The Decomposition of Productivity Growth for India: Before and After 1991

Abstract

We analyse how structural shifts affected India’s productivity growth from 1983 to 2017. The analysis is carried out within a broad three-sector level of disaggregation of the aggregate economy. We show that about 29% of the aggregate productivity growth of India during this period comes from structural change. While this contribution has declined since 2007, the remaining 71% of the productivity growth originates within the individual sectors, especially within the tertiary sector, which alone explains about 30% of this productivity growth. About a quarter of the total productivity growth that occurred prior to economic liberalization in 1991 is attributed to the tertiary sector. We found that between 2007 and 2017, the tertiary sector was responsible for almost 38% of India’s total productivity growth. This contribution is much larger than the contribution made by structural change, and, therefore, the significance of the tertiary sector in Indian economic expansion is growing. Our findings also indicate that the most structural change occurred between 1998 and 2007, which may have contributed to productivity increase in the decade.