GDP Composition and Sector-Wise Growth Trends in India: Evidences from Post-Reform Period

Abstract

Economic growth models have emphasized upon the need for increase in investment leading to the rise in the rate of capital
formation as the means for the development of any backward region/country. Considering this need of investment, economic
reforms (liberalization, privatization and globalization (LPG)) gained major significance in India from July 24, 1991. These
reforms introduced high investment to stimulate economic growth and average economic growth in India since then has been
around 6.66% per annum (calculated form Handbook of Statistics on Indian Economy, RBI, 2011-1). However, these reforms have
also led to change in the composition of gross domestic product (GDP) and growth rates of different sectors have been different
during the post reform period. This paper aims at (1) examining the changes in GDP composition, (2) studying sector-wise growth
rates using compound average growth rate (CAGR) and average annual growth rate (AAGR) and (3) finding the impact of gross
capital formation (GCF) and labour employed on economic growth using multiple regression analysis in India during post-reform
period i.e. 1991-92 to 2011-12. It has been found that the service sector contributes the highest and the agriculture & allied
activities sector contributes the lowest share in GDP while the contribution of the industry sector has remained almost constant. As
far as the sub-sector analysis is concerned, the trade, hotel, transport & communication sub-sector contributes the highest share in
total output. GCF growth rate has found a significant determinant of economic growth and an 1% increase in the GCF growth rate
leads to 0.91% increase in the GDP growth rate, while employment does not significantly affect the GDP growth rate.