Why India's Semiconductor Mission Needs Taiwan

Recently, in his Independence Day speech on 15th August, PM Modi highlighted the significance of semiconductors and pointed out how India's attempts to develop semiconductor capabilities decades ago were stifled prematurely, resulting in a major loss of time and opportunity.

Against this backdrop, the question of who India partners with to bridge this gap has become more important than ever.

Among potential partners, Taiwan stands out for its global leadership in semiconductors and electronics manufacturing, making it a natural fit for India's ambitions.

Over the past few years, New Delhi has been actively pursuing Free Trade Agreements (FTAs) with several countries, both concluded and under negotiation. Yet one crucial partner remains outside this framework: Taiwan.

Despite its unmatched strengths in semiconductors and high-tech manufacturing, Taiwan has not been at the centre of India's FTA strategy, a missed opportunity, given how much it could help reduce India's dependence on China while advancing its own semiconductor ambitions through expertise in chip design, fabrication and advanced manufacturing technologies.

Taiwan: A Natural Partner For India's Diversification And Semiconductor Future

Taiwan stands out as a natural partner for India's diversification strategy not just because of its unmatched expertise in semiconductors and advanced manufacturing, but also due to the democratic values that both nations share. This common ethos provides a foundation of trust that has allowed ties to quietly but steadily grow over the years.

Trade between India and Taiwan has expanded by nearly 10% annually since 1991, reaching $8.5 billion in 2023. By early 2024, close to 200 Taiwanese companies had already set up operations in India, investing around $4.5 billion and creating more than 170,000 jobs.

This steady inflow of capital and technology shows how the partnership is not theoretical; it is already shaping lives and economic opportunities on the ground. The success of companies like Foxconn and Wistron illustrates this trajectory. By assembling iPhones in India, they not only enabled Apple's growth in the Indian market but also helped integrate India into the global electronics supply chain.

This is proof that Taiwanese participation can deliver transformative results in India's manufacturing landscape. Looking ahead, an FTA with Taiwan would allow India to build on this tested success. It would serve two strategic purposes: first, reducing India's heavy dependence on Chinese electronics imports and second, leveraging Taiwan's semiconductor expertise to establish a strong domestic manufacturing ecosystem.

Together, these outcomes would also reduce national security risks tied to supply chain vulnerabilities, making Taiwan an indispensable partner in India's diversification journey.

India's Worrying Reliance On Chinese Imports

India today faces a widening trade deficit with China, one that grows each year and exposes deep structural vulnerabilities. In FY 2024-25, the deficit touched a record $99.2 billion, up from $85.08 billion in 2023-24, $83.2 billion in 2022-23 and $73.31 billion in 2021-22.

While bilateral trade reached $127.7 billion, the balance is sharply tilted in Beijing's favour. According to OEC data, China's top exports to India in May 2025 were high-value products like telephones ($914M), integrated circuits ($792M) and computers ($536M).

In contrast, India's exports to China in the same month were dominated by low-value items such as telephones ($128M), iron ore ($119M) and pepper ($112M). This imbalance highlights the core problem that India exports raw materials but remains heavily dependent on China for advanced, technology-intensive goods.

The reliance runs deep in strategic sectors like electronics and semiconductors. In FY 2023-24, China supplied nearly 44% of India's electronic, telecom and electrical imports. Semiconductor imports under HS Code 8541 covering diodes, LEDs, photovoltaic cells and other critical devices more than doubled to $7.9 billion.

Even more concerning, China and Hong Kong together accounted for 61% of these imports, up from 57% the previous year. Such dependence creates choke points that are not just economic but also national security risks, leaving India vulnerable to supply chain disruptions and external pressure.

Addressing The Trade Deficit With China Through Taiwan

One way to tackle this structural vulnerability is through friend-shoring, shifting critical imports away from adversarial suppliers to trusted partners. Taiwan emerges as a natural alternative. With proven strengths in electronics, semiconductors, chemicals and computer hardware, Taiwan can provide exactly the high-value goods where China currently dominates India's imports.

Take integrated circuits, a cornerstone of modern electronics. In 2023, India imported $3.57 billion worth of integrated circuits from Taiwan, compared to $9.66 billion from China. While China remains dominant, expanding imports from Taiwan could reduce this gap significantly.

The key enabler here is a Free Trade Agreement (FTA). At present, many Taiwanese products are less competitive against Chinese goods, which often appear slightly cheaper. An FTA would change that equation by eliminating tariffs and providing a predictable framework for trade, making Taiwanese electronics and components more cost-effective for Indian firms.

The opportunity is already visible in trade flows. In May 2025, China's top exports to India included telephones ($914M) and integrated circuits ($792M). By contrast, in June 2025, Taiwan's top exports to India were electronic components worth $245M, underlining that India can indeed source advanced equipment from Taiwan.

By institutionalising this shift through an FTA, India would not only reduce its ballooning trade deficit with China but also build more resilient and secure supply chains in the short and long term.

FTA With Taiwan: Unlocking India's Semiconductor Potential

Beyond balancing trade, a structured agreement like an FTA would also provide India the foundation to nurture its own semiconductor industry and integrate into global high-tech supply chains. By signing a Free Trade Agreement (FTA) with Taiwan, New Delhi could create the right environment for this ambition to take shape.

India has already demonstrated, in the case of Apple, how targeted incentives and tariff reliefs can attract global giants and nurture local manufacturing. A similar model, anchored by a potential partnership with TSMC, could make TSMC the "Apple of chips" in India, turning the country into a significant hub for semiconductor production.

