ABSTRACT
India experienced a boom in service trade in the last decade following trade liberalization and economic reforms, and emerged as one of the fastest growing nations in global services trade. This rapid growth of the services sector, drawn by its strong productivity performance, is expected to have a positive spillover effect on its manufacturing counterpart. This chapter tries to study that impact at a more disaggregated state level, applying Panel Data Fixed Effect Regression Model. Seventeen major Indian states are chosen for the empirical study for the period of 2008–09 to 2014–15 which shows that bringing forth more capital (or improved state of services) may enhance the labour productivity of the manufacturing sector, provided the value of net exports of services of the previous year is less than a critical value. Actually at the state level, the manufacturing sector may experience lower labour productivity and income, if the share of the state’s service sector to SDP is high. So limitless growth of service trade, as development strategy in the post reform era, may not be so promising for a developing country like India that tries to attain inclusive growth in the longer run.
