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India mulling trade talks with Taiwan; why is it significant?

New Delhi has long ignored trade deal with Taiwan for fear of incurring China's wrath

A combination image of Prime Minister Narendra Modi and Taiwanese President Tsai Ing-wen

China's fast deteriorating relationship with its bordering nations is seeing unprecedented effects in uniting the neighbours. According to a Bloomberg report, the Narendra Modi government is mulling talks on a trade deal with Taiwan. 

New Delhi has long ignored a trade deal with Taiwan for fear of incurring the wrath of Beijing. India had been reluctant to enter into a trade deal with Taiwan because it would involve a messy fight with China once any pact is registered at the World Trade Organization.

However, with the prevailing border tensions and deteriorating India-China bilateral relationship, many at the Centre feel the time is ripe for a recalibration of India’s relationship with Taiwan. However, it is unclear when a final decision would be made on whether to start talks, Bloomberg reported citing officials at the Centre.

A trade deal between the countries is a win-win for both the nations. Taiwan would help India's goal of seeking greater investments in technology and electronics. It will also decrease India's dependency on Chinese imports. Earlier this month, the Union government gave approval to firms including Taiwan's Foxconn Technology Group, Wistron and Pegatron as PM Modi is looking to attract investment worth more than Rs 10.5 trillion ($143 billion) for smartphone production over five years.

At the same time, enhancing Taiwan-India relations is consistent with the Taiwanese government’s efforts to decrease economic reliance on China. It is also consistent with Taiwanese President Tsai Ing-wen’s New Southbound Policy (NSP), which improves upon the efforts of several of her predecessors. 

Taiwanese businesses are increasingly interested in shifting business ties from China to India and policies that facilitate such cooperation could provide mutual benefits. "Taiwan’s goals are shared with those of successive Indian administrations, including that of current Prime Minister Narendra Modi, which seeks to increase ties with East Asian countries other than China," The Diplomat wrote in a recent note. 

A trade deal with Taiwan will further cement the power of the Quad—India, Australia, Japan and the US. "Because these three countries, along with India, have formed an Indo-Pacific entente cordiale called the “Quad” to maintain a rules-based order in the region, Taiwan-India ties can benefit from the positive synergy of collaboration in areas of trade, research, and even defense.  Moreover, India and Taiwan may see a convergence of security interests that could be further developed through interactions between the strategic communities on both sides," The Diplomat report stated. 

Any formal talks with India would be a big win for Taiwan, which has struggled to begin trade negotiations with most major economies due to pressure from China. Like most countries, India doesn't formally recognize Taiwan, with the two governments maintaining unofficial diplomatic missions in the form of "representative offices."

India and Taiwan in 2018 signed an updated bilateral investment agreement in a bid to further expand economic ties. Trade between them grew 18 per cent to $7.2 billion in 2019, according to the Department of Commerce.