Harnessing Taiwan's Semiconductor Leadership For India's Future

Taiwan is uniquely positioned to help India realise its semiconductor mission. Home to TSMC, the world's largest contract chipmaker, Taiwan dominates the global semiconductor value chain. In 2022, it produced nearly two-thirds of the world's semiconductors and over 70% of the most advanced chips, including cutting-edge 2nm technology.

For India, this unmatched leadership makes Taiwan the natural partner to reduce dependence on Chinese electronics and build a resilient domestic base. Collaborating with Taiwanese firms would provide not only reliable supply chains but also opportunities for technology transfer and capacity building.

An FTA would be central to this transformation. By lowering or eliminating tariffs, quotas and other trade barriers, such an agreement would provide the predictability and stability that investors seek. This would encourage Taiwanese semiconductor and electronics firms to scale up operations in India, bringing not only capital but also technical expertise and supply chain integration.

In effect, an FTA would accelerate friend-shoring, giving India a secure alternative to Chinese imports while laying the foundation for large-scale, value-added investments in its semiconductor sector. Provisions within an FTA could formalise such cooperation, ensuring that Indian companies gain access to cutting-edge components, advanced manufacturing techniques and integration into global supply networks.

Why Deeper Relations With Taiwan Make More Political and Economic Sense Than Ever

While the economic and technological benefits are clear, political considerations have historically constrained India's engagement with Taiwan. For years, India's hesitation to deepen ties with Taiwan has stemmed from its adherence to the "One China Policy". New Delhi avoided closer engagement despite Taiwan's growing strategic and economic importance, primarily to avoid antagonising Beijing.

However, recent events have shifted the balance. China's increasingly hostile actions, from the Galwan clash of 2020 to its intelligence support for Pakistan during Operation Sindoor in 2025, highlight that Beijing has little regard for India's sensitivities.

According to Lt. Gen. Rahul R. Singh, China provided Pakistan with real-time intelligence on Indian military deployments, directly aiding Islamabad's tactical decisions during the conflict. The scale of China's support to Pakistan leaves little doubt about Beijing's intent.

Today, China accounts for 81% of Pakistan's weapons arsenal. From PL-15E missiles and CM-401 hypersonic systems to J-10C fighter jets and HQ-9P air defence systems, much of Pakistan's recent military capability is Chinese-supplied.

These developments underline a simple reality that continuing to honour the One China policy while Beijing arms and empowers India's chief adversary serves no strategic purpose. Politically, therefore, a shift toward closer relations with Taiwan is not only justified but necessary. This political rationale dovetails with a strong economic case. India's ambition to build a robust semiconductor industry cannot be achieved in isolation.

Policy Convergence Between New Delhi And Taiwan

The existing policy frameworks in both capitals already provide a clear pathway for such cooperation. Taiwan's New Southbound Policy (2016), which is designed to reduce its economic dependence on China by building stronger links with South Asia, Southeast Asia and Oceania, with India explicitly identified as a key partner.

Meanwhile, India's Act East Policy aims to enhance trade, strategic and diplomatic links across Asia-Pacific. The convergence of these two policies is more than coincidence; it is a built-in opportunity for collaboration. Together, they create both the rationale and the roadmap for advancing India-Taiwan economic cooperation.

This policy foundation is reinforced by institutions such as the India-Taipei Association (ITA) and the Taipei Economic and Cultural Centre (TECC), which have facilitated the cooperation between the two countries since 1995.

A major step forward came in 2018 when Taiwan and India signed two important agreements to further boost trade and investment including the updated Bilateral Investment Agreement 2018, originally signed in 2002 and implemented in 2005, and the Mutual Recognition of the Respective Authorised Economic Operator (AEO).

Together, these agreements have given businesses the legal clarity and confidence to invest in each other's countries. With these frameworks in place, the stage is set for large-scale economic partnerships.

Economic Opportunities Worth Billions

Concrete opportunities are already taking shape. Taiwanese giants like Foxconn, Wistron and Pegatron are now at the heart of India's smartphone manufacturing boom, thanks to India's cost advantages and the government's Production-Linked Incentive (PLI) Scheme.

The turning point came in 2023, when TATA Electronics acquired Wistron's iPhone assembly operations, marking India's big leap into high-end electronics manufacturing.

Beyond smartphones, a recent FICCI report titled Unlocking the Potential: The Benefits of India as a Partner for Taiwanese Enterprises, highlights five manufacturing sectors where Taiwanese investment could reach $15 billion: PCBs, electronic components, electric motors, smart healthcare devices and EV charging systems.

Together, these sectors represent a $60 billion Indian market today, projected to grow to $170 billion by 2030. For Taiwan, India offers scale; for India, Taiwan offers the technological depth to build global competitiveness.

Semiconductors: The Heart Of The India-Taiwan Partnership

The semiconductor sector is the clearest example of this complementarity. India's semiconductor market is projected to almost double from $52 billion in 2024 to $103.4 billion by 2030. Taiwan's expertise in semiconductors is unmatched.

In 2023, it accounted for 20% of global semiconductor production, 37% of logic chips and an overwhelming 92% of the world's most advanced capacity. TSMC alone produced 70% of smartphone chipsets and 35% of automotive microcontrollers, while in 2024 its global contract chipmaking share rose to 64%.

Ignoring such a partner would be strategically reckless.

Learning From Apple: Why Taiwan Is Irreplaceable

We have already witnessed how Taiwanese firms like Foxconn and Wistron helped India develop a thriving mobile manufacturing ecosystem, exemplified by Apple's India story. The same model, applied to semiconductors and high-end electronics, could be transformative.

By signing an FTA with Taiwan, India can secure the technology, investment and supply chain resilience it needs, while sending a clear political message to Beijing that India will not compromise its strategic autonomy or economic future to placate Chinese sensitivities.