Look east to Taiwan

Mukul G Asher

The time has come to incorporate Taiwan as an integral part of India’s “look east” policy. 

Taiwan has already indicated its strong interest by launching the Taiwan-India Cooperation Council (TICC) in February 2006, and by hosting a large scale India-Taiwan forum in April 2006.  India should respond to these overtures with a degree of urgency.

Taiwan’s merchandise trade in 2006 is estimated to be $400 billion ($280 billion for India), while its 2004 trade in commercial services, at $55 billion, is moderately lower than India’s ($80 billion).

Taiwan is an affluent society, with GDP of $355 billion, per capita income of $15,600, and considerable discretionary purchasing power.  It has achieved success on the basis of its manufacturing prowess, and its economy is based primarily on small and medium-sized private sector enterprises.

There are three broad reasons for deeper engagement between India and Taiwan. First of all, both sides can achieve greater diversification of their global trade, investment, and technology risks.

Taiwan is searching for large economic partners to diversify its risks.  Currently, China accounts for about 40 per cent of its exports, and about two-thirds of its outward investments. 

Taiwan has also experienced a hollowing out of its industrial base; and the non-electronic sector has remained sluggish.  There are indications that China is re-evaluating the disproportionately large role played by inward investments.

This should be a matter of particular concern to Taiwan.  Slowdown in economic growth in the US and China could make Taiwan’s economy particularly vulnerable.

Moreover, as Taiwan begins to shift away from contract manufacturing to developing its own brands, it will come into direct competition with other established players and with China. 

India’s large and growing economy and its stable political and economic environment should therefore be attractive to Taiwan.

For India, greater engagement with Taiwan could help lessen its global risks.

Taiwan’s manufacturing prowess, particularly in electronic hardware, is of particular relevance to India as it begins to emphasise manufacturing. India’s special economic zones (SEZ) may be particularly conducive to small and medium enterprises from Taiwan.

India’s globally competitive software services, including knowledge process outsourcing (KPO) have till now contributed to the competitiveness of primarily western countries.  Taiwanese companies can avail of their services by collaborating with Indian industry in this area, or by setting up their own centres.

In this context, language and cultural barriers are relatively minor barriers as compared to the potential gains.

Second, Taiwan’s strong agricultural technology base and its marketing skills can be useful to India as it begins to reverse its relative neglect of the agricultural sector.

Greater technical assistance by Taiwan in this area, as well as in applied sciences and technology, can help fill an important gap in India’s manpower base.

Taiwan could also consider assisting India in Chinese language training, particularly at a more advanced level suitable for software programmers and researchers.

Third, demographic complementarities between the two also provide opportunities.

India is currently in a demographically advantageous position, while Taiwan is experiencing rapid ageing. Taiwan’s pension assets are projected to be $150 billion by 2015.

These, along with its large foreign exchange reserves ($260 billion) could find an avenue in India’s well regulated and increasingly sophisticated financial and capital markets.

The two can also cooperate in the pharmaceutical and health-care sectors and thereby help lessen the financing burden of its ageing population. 

All stakeholders, particularly businesses and media, have a role to play.

The authorities can assist by substantially improving connectivity (direct air links between Mumbai and Taipei) and by undertaking domestic reforms that would reduce the transaction costs of international trade and project implementation.

Business organisations such as the CII and NASSCOM need to play a more proactive role with their respective counterparts in Taiwan to help deepen business linkages.

The general reasons for deeper engagement are fairly obvious. What is urgently required is translation of this intellectual recognition into result-oriented actions by all the stakeholders.

The writer is professo of public policy, National University of Singapore.