The Role of Services in Total Productivity Growth of Indian Manufacturing Firms: A Firm Level Analysis Since 2000

Services were considered non-tradable in the initial stages (in the mid-eighties). However, with the advent of Information Communication and Technology (ICT) and other modern services, services have become increasingly tradable day by day. Since, the eighties, there had been a rapid expansion of the Indian service sector, surpassing the agriculture and manufacturing sector. With the expansion, important services like communication, financial, transport, insurance, research and development, business services, legal services and other professional services etc. were on high demand in the manufacturing sector. Absence of such important services would act as a bottleneck in major investment projects of a manufacturing firm. Specialized services obtained from the external agency would help the firm to focus on its non-core activities and improve its productivity growth and competitiveness. Against this backdrop, the study mainly examines the role of services in enhancing the productivity growth of the Indian Manufacturing firms since 2000. The firm level data was collected from Prowess database. The study was done at the aggregate and disaggregated level. The results conclude that services have been playing a positive role in enhancing the productivity growth of the manufacturing sector and also for the industry group like textile group, machinery group etc. However, for the Electronics Group services did not play a significant role so far.