In contemporary times, semiconductors are the “new oil”. Semiconductors form a critical component of various electronic products ranging from computers, smartphones as well as cars, medical and military equipment and related devices.[i] President Joe Biden has called them “critical products” whose supply-chain disruptions can put Americans’ lives and livelihoods at risk.” The governments of Japan and South Korea have compared the importance of semiconductors to that of “rice”.[ii] Martin Rasser, a senior fellow at the Center for a New American Security has said, “Whoever controls the design and production of these microchips, they will set the course for the 21st century.” Around, 90 per cent of semiconductors applied in the United States (US) are from Taiwan.[iii]
Recently, India and Taiwan have discussed investments in semiconductor/chip-making in India. The proposed investment is worth USD 7.5 billion.[iv] Gradually, Taiwan has emerged as a pioneer in semiconductors. The most advanced semiconductor wafer fabrication (FAB) in Taiwan is Taiwan Semiconductor Manufacturing Company (TSMC). It has the most sophisticated range of technologies and services and forms 63 per cent of the global semiconductor market share.[v] By 2022, TSMC will start working on the 3 nanometres (nm) chips, which is expected to be 15 per cent faster and power efficient.[vi]Apart from TSMC, only Samsung from South Korea can produce advanced chips of a size-5 nanometer. In addition to TSMC, in Taiwan, there are other FABS such as UMC, MXIC, PSMC and VIS that play a major role in the semiconductor industry.[vii] In coming times, the global semiconductor market is likely to grow at 6.7 per cent, from USD 340 billion in 2015 to USD 650 billion in 2025.[viii]
The paper analyses the strategic and economic significance of the proposed Taiwanese investment of semiconductors in India.
Strategic and Economic Significance
In India, there is a rising demand for semiconductors and the entire demand is met through imports. The demand for semiconductors is likely to increase by USD 100 billion by 2025 from the current USD 24 billion.[ix] According to the India Electronics and Semiconductor Association (IESA), the requirement for semiconductors is likely to grow at the rate of 15.1 per cent. Yet, India lags in FAB units because the ecosystem for the successful functioning of FAB is not robust as compared to other countries.[x] On a comparative note, China is investing heavily in the chip making industry. The Shanghai based Semiconductor Manufacturing International Corporation (SMIC) is the top firm producing chips.[xi] Recently, Alibaba Group has also launched a new server chip that is based on advanced 5-nanometer technology[xii] South Korea has also announced USD 451 billion investments through 2030 to boost semiconductors production.[xiii] According to Gartner, Inc. there is a worldwide shortage of semiconductors that will persist through 2021. It is expected to neutralise only by 2022.[xiv]
It may be noted that India and Taiwan have growing economic relations. Further, the semiconductor investments by Taiwan will give a boost to the India-Taiwan trade. The trade between the two sides has increased from USD 1.19 in 2001 to USD 7 billion in 2018. However, amid the COVID-19 in 2020-2021, it has decreased to USD 5.7 billion.[xv] Many trade agreements such as; 21 Memorandum of Understanding (MoUs), the MoU on Promotion of Industry Collaboration[xvi], the Bilateral Investment Agreement (BIA) and the Mutual Recognition of the Respective Authorised Economic Operation (AEO) Programs were signed between the two sides.[xvii] Initially, BIA was signed in 2002 and came into effect in 2005. In 2018, a new agreement was signed to update the BIA and ensure Taiwanese investments in India are treated in line with international standards. It was revised keeping the expanding range of information and communication technology (ICT) investments.[xviii]
These agreements have facilitated the increase in the Foreign Direct Investment (FDI) inflow from Taiwan. The FDI inflow from Taiwan has increased almost 10 times in the financial year 2018-2019. The cumulative FDI inflows from Taiwan to India are worth USD 602.35 million for April 2000 to June 2021.[xix]
Around 140 Taiwanese companies have invested in India and many more are exploring investment opportunities in the state of Haryana, Uttar Pradesh, Andhra Pradesh, Karnataka, Tamil Naidu, and Gujarat. The major items imported from Taiwan are PVC, machinery, organic, chemicals, electrical machinery, ICT products and solar cells. Notably, semiconductor and electronics products do not form the major component of imports from Taiwan.[xx]
The Taiwan External Trade and Development Council (TAITRA) have four offices in Mumbai, Chennai, Kolkata and New Delhi. It is the third-largest number of TAITRA offices in India after China (10), and the USA (5). The objective of the office is to explore possible areas of collaboration between the various sectors, including the Micro, Small and Medium Enterprises (MSMEs).[xxi] This is indicative of Taiwanese trade and investment interest in India.
