the idea of ‘Atmanirbhar Bharat’ (self-reliant India). Moreover, Taiwan is interested in investing in India because of its large market. In the last few years, a few Taiwanese giants have entered the Indian market, investing up to $360 million through the financial year of 2019[3]. However, it seems that under NSP, Southeast Asian states are outperforming in attracting more Taiwanese FDI. Between 2016-2019 Southeast Asian states received over 86% of Taiwan’s investments and 7 out of 10 were prioritized, with India only managing to attract a 5% share[4]. Southeast Asian states have shown more enthusiasm in addressing their structural inefficiencies to attract trade and investment, technology, agriculture, and medical infrastructure planning to be an economic gateway. India has not yielded similar results.
Taiwan occupies a prime position in global technology supply chains–particularly in semiconductors, which is the backbone of modern technology and development. Multinational companies from Japan, South Korea, and Taiwan are pulling investments out of China and relocating. The pandemic creates an opportune moment for India to prepare itself to capitalize on future opportunities to kick start a manufacturing base. Strengthening economic relations with Taiwan should be prioritized by India because Taiwanese firms like TSMC–which dominates in high-end chip fabrication–is a key player in the technology industry. This should be a convergence point for India because producing chips has been on India’s card for a long time. Encompassing industry and technology could be the launchpad to strengthen the Taiwan-India relationship and boost India’s economic growth.
Enhancing complementarities strengthens economic ties. However, to assess what might constitute a sustainable economic relationship, India must address structural problems (bureaucracy, taxation policy, ease of doing business, and so forth) to seek mutual benefits and outcomes. India should consider having a proper plan to address these problems based on market-oriented solutions. During the pandemic, many companies stockpiled chips to meet their requirements in response to interruptions into the global supply chain. That has reinforced the already growing trend that economic nationalism will be the driving force of the new economic order. In the post-pandemic era, almost every facet of our lives will be even more technology-driven, so India should try to gain a strong foothold in semiconductor manufacturing. Currently, India imports 100% of its semiconductors, with 37% coming from China[5]. With the advent of 5G, demand in the near future is going to skyrocket and it would benefit India if more electronics were manufactured locally. To prevent it from being left vulnerable, India needs to secure its supply chains. Recently the Tata Group (India’s multinational giant) announced plans for semiconductor manufacturing, and if that happens it will be first of its kind in India[6]. Here Taiwanese expertise could help TATA to launch a chip foundry. However, a collaboration with TSMC might be too high of an expectation because of TSMC’s cutting-edge lead in chip manufacturing and prior worldwide investment commitments for the next few years. For example, on top of ongoing plans to ramp up Taiwan-based production, TSMC has committed an investment of US$12 billion in Arizona to manufacture 5nm chips and is in talks to potentially open further fabs in Japan and Germany[7]. India has emerged as a hub for chip design so it could be beneficial to jointly establish a chip fabrication ecosystem by inviting Taiwanese giants such as Foxconn, MediaTek Inc, Wistron–which are already present and investing in the Indian market–to cooperate closely on this development. This could be a step in securing a strategic chipset supply chain.
Challenges:
The Government of India (GOI) has announced cash incentives of more than $1 billion to attract companies to set up manufacturing units to produce chips in India[8]. The companies are also offered an additional production linked incentive (PLI) scheme to boost manufacturing for chip fabrication plants[9]. However, India needs to be cautious that the PLI scheme doesn’t benefit Chinese firms as that might increase the national security risk. Additional primary concerns are how good the offers are, and the reluctance of big overseas giants will persist until India overcomes structural problems required for efficient and profitable production. The primary things giants like TSMC look for fab location selection are—
- Uninterrupted power supply: annual energy consumption in a giant semiconductor fab approximately is around 169,124MWH. India is a huge state with energy installed capacity of around 383,373 MWh, out of which of 43% is generated by private firms. To deal with the power shortage problem, private players can play a major role in providing the supply for fab facilities.
- Water supply: for fab facilities intensive water operation of around 4.8-5 million gallons per day of ultra-pure water is required. To deal with the water shortage problem TSMC strategizes to ensure constant supply. Since Taiwan has recently faced a long period of drought, TSMC spent billions on water and wastewater recycling. India–with a population of 1.3 billion–is already stressed with water shortage problems due to rural-urban mismanagement. If India wants to resolve the issue and attract investors it will be beneficial to adopt
aproactive water resource management planning. - Capital: even establishing a smaller foundry requires capital in the billions and planning for setting up fab facilities is a long-term project. Thus, companies before investing look for political stability and a stable environment–along with incentives–that increases the chances of setting up a successful manufacturing base. Additionally, constant changes in policies can have negative effects. Indian policymakers will need to focus on planning a set of flexible policies that is suitable to attract foreign firms for the long term.
