Inter-sectoral Growth Linkages and Their Implications for Agriculture: Evidence from Indian States

This article empirically examines the existence of inter-sectoral growth linkages among the key sectors of the Indian economy at the state level. The examination evaluates the impact of the non-agricultural sectors of the states and that of the rest of the states on agricultural output of a particular state. An annual panel data set for 15 general category states have been taken for the period 1980-1981 to 2012-2013. Panel cointegration and fully modified ordinary least square methods have been used to study the existence of a long-run equilibrium relationship between sectors. The results suggest that there is a long-run equilibrium relationship among three sectors of the economy in the Indian states. The evaluation indicates that the industrial sector contributes positively in complementing the growth of agriculture, but the service sector advancement affects agricultural growth negatively. However, services having some direct reference to agriculture such as transport, storage and communication (TSC), trade, hotel and restaurant (THR) and banking and insurance (BI) have positive linkage with agriculture. The state specific econometric evaluation of the agricultural output varies relatively across different states, for example, in Kerala, the impact of rest of the industries and services leaves a positive significance; whereas, the study foresees the negative impact of industry and services in the states such as Bihar, Madhya Pradesh, Orissa and Rajasthan. In order to neutralize the negative linkages of service sector on agriculture, policies for promoting pro-agricultural services such as crop and agricultural insurance, agricultural loans, facilities for agricultural warehouse, marketing services, weather communication, transport services and provision of technical support to farm activities are important. Such initiatives can help agricultural sector grow along in the simultaneous development of sectors propelling growth of the economy at a faster rate.