Taiwan is positive about the semiconductor cooperation with India. However, they have flagged concerns over the uninterrupted supply of water and electricity. These highly sophisticated industries need uninterrupted water and electricity. For the setting up of the semiconductor industry, there is a requirement for a complete ecosystem that facilitates the smooth functioning of the FAB. Although, Taiwan has shown interest in the cooperation but is still evaluating the available ecosystem for setting up a chip fabrication plant in India and has suggested starting with a chip design sector before the construction of FABS.[xxii]
Reportedly, in India initial preparations have already begun, some global fabless Integrated Circuit (IC) design houses have started assembly, testing, marking, packaging (ATMP).[xxiii] According to the India’s Ministry of Electronics and Information Technology (MeitY), the research and development capabilities in very-large-scale integration (VLSI) and chip design has started at the Centre of Excellence in Nanoelectronics at the Indian Institute of Science, Bangalore and the Indian Institute of Technology, Bombay. Two commercial semiconductor wafer FAB units and two consortia have already started work in this regard. The proposed locations are Greater Noida and Gujarat.[xxiv] MeitY is also introducing various incentives to attract investment for setting up semiconductor FABs in India and invited proposals to set up semiconductor wafer/FABs in India.
Although, it may take some time to start a fully functional semiconductor Industry. Once the semiconductor industry starts functioning, it will reduce the tariff on components used to make semiconductors and make India self-reliant in semiconductors. It will be the only manufacturing unit in South Asia. Since more than one-third of India’s total electronic imports come from China, the expansion of the Indian semiconductor sector would reduce dependence on China. Thus, given its expertise; Taiwan could be an apt option for India to solve its problem of chip shortage. Hence, it is a good opportunity for India to attract Taiwanese investment in the semiconductors industry.
*Dr. Teshu Singh, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.
[i] Yen Nee Lee, 2 charts show how much the world depends on Taiwan for semiconductors, CNBC, 15 March 2021, https://www.cnbc.com/2021/03/16/2-charts-show-how-much-the-world-depends-on-taiwan-for-semiconductors.html , accessed on 20 October 2021
[ii] Charlie Campbell, Inside the Taiwan Firm That Makes the World’s Tech Run, Time, 1 October 2021, https://time.com/6102879/semiconductor-chip-shortage-tsmc/ , accessed on 20 October 2021
[iii] A Taiwanese perspective on the Semiconductor Industry: Maintaining the Competitive Edge, Brussels, 27 August 2021, https://eias.org/op-ed/a-taiwanese-perspective-on-the-semiconductor-industry-maintaining-the-competitive-edge/, accessed on 21 October 2021
[v]A Taiwanese perspective on the Semiconductor Industry: Maintaining the Competitive Edge, Brussels, 27 August 2021, https://eias.org/op-ed/a-taiwanese-perspective-on-the-semiconductor-industry-maintaining-the-competitive-edge/,accessed on 22 October 2021
[vi] Charlie Campbell, Inside the Taiwan Firm That Makes the World’s Tech Run, Time, 1 October 2021, https://time.com/6102879/semiconductor-chip-shortage-tsmc/, accessed on 23 October 2021
[vii] Manik Kumar, Taiwan can help India build semicon industry, Deccan Herald, 30 September 2021, https://www.deccanherald.com/opinion/taiwan-can-help-india-build-semicon-industry-1035655.html, accessed on 24 October 2021
[viii] India plans to go Atma Nirbhar in semiconductor manufacturing, 13 August 2021, https://newsonair.com/2021/08/13/india-plans-for-atmanirbhar-in-semiconductor-manufacturing/, accessed on 25 October 2021
