Structural changes and economic landscape of the Indian economy: 2000‐2019

• Published date: 01 February 2023
• Author: Yongming Huang,Mohammad Haseeb,Jamal Khan,Md. Emran Hossain
• Date: 01 February 2023
• DOI: http://doi.org/10.1111/rode.12948

REGULAR ARTICLE

Structural changes and economic landscape of

the Indian economy: 2000-2019

Yongming Huang

1

| Mohammad Haseeb

1

|

Jamal Khan

2

| Md. Emran Hossain

3

1

China Institute of Development Strategy

and Planning, and Center for Industrial

Economics, Wuhan University, Wuhan,

China

2

Institute of International Studies and

School of Northeast Asia Studies,

Shandong University, Weihai, China

3

Department of Agricultural Finance and

Banking, Bangladesh Agricultural

University, Mymensingh, Bangladesh

Correspondence

Yongming Huang, China Institute of

Development Strategy and Planning, and

Center for Industrial Economics, Wuhan

University, Wuhan, 430072, China.

Email: hym@whu.edu.cn

Md. Emran Hossain, Department of

Agricultural Finance and Banking,

Bangladesh Agricultural University,

Mymensingh-2202, Bangladesh.

Email: emranaerd@gmail.com

Funding information

National Social Science Foundation

Project of China, Grant/Award Number:

21BJL008

Abstract

This study employs input-output analysis to determine

the extent of structural changes in the Indian economy,

as well as how economic sector linkages changed

between 2000 and 2019, and identifies the sectors with

profound linkages with other sectors. Furthermore, we

use the causative matrix to examine the temporal

changes in intersectoral interactions. The analysis

shows that manufacturing sectors have stronger inter-

sectoral linkages than sevice sectors, with resource-

intensive and scale-intensive manufacturing sectors

having the most profound linkages. Furthermore, the

causative matrix analysis reveals that Indian sectors

became more externalized following the global finan-

cial crises, while receiving less feedback from other sec-

tors. The results suggest that intersectoral linkages

should be taken into account when designing industrial

policies, and that investment should be encouraged in

India's key economic sectors.

KEYWORDS

input–output model, linkage analysis, multiplier product

matrix, structural change, causative matrix

1|INTRODUCTION

Since the implementation of economic reforms in 1991, rapid economic growth in India has

been accompanied by several structural changes. The dominant agrarian Indian economy has

transformed into a tertiary-oriented economy (Munjal, 2007). The share of primary industry

Received: 21 April 2022 Revised: 2 September 2022 Accepted: 12 September 2022

DOI: 10.1111/rode.12948

Rev Dev Econ. 2023;27:395–422. wileyonlinelibrary.com/journal/rode © 2022 John Wiley & Sons Ltd. 395

decreased from 56% in 1950 to 44% in 1970 and then to 31% in 1991. However, after the reform

period, its share plummeted to 17% of GDP. Secondary industry increased its share of GDP from

14% in 1950 to 30% in 1991. The notable aspect of India's structural transformation is that its

tertiary sector has grown from 30% of GDP in 1950 to 54% of GDP in 2019, a more than twofold

increase. The low share of secondary industry in the Indian economy and the relatively high

share of tertiary industry make India an outlier when compared internationally (Datta, Neogi, &

Sinha, 2015). Significant growth in the tertiary sector has occured since the mid-1990s, as a

result of India's “Service Revolution”and its comparative advantage of information and com-

munication technology (Erumban, Das, Aggarwal, & Das, 2019).

Various macroeconomic parameters such as output, trade, incomes, and employment, and

the changing patterns of their interaction describe the economic structure (Jackson, Rogerson,

Plane, & Huallachain, 1990). These components are aggregated into sectors that are connected

through intersectoral linkages. Economies reallocate resources from low-productivity, and tra-

ditional activities to higher-productivity, and modern activities in the development process.

Thus, this transformation process shifts an economy's structure from the agricultural to the

industrialized and tertiary sector, as well as changes the intersectoral relationships between the

various sectors of the economy.

Several approaches for measuring, interpreting, and understanding structural changes in

economic systems have been developed. These approaches contribute to a better understanding

of structural change as well as economic development. Regression techniques based on sector

composition and economic growth (Kuznets, 1966; Syrquin, 1988), spatial structural conver-

gence (Rey, 2001), and input–output (I–O) analysis (Carter, 1967; Hewings, Fonseca,

Guilhoto, & Sonis, 1989) are among the most widely used approaches. Using these approaches,

a large number of empirical studies have been conducted to unveil structural change, productiv-

ity, and economic growth using these approaches (Aroco, Guo, & Hewings, 2008;

Checherita, 2009; Dall'Erba & Le Gallo, 2008). I–O analysis, proposed by Leontief, —measures

the flow of goods and services from production to consumption sectors in an economic system.

It helps in the measurement of sectoral linkages—direct and indirect intermediate purchases

and sales—as well as the evaluation of a sector's role in an economy. A number of studies have

been conducted to examine structural changes using I–O analysis; for example, Huang, Khan,

Girardin, and Shad (2021) analyzed the role of the real estate sector while Huang and Khan

(2022) analyzed the dynamics of the information and communication technology sector, both

in the Chinese economy.

A few scholars utilized I-O analysis to explore the structural changes in the Indian economy

(Munjal, 2007; Roy, Das, & Chakraborty, 2002). However, there is little empirical evidence from

the Indian context that has explored system-wise sectoral changes and intersectoral linkages

using I–O analysis. As economic structure changes over time, a few key sectors play an impera-

tive role in the growth process through strong linkages with other sectors in the economy

(Hirschman, 1958). It is therefore important to study the structural role of sectors through their

interactions with the rest of the economy. This study aims to fill this gap by measuring different

aspects of the Indian economy using the I–O framework and a recently published dataset.

From this perspective, regarding structural transformation and economic development, the

central question then becomes whether and how the size of sectors, their interactions, and

intersectoral linkages change in the Indian economy, and which are the key sectors. Therefore,

we pursue three objectives in this study. First, we aim to gauge the forward and backward sec-

toral linkages, as well as their push and pull capabilities in the Indian economy, and identify

changes in the pattern of both forward and backward linkages across sectors. Our second

396 HUANG ET AL.