Final demand, production structure and productivity dynamics of India’s service industries

Resorting to input-output model, in this paper, we have made an attempt to study the intertemporal labour productivity improvement in the service sectors of Indian Economy during pre-and post-reform periods. In order to do this, first of all, we have viewed the labour productivity from labour requirements approach as well as labour intensity decomposition approach. Both direct labour coefficients and direct and induced labour requirements associated with domestic final demand as well as net exports are estimated to understand the pattern of labour productivity movement. Then, we have undertaken a simple decomposition framework where the total labour requirement (direct and induced) has been decomposed into three factors, namely, productivity change effect, structural change effect and final demand composition change effect. The paper also documents broad contours of technological change in Indian service industries and changes in the level of labour needed to deliver a constant level of final demand given inter industry structure and labour coefficients. Our entire study period has been divided into five phases, they are phase-I (1989–90 to 1993–94), Post-reform Phase-II (1993–94 to 1998–99), Post-reform phase-III (1998–99 to 2003–04), Post-reform phase-IV (2003–04 to 2007–08) and overall phase (1989–90 to 2007–08). We observed that the direct and induced requirements of labour appear to be a better measurement of labour productivity compared to the direct requirements of labour and service industries in India during post-reform periods emerged to be a prominent source of labour productivity improvement as far as external demand is concerned.