Being entirely dependent on the global supply chain sooner or later will lead to economic consequences for India. Thus, it will be in India’s interest to look for trustworthy partners for building bilateral economic relations. Economic dependence on China implies that India needs China more than China needs it, which is not a favorable position to be in. Given the rise of negative discourse internally in India against China, efforts in identifying and mobilizing stakeholders from Taiwan who are willingly extending a hand to find and deepen areas of cooperation foster an advantageous situation for both. Alliance with Taiwanese collaborators will amplify India’s chances to gain an edge in semiconductor development–with no security risks. As a result, it will also play a role in shaping the scope of the bilateral relationship at different stages of cooperation with neither side opening themselves to risks in their political systems as both uphold liberal values.
India is firmly dependent on China for trade and business. It is obvious that suddenly ignoring China and cutting off business ties would certainly hurt India’s economy. The optimistic view that interdependence of economic relations mostly results in states not attacking each other is doubtful, particularly when the interdependence is asymmetric. It is high time that Indian scholars and policymakers should pay more attention to the inherent compromise of security if India continues to be heavily economically dependent. A discussion should be on how and what possibilities India should explore to adopt a hedging strategy, as it holds no rationality to be economically dependent on a state that is preparing to attack India’s sovereignty. The pathway for India is to revive its own economic growth is in partnership with states like Taiwan that have a commanding commercial presence worldwide, particularly in high-tech products. Taiwan is also an ideal destination in the pharma industry. India should start to plan to shift its import-dependency on pharma raw materials from China to Taiwan. The authorities from both sides–without any ambiguity—should– explore the unbridled opportunities of strengthening their bilateral relationship. Taiwan and India have comparative–and complementary–advantages in their respective fields of strength such as hardware and software that enhance the opportunities for future innovation in both states. Such reciprocal tie-ups will transform the nature of the Taiwan-India relationship.
[1] Seema Guha. ‘India-Taiwan Business Cannot Be Built on An Anti-China Platform.’ Outlook, March 04, 2021, https://www.outlookindia.com/website/story/india-news-want-to-needle-china-woo-taiwan-say-experts/376117#:~:text=Bilateral%20trade%20between%20India%20and,come%20to%20roughly%20%242%20billion.
[2] Udit Misra. ‘Explained: India’s GDP fall, in perspective.’ The Indian Express, June 08, 2021, https://indianexpress.com/article/explained/india-gdp-gdp-fall-7-3-per-cent-in-perspective-modi-govt-coronavirus-economy-7338852/
[3] Federation of Indian Chambers of Commerce and Industry, https://ficci.in/ficci-in-news-page.asp
[4] Bureau of Trade – Trade Statistics,” Directorate General of Customs, Ministry of Finance, Taiwan, https://cus93.trade.gov.tw/FSCE010F/btnQuery
[5] Monit Khanna. ‘China Made Up 37% Of Total Electronics Imported In India 2019-2020.’ India Times, September 16, 2020, https://www.indiatimes.com/technology/news/china-india-electronics-import-523080.html
[6] ‘After 5G Equipment, Tata Group Looking to Enter Semiconductor Manufacturing.’ Mint, August 09, 2021, https://www.livemint.com/companies/news/after-5g-equipment-tata-group-looking-to-enter-semiconductor-manufacturing-11628501961118.html
[7] Michael Marray. ‘TSMC Starts Construction of US$12 billion Plant in Arizona.’ Asia Connect, August 04, 2021, https://www.theasset.com/article/44414/tsmc-starts-construction-of-us-12-billion-plant-in-arizona
[8] Ashish Satpathy. ‘GOI Offers $1Bn Incentive to Chipmakers for Setting up Production Units in India: Report.’ The Indian Wire, April 02, 2021, https://www.theindianwire.com/business/goi-offers-1bn-incentive-to-chipmakers-for-setting-up-production-units-in-india-report-309241/
[9] ‘Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing.’ Ministry of Electronics and Information Technology, Government of India. https://www.meity.gov.in/esdm/pli
