Sources of India’s Post-reform Economic Growth

This paper analyses the sources of India’s economic growth in terms of industry origins, inputs, and productivity during 1994–2018, comparing the pre- and post-global financial crisis periods. Manufacturing was one of the main contributing sectors to aggregate growth of the total factor productivity and gross value added in the post-GFC period. The results stress the need for proactive policies to support agriculture, manufacturing, and market services sectors.

The underlying research for this paper has been done under the India KLEMS project, supported by the Reserve Bank of India. The authors are thankful to RBI for their enduring support and financial assistance. The authors fondly remember the contributions and leadership of late Deb Kusum Das in coordinating the India KLEMS project until his unexpected passing away on 24 December 2021.
The usual disclaimer applies.

India’s economic growth during 1994–95 to 2018–19 (hereafter written as 1994–2018),¹ that is, the period since the liberal market reforms began in the early 1990s, was on average about 6%. This paper presents a supply-side analysis of this observed economic growth in the post-reform period, comparing growth performance between the pre- and post-global financial crisis (GFC) periods. Using disaggregated industry-level data, the paper looks at the industry origins of growth—which industries are driving aggregate growth—with a focus on the roles of agriculture, manufacturing, and services sectors. Furthermore, the study also looks at the contribution of factor accumulation and productivity advance to growth, taking a growth accounting approach based on the five-input capital–labour–energy–materials–services (KLEMS) framework.

For the analysis, the paper uses the India KLEMS database, which is based on and is consistent with India’s national accounts, and is available on the website of the Reserve Bank of India (RBI).² This database provides annual time series data on output, inputs, factor income shares, and productivity from 1980–81 to 2018–19 for 27 industries that constitute the total economy (Das et al 2020). The analysis in the paper is confined to the period from 1993–94 to 2018–19 (1993–2018). We consider the average growth from 1994 to 2018, divided into two sub-periods, 1994–2007 (the pre-crisis period) and 2008–18 (the post-crisis period), with the first sub-period sometimes being broken into 1994–2002 and 2003–07.