Time for Robust India-Taiwan Economic Partnership
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As India continues to pursue calibrated globalization and expand external linkages, this is an opportune time to economically engage Taiwan. It is an economy with a GDP of over US$300 billion and a per capita income of US$14,000. Taiwan is an integral and vital part of the globalized world, with particular strengths in manufacturing by small and medium enterprises, which accounts more than 90 per cent of its exports. In 2004, its merchandise exports were US$182 billion (2 percent of the world total, ranked 15th), while its merchandise imports were US$168 billion (1.8 percent of the world total, ranked 15th). In 2004, Taiwan ranked 24th in exports (worth US$26billion) and 20th in imports (worth US$30billion) in commercial services. It ranks in top five economies in foreign exchange reserves (US$255 billion). Its stock market capitalization is about US$450 billion.
As India continues to pursue calibrated globalization and expand external linkages, this is an opportune time to economically engage Taiwan. It is an economy with a GDP of over US$300 billion and a per capita income of US$14,000.Taiwan is an integral and vital part of the globalized world, with particular strengths in manufacturing by small and medium enterprises, which accounts more than 90 per cent of its exports. In 2004, its merchandise exports were US$182 billion (2 percent of the world total, ranked 15th), while its merchandise imports were US$168 billion (1.8 percent of the world total, ranked 15th). In 2004, Taiwan ranked 24th in exports (worth US$26billion) and 20th in imports (worth US$30billion) in commercial services. It ranks in top five economies in foreign exchange reserves (US$255 billion). Its stock market capitalization is about US$450 billion.
In 2004, India?s merchandise exports were US$76 billion (0.83 percent of world?s exports, ranked 30th); while its imports were US$97 billion (1 percent of the world total, ranked 23rd). In 2004, India ranked 16th in exports (worth US$40 billion) and 15th in imports (US$41Billion) in commercial services. This suggests complimentarity between India and Taiwan, with the former having strength in services, and Taiwan having strength in manufacturing.
As India progresses towards achieving US$1000 billion in GDP, and US$500 billion in international trade in goods and services, it needs massive investments in infrastructure, and in manufacturing. India aims for FDI inflow of US 10 billion in 2006-07. Taiwan can be an important new economic partner in these areas for India.
India has well regulated financial and capital markets with internationally very competitive transaction costs and settlement procedures. India?s stock market capitalization is about US$400 billion. This is expected to grow rapidly as new companies are listed, and the existing companies expand both domestically and globally.
India also has many unlisted companies with good growth potential. In 2004, investment in such companies through private equity route was about US$2 billion, and this is expected to grow rapidly. India?s real estate sector also provides many profitable opportunities for investors. Rules for foreign investments in this sector are being liberalized considerably.
India?s commodity exchanges are also progressing well. These add depth to the capital markets, and could provide a boost to the agricultural sector whose modernization is vital for spreading the benefits of knowledge-based economy and globalization more widely.
Deeper engagement can provide substantial benefits to both sides.
First, Taiwan is searching for partners who can help diversify its global trade and investment risks. Currently, China accounts for about two-fifths of Taiwan?s total exports. Its investments in China are estimated to approach US$100 billion. In December 2005, Taiwan Business Climate Index (BCI) fell for third consecutive month. Given the importance of exports to Taiwan?s economy, this is yet another indicator suggesting its need for new economic partners.
India?s bilateral trade with Taiwan is only about US$2 billion (less than 1 percent of the total). Unlike South Korea, Japan, Singapore and China, Taiwan has not made significant direct investments in India. Plans by Foxconn, a Taiwanese electronics components manufacturer to set up a special economic zone with Motorola of US in Tamil Nadu represent a positive step.
Presence of Taiwan?s financial institutions in India (and vice versa) is also extremely limited. This gap needs to be addressed. Taiwan?s state investment agencies should be encouraged to follow the examples of Singapore, Malaysia, and other Asian countries in taking longer term portfolio investment positions in India.
But given India?s proven capacity to manage globalization and sustain high rate of growth over prolonged period, Taiwan can diversify its global risks by deeper trade and investments relationship with India, as other East Asian economies are doing. India can be an important export market for Taiwan businesses in many areas, particularly computer and mobile hardware components.
For India, the benefits of greater engagement with Taiwan are also high. Taiwan has proven global competitiveness in manufacturing, particularly in electronics hardware, which India wants to develop. Its technological research capabilities can provide synergies with India?s needs and capabilities in this area. Combining Taiwan?s hardware expertise with India?s software capabilities, particularly in Knowledge Process Outsourcing (KPO) could be mutually beneficial.
Second, there are demographic complementarities between Taiwan and India. Taiwan has been experiencing below replacement rate fertility levels of around 1.6 (and declining) for many years. Average life expectancy is 77 years and is increasing. The elderly will make up 20 percent of the total population by 2020, and this will imply increase in median age and a reduction in working age persons to total population ratio.
In contrast, India is in a demographic gift phase, with rising working age to total population ratio till 2045. Even after that, its ratio will decline quite slowly, and the ratio will remain higher than for Taiwan.
Taiwan can extend its economic space and cope with population ageing by taking advantage of India?s relatively young manpower through outsourcing and off-shoring of many activities. These may range from routine Business Process Outsourcing (BPO) types to those involving such KPO activities as research, and design. Many MNCs, including those from China, are basing their research and design centres in India. Taiwan?s participation in selected areas of research and design could provide with win-win opportunities.
. Taiwan?s pension assets are projected to be US$150 billion by 2015. A portion of these assets invested in India to obtain high returns. These in turn can assist in achieving financial security for the aged in Taiwan.
The institutional arrangement for bilateral commercial diplomacy consists of India Taipei Association (ITA) in Taipei and Taiwan Taipei Economic and Cultural Centre (TECC) in New Delhi. The two however need to be qualitatively and quantitatively strengthened to sustain deeper engagement. Consideration should be given to the following.
First, greater air and sea connectivity between the two countries should be given priority.
Second, transaction costs of doing business and tourist travel between the two countries should be examined with a view to reducing them significantly.
Third, Taiwan could consider substantially enhancing its training and technical cooperation with India in areas of agriculture and Chinese language. India on its part should expand its cultural activities in Taiwan. The common Buddhist cultural heritage should be emphasized.
Fourth, linkages between universities and research institutes of the two countries should be encouraged and formalized.
Finally, regular exchange of business delegations and of civil society leaders should be encouraged. People-to-people contacts are essential to increase comfort levels between India and Taiwan. Indian business organizations should also forge closer links with their counterparts in Taiwan representing small and medium enterprises.
India needs to pursue more result-oriented and skilful economic diplomacy if it is to take advantage of mutually beneficial opportunities in engaging Taiwan. On its part, Taiwan needs to engage more deeply with India to diversify its global trade and investment risks, and expand its economic space.
- Mukul G. Asher
Professor of Public Policy
National University of Singapore
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