India in talks with Taiwan for domestic semiconductor-manufacturing hub; trade, investment pacts also discussed

Centre cleared an incentive scheme of Rs 76,000 cr on December 15, 2021 to attract semiconductor makers (Representational image)

India is in talks with Taiwan over the possibility of setting up a domestic semiconductor manufacturing hub, a report citing sources claimed on December 16. The two sides are also reportedly discussing agreements related to free trade and investments.

Taiwan is home to two of the world's biggest semiconductor giants--Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC).

New Delhi and Taipei are exploring the possibility of bringing either of the two companies to set up a manufacturing plant in India, Hindustan Times learnt from two persons familiar to the development.

The Indian side has also proposed a number of sites where the production plant could be set up, the persons said. They, however, noted that the process is "complicated".

"It is a very complicated process because a company like TSMC uses components from hundreds of other firms. Setting up a hub in India means convincing those firms to also set up a facility in India to ensure the supply of components," the newspaper quoted one of the source as saying.

If the talks end up being successful, this will be only the second instance when a Taiwanese semiconductor maker will launch a manufacturing unit in another country. Earlier, TSMC, which has a market value above $550 billion, had unveiled a $12-billion fabrication plant in the United States.

Investment, free-trade pacts

According to the report, India and Taiwan had set up four groups earlier this year to discuss an investment agreement and a free-trade agreement, apart from creating a domestic semiconductor-manufacturing hub and the training required for the purpose.

The investment and free trade pacts, which Taiwan is discussing with a number of countries, are likely to be used by it to diplomatically counter China at a time when tensions between the two neighbours are on a rise.

One of the groups set up by India and Taiwan met virtually earlier this year to discuss the free-trade agreement, Hindustan Times learnt from the sources. However, the group that is discussing semiconductor manufacturing has met twice in the same period, the report said.

Semiconductor manufacturing key for India

For India, semiconductor manufacturing is of utmost importance as the country's requirement of electronic chips--essential in the production of an array of items ranging from cars to smartphones--is expected to meteorically shoot up over the next couple of years.

The Union Cabinet on December 15 gave its nod to a production-linked incentive scheme with an outlay of Rs 76,000 crore ($10.2 billion) for development of semiconductors and display manufacturing ecosystem over the next six years.

In addition, the government will also provide incentives of Rs 2.3 lakh crore to boost electronic manufacturing in the country.

The announcements were aimed at projecting India as an ideal manufacturing location for global electronic manufacturers, particularly the semiconductor makers.