Taiwanese Manufacturers Can Gain Immensely by Shifting Production to India

In recent years, India and Taiwan's relationship is on an upswing. India and Taiwan’s bilateral trade amounted to USD 7.05 Billion in 2018 (It has lost some steam since then and amounted to USD 4.8 Billion in 2020 in the face of the pandemic, but is expected to spiral upwards in coming years.)

Taiwanese Investments in India have reached USD 1.09 Billion. Estimates suggest that if 3^rd party sources are taken into consideration, the investments from Taiwan are close to 2 USD Billion. Taiwanese investments are directed towards a host of sectors such as ICT, electronics & smartphone manufacturing, machinery, petrochemicals, etc. 

However, the engagement b/w the two powerful Asian economies is still under-utilized. There are around ~ 200 Taiwanese companies operational in India. In contrast, there are thousands of Taiwanese companies operational in China and Vietnam. Cultural proximity makes these economies better placed to lure Taiwanese firms. 

Taiwan’s aggregate investments in China since 1980 is ~ USD 191 Billion. China accounts for 43% of the Taiwanese exports, but the latter is thinking beyond the dragon. Since 2010, Taiwan’s FDI inflow in mainland China is on a downward spiral. In Taiwanese policy to systematically reduce its reliance on China,  India becomes a natural alternative. India’s large domestic market, availability of skilled labor force, exhaustive industrial R&D facilities, and cheaper wage rates are resulting in increased Taiwanese interest to shift a part of its supply chain in the South Asian economy. 

Progressive Industrial Policies

However, India’s advantage is not just limited to its inherent strengths mentioned above. The country has systematically overhauled its regulatory framework in recent years to offer a conducive business environment. India’s commitment to developing its business climate has also been reflected in the jump in the World Bank’s Ease of Doing Business Rankings. India currently has a rank of 63^rd, moving significantly up by 142 in 2014. 

Currently, it offers one of the cheapest tax rates of 15% (17.16% including cess) in South and Southeast Asia for new manufacturing units. No indirect taxes are levied on the export of goods. Import of capital goods is not subject to any customs duty. There are plenty of other attractive schemes and subsidies including the availability of industrial land at reduced rates, exemption from stamp duty, discounts on electricity and water tariffs, etc.   

Under the flagship of the Make in India Plan, lucrative Production Linked Incentive (PLI) schemes have also been introduced. 

GOI has introduced a PLI of 4-6% on smartphones and other electronic appliances such as diodes, transistors, etc. USD 5.5 billion will be disbursed over the next 5 years starting from FY 20 as the base year. Already Taiwan based contract manufacturers of apple iPhones such as Foxconn, Rising Star, Pegatron, etc. are setting up manufacturing facilities in India to benefit from its PLI scheme. These manufacturers are planning to pour in more than USD 900 Million over the next 5 years in the country. 

The country has also announced a generous PLI of USD 1.5 billion for processed fruits & vegetables, ready-to-eat meals, organic poultry, etc. A USD 1.4 billion PLI for the textiles industry has been put in practice targeting the Man-Made Fibre (MMF) sub-segment. Similarly generous PLIs have been announced in other key industries such as ACC batteries, solar modules, medical devices, automotive parts, etc. 

Taiwanese manufacturers shifting to India will be greatly benefited from attractive PLI schemes, a progressive tax regime, and an overall conducive business climate.  

Steady Growth in Indian Infrastructure

India’s underutilized industrial and manufacturing sector in the past has been rooted in its suboptimal infrastructure. However, the current Modi government’s commitment to give a facelift to Indian infrastructure is unquestionable. In the past 5-7 years, there has been a steady and visible shift in Indian infrastructure growth. 

Currently, India has the 2^nd largest railway network and road infrastructure. India’s total road network is around ~ 5.9 million Kms, only next to the USA. From 2019 to 2025, USD 275 Billion will be invested to further develop road networks, which will involve national & state highways, urban & rural roads, feeder lines to railways corridors, economic corridors, etc.  India is adding 30-35 Kms of highways each day. 

Large size railway networks are developed at a cut-throat speed. Indian Railways, a government agency operates around 123,000 Km of railways network and it is counted amongst one of the largest logistic companies in the world. 

India is also aggressively developing its metro network, high speed & semi-high speed railway corridors, and suburban railway lines. As per the analysis by India Watch, there are around 551 Kms of approved network and another 926 Kms have been announced. In the future, the metro project will channelize an aggregate investment of around USD 36.2 Billion. 

In the last 10 years, India’s total installed power capacity has jumped by 141.1% reaching 384 GW. By 2030, India plans to develop 750 GW of annual power, with renewable energy comprising around 450 GW. Improved infrastructure will be the cornerstone to scale up India’s manufacturing sector. 

How India Watch can Help Taiwanese Firms

In the coming time, Taiwanese FDIs into India are bound to rise at a significant pace. Alongside setting up manufacturing centres, JVs and technology transfer will also move up the curve. Meanwhile, to make successful business decisions in India, it is also essential to gain in-depth knowledge of the Indian market. As a business research and consulting advisory, India Watch can help with tailor made solutions. 

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