Taiwan's economic rebalance holds a lesson for India

For 2025, Taiwan's GDP growth of more than 7% is the fastest in more than a decade, powered by a boom in semiconductors, AI servers and electronics exports.

- AJIT RANADE

Yet, private consumption stagnated as consumer confidence is fragile. So, Taipei announced a one-off universal cash transfer.But why would a high-income, high growth, fiscally-prudent economy, running record trade and current-account surpluses, resort to cash handouts? The answer lies in a dis-junction between measured growth and experienced prosperity, one that should resonate uncomfortably in India.

Taiwan's growth has been spectacular. AI-driven demand has sent chip and server exports soaring by more than 30%. But this boom is concentrated in a small part of the economy. Semiconductor firms like TSMC enjoy big margins while large parts of traditional manufacturing—machine tools, auto components, furniture—are stagnating. A quarter of Taiwan's workforce is employed in these old sectors, where wages are under pressure and job security is weakening.

More striking is consumption, which has gone down to 43% of GDP—to China’s level and far below the rich-country average. Productivity has risen sharply, but wages have not kept pace. The labour share of national income has declined. House prices have exploded. Thus, Taiwan's growth has led to an economy where export competitiveness is prioritized over domestic demand.