Examining Performance and Tradability of Services Across Indian States

Abstract

This paper studies the growth of services in India at the sub-national level. In the absence of actual data on trade in services across Indian states, we come up with estimates of services flows across states using national level input-output transaction flows. We also explore the role of external demand in determining the demand for services at the state level in India. Finally, based on our findings, we examine the role for export-led services growth at the state-level in promoting convergence across Indian states and suggest that this may be positive. Our results suggest that there is enough variation in services employment and demand across sectors to suggest evidence for tradability of services across states. More disaggregated analysis of services trade flows suggests that states such as Maharashtra, UP and the four southern states may be more responsible for India’s success story in services at the global level. Further empirical results suggest neither any commonality in the determinants of services demand between the services surplus and deficit states nor any evidence of a regional pattern in services demand. Indeed, if anything, our results rather point to demand for services emanating from all over the country and the relative ease with which these services may in fact be crossing borders within India, thereby promoting convergence across states.

Keywords: Services, India, states, convergence, trade, demand, input-output, exports

JEL Classification: F10, F14, L80