Testing for Structural Breaks in the Growth of the Services Sector in India: A Reassessment

Amrita Shergill

Economic Studies journal, 2022, issue 5, 71-85

Abstract: There has been an ongoing debate amongst economists about whether or not the economic reforms of the early 1990s induced a spurt in the growth of the Services sector in India. The focus of this paper is thus to analytically re-examine the nature and magnitude of the structural breaks in the growth of the share of the Services sector in the gross domestic product over 1950-1951 to 2013-2014 with an intention to further probe this issue. The results of this exercise show that the structural break in the growth of the share of the Services sector in gross domestic product occurred in the early 1980s, much before the economic reforms set in, coinciding with the hypothesis that the early 80s marked the structural break in India’s economic growth. The increases in per capita incomes over 30 years since independence seemed to have led to the structural break in this sector in the early 1980s, plausibly because the demand for services is highly income elastic. There is no denying though that economic reforms in the 1990s helped in maintaining and propagating the growth of the Services sector triggered in the early 1980s. The sub-period analysis has also hinted at the slowdown in the growth of the Services sector, which could have serious economic implications in coming times.

JEL-codes: C1 C22 F63 H00 (search for similar items in EconPapers)
Date: 2022
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