Home / Business and Economy / Vembu Slams Rajan: Mexico or South Korea Path?
Vembu Slams Rajan: Mexico or South Korea Path?
5 Sep
Summary
- India's development model sparks debate between entrepreneur and economist.
- Services alone risk leaving India with low-value assembly like Mexico.
- Emulating South Korea requires owning technology and intellectual property.
The debate on India's economic development model has intensified, with Zoho founder Sridhar Vembu challenging former RBI governor Raghuram Rajan's views. Vembu warns that a services-led strategy without a strong manufacturing and intellectual property focus could lead India down a path resembling Mexico rather than South Korea.
Vembu contends that countries focusing on assembly, like some operations in Tamil Nadu, capture less economic value compared to those owning the underlying technology and brands. He draws a parallel between India's iPhone assembly workers earning less than their Chinese counterparts.
This distinction highlights the success of China's broader industrial ecosystem in capturing value through technology and domestic firms. Vembu stresses that India must not only attract factories but also build companies engaged in R&D and IP creation to avoid being a low-margin participant in global supply chains.
Rajan has previously suggested that traditional export-led manufacturing is less viable due to automation and China's dominance, favoring human capital and knowledge industries. Vembu sees this as a risk, potentially leaving India with scale but without innovation, thus risking a Mexico-like outcome.
South Korea's development, marked by industrial policy and technology creation, resulted in global firms like Samsung and LG owning patents and brands, leading to higher incomes. Vembu urges India to move beyond assembly and engineering services to create globally competitive firms owning innovations.
The core of Vembu's argument now centers on value capture within manufacturing, emphasizing ownership and technology. As India pursues industrial development plans like production-linked incentives, policymakers face a crucial decision regarding its economic future as a hub for manufacturing, innovation, or both.
