India Taiwan: India accelerates talks with Taiwan on $ 7.5 billion chip factory, trade deal

India and Taiwan are in talks on a deal that could bring chip manufacturing to South Asia, along with tariff cuts on components used to manufacture semiconductors by the end of the year, said people familiar with the matter, a move that could spark new tensions with China.

Officials in New Delhi and Taipei have met over the past few weeks to discuss a deal that would bring an estimated $ 7.5 billion chip factory to India to house everything from 5G devices Delivering electric cars, people said. India is currently exploring possible locations with sufficient land, water and labor and says it would provide 50% of capital spending, as well as tax breaks and other incentives, from 2023, People said.

Taipei officials wanted quick progress on a bilateral investment deal that saw tariff cuts on dozens of products used to make semiconductors – a precursor to a broader trade deal that is also being considered, People said.

The people asked not to be named in order to discuss the ongoing negotiations. The trade negotiation bureau under Taiwan’s cabinet declined to comment, while a spokesman for India’s Ministry of Commerce did not immediately respond to a text message.

The trade talks come at a time when democracies around the world are strengthening economic and military ties to hold their own against an increasingly confident China. While Taiwan has long sought a trade deal with India, officials in New Delhi have been reluctant to anger Beijing, which claims island democracy as its territory.

Discussions have accelerated in recent weeks as US President Joe Biden seeks to shore up the chip supply, strengthen supply chains between democracies, and improve military capabilities in the region. On Friday, he met Indian Prime Minister Narendra Modi along with the heads of state and government of Australia and Japan as part of the Quad Meeting, a group that is counteracting the influence of China.

India has also taken a bolder stance towards China since a protracted border conflict following violent clashes in 2020 that killed at least 20 Indian and four Chinese soldiers.

As India and Taiwan lay the groundwork for discussing a comprehensive trade agreement for goods, services and investment, officials in Taipei are trying to revise the investment agreement to show initial progress.

India has tried to attract high-tech investment to become more independent of chips, while Taiwan is looking to strengthen its diplomatic presence around the globe to counter pressure from China. Beijing has promised to work towards the unification of the island democracy with the mainland, even by force if necessary.

Chip shortage has delayed the highly anticipated launch of a Reliance Industries smartphone from billionaire Mukesh Ambani, which was jointly developed with Google. India currently imports almost all semiconductors to meet demand, which is estimated to be around $ 100 billion by 2025, down from $ 24 billion currently.

Taiwan has welcomed the cooperation between the two sides on semiconductors, although it is still considering the proposal to build a chip factory in India due to a lack of an ecosystem, people familiar with the matter said. The Taiwanese side has raised water and electricity concerns and suggested that it may be more feasible for India to build a chip design sector first before moving on to building fabs, according to one of the people.

India and Taiwan signed a bilateral investment agreement in 2018 to encourage investment flows and develop economic ties between the two nations. According to the Indian Ministry of Commerce, trade between them amounted to $ 5.6 billion for the fiscal year that ended March.