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ABSTRACT
The study attempts to examine the inter-linkages among the sectors of the Indian economy and covers the period 1971-72 to 2012-13. After investigating the stationarity of the variables, cointegration analysis has been conducted followed by VECM analysis and Granger Causality Test. Findings suggest that a unidirectional causality is running from industrial and services sector to the agricultural sector. Short run bidirectional causality is observed between the services and industrial sector output. In the long run there exists a unidirectional causality running from agricultural and services sector to the industrial sector. A long run unidirectional causality is also observed from agricultural and industrial sector to the services sector.
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1. Introduction
Economic development in any nation brings along with it distinct structural changes. The Gross Domestic Product (GDP) of a country increases as the economy progresses and a distinct shiftin economic activity is observed from agriculture towards services and industrial sector mainly due to the high elasticity of the latter two sectors. The shiftfrom agriculture, to industry and finally to services brings with it significant changes in the production process, consumption process and various other factors. During 1970s India was an agro economy and it has transformed into a predominantly services oriented economy since the mid-1980s. The share of services in India's GDP at factor cost (at current prices) increased from 33.3 per cent in 1950-51 to 56.5 per cent in 2012-13. The shiftin composition of GDP has bought about substantial changes in the inter sectoral production and demand linkages. With growth in the services sector there has been a phenomenal growth in distributive, communication, financial and consumer services which in turn drives from increased demand from the commodity producing sector. From policy perspective also understanding the structural relationship among the sectors is important. In a country like India, a study of the sectoral linkages is very important so that the positive growth stimuli among sectors can be identified and fostered to sustain the economic growth momentum Now, whether agriculture and allied services growth is important for a country or industrial sector should be considered as the engine of growth and how to link the growth of these two sectors with the services sector has always been an area of...