The Indian Economy Blog

January 28, 2006

The Case For A Robust India-Taiwan Economic Partnership

Filed under: Business,China,Human Capital,Outsourcing,Politics,Trade — Nitin @ 8:46 am

Japan fell through the cracks. Relations with Taiwan, in comparison, remain in India’s diplomatic blind spot. Though its wisdom is debatable, there is an argument against pursuing closer open political relations with Taiwan for fear of offending China. There is no reason, however, for neglecting greater economic intercourse with Taiwan, one of Asia’s top economies. Even China has realised the need for, and benefited from, economic relations with its ‘renegade province’.

While Japanese, South Korean and even mainland Chinese firms have invested in India, Taiwanese firms are conspicuous by their absence. Similarly, while Indian firms, especially in the IT sector, have ventured into China and Japan, Taiwan is largely off their business radars. One reason for this is that the institutional arrangements for bilateral commercial diplomacy consists of intentionally innocuous sounding outfits — the India Taipei Association (ITA) in Taipei, and Taiwan Taipei Economic and Cultural Centre (TECC) in New Delhi. The lack of status and consequent diplomatic underinvestment implies that there is no one steering the course of India-Taiwan economic ties.

Yet deeper engagement can provide substantial benefits to both countries. Firstly, greater economic exchange will help Taiwan diversify its global trade and investment risks. India stands to benefit from partnering Taiwan’s globally competitive manufacturing sector, especially in high-technology areas like computer hardware and semiconductor technology.

Secondly, like Japan, Taiwan faces the challenge of the greying population. While it may be able to secure low-cost labour from East Asian countries, it can take advantage of India’s relatively young manpower through outsourcing and offshoring of many activities, including healthcare. Besides, it can enhance the financial security of its aged citizens by investing its pension assets (projected to be about US$150 billion by 2015) in India.

Deeper engagement then, holds out the promise of substantial benefits to both sides. The governments can help this process by qualitatively and quantitatively strengthening their trade missions. Travel must be made easier. The costs of business transactions and tourist travel must be reduced. Linkages between academic, research and cultural institutions must be nurtured. The governments must greater encourage the exchange of business and trade delegations so that a greater cross-section of businessmen have opportunities to smell out opportunities.

In India the tendency for politics to dominate the foreign policy agenda is causing the economic potential of links with Taiwan to be ignored. Ironically, strong economic links with Taiwan can help India politically in its engagement of China.

This post was written in collaboration with Prof Mukul G. Asher

11 Comments »

  1. Well, those Taiwanese IT firms that are interested in India already invest a lot of money in India, while those from traditional industries already tried India and pulled out because of bad infrastructure and ridiculours labor regulation. I don’t see anything that can and need to be done but haven’t been done, and I don’t think there is much potential unexploited.

    Comment by R-Squared — January 28, 2006 @ 9:08 am

  2. R-Squared,

    Forget large economies like US and the EU, even countries like Malaysia and Singapore which are Taiwan’s major trading partners. The fact is that even the Philippines, Thailand and Indonesia have bigger trade volumes than India. Bilateral trade between Taiwan and India is only about US$2 billion per year. There is room for growth in trade.

    And as for your contention that there is nothing that there is nothing more to be done, you point out in your comment that Taiwanese investors pulled out of India because of lousy infrastructure and bad labour laws. Fixing that should help,don’t you think?

    Comment by Nitin — January 28, 2006 @ 3:13 pm

  3. Taiwanese investment in Southeast Asia has some historial roots, partly because there are many ethnicaly Chinese there too (which India cannot copy), and partly because there used to be immigration wave after WWII to Southeast asia (well, at that time Malaysia and Philiphine were thought to be future star economies and heavens in Asia).

    I agree that infrastructue and labor laws are something that definitely can by fixed by some efforts, but these will have positive impacts on Indian economy in general, not specific to attracting Taiwanese investors.

    Comment by R-Squared — January 29, 2006 @ 7:23 am

  4. The point is that manufacturing sector has been growing at 12 percent per annum in recent years. There are many areas of manufacturing where India-Taiwan can join hands. many other countries have already done so, including China.

    FIIs have invested large amounts of money ( cumulatively reaching roughly US$60 billion by end 2005) in India. Taiwan has excess savings but has been relatively inactive.

    In Reasearch and Development taiwan can again partner India in select4d areas. Infrastructure and labour laws are not an issue here.

    So ket then is willingness by both sides to make economic relations more robust and expand each other’s levargae and economic space.

    Those who want to give excuses will find plenty on both sides!!. But those who want to constructively forge relations will find innovative and resourceful ways to do so!!!. Ultimately, it is the will that counts.

    Mukul Asher

    Comment by Mukul Asher — January 29, 2006 @ 4:22 pm

  5. Australia, South Africa, Canada, New Zealand, Japan, Taiwan and to an extent a few countries of the EU have labour shortage or a negative population growth and need skilled labour. IMHO, after the cartoon protests, they prefer Indians to someone from the ME.

    The Indian govt. should help in this regards. Its an irony there is good demand and supply but there are no means.

    Comment by Rahul Mulchandani — April 2, 2006 @ 11:40 am

  6. The main cause of little foreign investment pouring into india beside the Infrastructure is the BOTTLE NECK,which are controlled by certain groups and individual for their personnel benefit instead of putting the nation in front.
    Nevertheless,the current Prime Minister And the Finance Minister who are really going all out for the economy development and betterment of the people should be praised and hailed.
    Some changes on Labour Law are really vital for the moment to attract more Potential investors.The current law needs some kind of polishing and fine tuning to cater and benefit all in whole.

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  10. Deeper engagement, holds out the promise of substantial benefits to both sides. The governments can help this process by qualitatively and quantitatively strengthening their trade missions.

    Comment by globalstarsatellitephones — April 19, 2007 @ 10:37 pm

  11. I think the government is finally waking out of its slumber. However, sometimes I feel our heads of the government are not the real ones controlling our foreign policy decisions and its always a third superpower! anybody else thinks the same way?

    Comment by lovely — June 16, 2007 @ 12:22 pm

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