January 27, 2006EconomyForeign Affairs

Engage Taiwan

The case for a robust India-Taiwan economic partnership

This is an archived blog post from The Acorn.

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

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