[ix] Shruti Srivastava, Miaojung Lin, India accelerates talks with Taiwan on $7.5-billion chip plant, trade deal, The Economic Times, 27 September 2021, https://economictimes.indiatimes.com/news/economy/policy/india-accelerates-talks-with-taiwan-on-7-5-billion-chip-plant-trade-deal/articleshow/86549579.cms?from=mdr, accessed on 26 October 2021
[x] Yashoda Kapur, Setting Up a Semiconductor Fabrication Plant in India: What Foreign Investors Should Know, India Briefing, 21 June 2021, https://www.india-briefing.com/news/setting-up-a-semiconductor-fabrication-plant-in-india-what-foreign-investors-should-know-22009.html/,accessed on 26 October 2021
[xi] Charlie Campbell, Inside the Taiwan Firm That Makes the World’s Tech Run, Time, 1 October 2021, https://time.com/6102879/semiconductor-chip-shortage-tsmc/, accessed on 27 October 2021
[xii] Alibaba advanced chip to push China to ‘go it alone’, Taipei Times, 20 October 2021, https://www.taipeitimes.com/News/biz/archives/2021/10/20/2003766415, accessed on 27 October 2021
[xiii] Kim Jaewon, South Korea plans to invest $450bn to become chip 'powerhouse', Nikkei Asia, 13 May 2021, https://asia.nikkei.com/Business/Tech/Semiconductors/South-Korea-plans-to-invest-450bn-to-become-chip-, accessed on 27 October 2021
[xiv] Gartner Says Global Chip Shortage Expected to Persist Until Second Quarter of 2022, https://www.gartner.com/en/newsroom/press-releases/2021-05-12-gartner-says-global-chip-shortage-expected-to-persist-until-second-quarter-of-2022, accessed on 25 October 2021
[xv] India-Taiwan trade prospects look promising in 2021: TAITRA, The Economic Times, https://economictimes.indiatimes.com/news/economy/foreign-trade/india-taiwan-trade-prospects-look-promising-in-2021-taitra/articleshow/79975470.cms, accessed on 23 October 2021
[xvii] Taiwan and India have signed two bilateral agreements on December 18, 2018 to further boost trade and investment between the two countries, 18 December 2018, https://www.roc-taiwan.org/inmaa_en/post/5095.html, accessed on 23 October 2021
[xviii] Stacy Hsu, Taiwan, India sign updated bilateral investment pact, Taiwan, https://www.taipeitimes.com/News/taiwan/archives/2018/12/19/2003706400, accessed on 23 October 2021
[xix] India-Taiwan Relations, India, https://www.investindia.gov.in/country/taiwan-plus , accessed on 24 October 2021
[xx] India Taipei Association, Trade, Taiwan, https://www.india.org.tw/pages?id=eyJpdiI6ImFCbERcL3Yxdk1maDFFNWtpZFRSWTV3PT0iLCJ2YWx1ZSI6InpNbjFHUVRSU0llcW9Jd3owUzhhRHc9PSIsIm1hYyI6IjhjYmQyYTdkMWY2MGE2MTdjZDg5YTZjNDgzNGQ1MDc0NjEwODY4ZGU1NWY4NGQ3ZDdmOTdjYTFlYTQzODQ3MjMifQ==&subid=eyJpdiI6Iml1Tk1QRE1MYk1uNlZsVXFYSTl3RFE9PSIsInZhbHVlIjoibmdPUCtoeVB2VEdNaG1zdk15bmV3QT09IiwibWFjIjoiNTUyODMyODFmZWM3YTIzYWZhZWM2NTNjMTJjOGFmMDlhNmZkMTdhMGNiNmJjZTFkNDk1YjA5NzUxNDIwYTNkNCJ9, accessed on 23 October 2021
[xxi] TAITRA to open fourth office in India next month, Taipei Times, 19 April 2018,
https://www.taipeitimes.com/News/biz/archives/2018/04/19/2003691571,accessed on 23 October 2021
[xxii] Eric Chang, Taiwan and India mulling semiconductor plant, trade deal, Taiwan News, 28 September 2021, https://www.taiwannews.com.tw/en/news/4299635, accessed on 24 October 2021
[xxiii] Manik Kumar, Taiwan can help India build semicon industry, Deccan Herald, 30 September 2021, https://www.deccanherald.com/opinion/taiwan-can-help-india-build-semicon-industry-1035655.html, accessed on 24 October 2021
[xxiv] Yashoda Kapur, Setting Up a Semiconductor Fabrication Plant in India: What Foreign Investors Should Know, India Briefing, 21 June 2021, https://www.india-briefing.com/news/setting-up-a-semiconductor-fabrication-plant-in-india-what-foreign-investors-should-know-22009.html/, accessed on 25 October 2021