ASSESSMENT OF BACKWARD AND FORWARD LINKAGES IN INDIAN ECONOMY: AN INPUT-OUTPUT BASED ANALYSIS

Transcription

1 CHAPTER 6 ASSESSMENT OF BACKWARD AND FORWARD LINKAGES IN INDIAN ECONOMY: AN INPUT-OUTPUT BASED ANALYSIS 6.1 Introduction Over the years the Indian economy has undergone a structural change in its sectoral composition from a agriculture economy during the 1970s to predominant in service sector in 1990s. One of the striking features of India s high economic growth in the last two decades is the service sector s boom. The rapid growth of services is an indication of fundamental changes in the production and consumption structures of our societies (Ganz, 2005). A major drive towards diversification and modernization of the Indian economy in later years resulted in increased share of the secondary and tertiary sectors and declined share of primary sector in the national product (Dasgupta & Chakraborty, 2006). Sectoral linkages describe a sector s relationship with the rest of the economy through its direct and indirect intermediate purchases and sales. The sectors with the highest linkages should be possible to stimulate a more rapid growth of production, income and employment than with alternative allocations of resources. The linkage concept has been recognized as playing a crucial role and providing substantial contributions towards guiding the appropriate strategies for future economic development. The production linkages basically arise from the interdependence of the sectors for meeting the needs of their productive inputs, whereas the demand linkage arises from the interdependence of the sectors for meeting final consumption. Further, the linkages between the two sectors can also be categorized into two groups based on the direction of interdependence. One is the backward linkage, which identifies how a sector depends on others for their input supplies and the other is the forward linkage, which identifies how the sector distributes its outputs to the remaining economy. More importantly, these two linkages can indicate a sector s economic pull and push, because the direction and level of such linkages present the potential capacity of each sector to stimulate other sectors and then reflect the role of this sector accordingly.

2 The structural inter-relationships among sectors in an economy are generally examined in different ways. The institutional, demographic and socio-political context within which the production process has been taking place over the years plays pivotal role in shaping the sectoral linkages within the economy. Changes in any of these perspectives would lead to changes in the growth and composition of different sectors, and sub-sectors within the sectors, and thereby, the sectoral linkages (Saikia, 2009). The transfer of surplus resources such as capital, labour and raw materials etc. from agriculture to industry is one of the important linkages between the two sectors. Studies show that with the increase in the productivity of agriculture, demand for postharvest facilities such as processing, storage, transport, communication and market, etc. has increased over the years. There is considerable evidence that investments in some special services such as transport and communication, storage, building of rural roadways, banking and financial facilities, trade and hotels, social services such as education, hospitals and other infrastructure, etc. increase agricultural productivity. The growth in specialized services can enhance higher rates of economic growth, and is also likely to strengthen agriculture-industry linkages. Similarly, with the increase in per capita income demand for specialized services that act as inputs in agriculture will increase, because the demand for services is highly income elastic. Further, service sector has stronger backward linkages compared to forward linkages with both agriculture and industry. In the light of the structural changes in the Indian economy and its sectoral growth composition, some of crucial issues such as the importance of government policies, role of economic institutions, increasing economic integration, inter-sectoral resource transfer, changing composition of agricultural sector, service led growth etc. which have significant impact on sectoral linkages should be emphasized. The contribution of agriculture sector in generating demand for the other sectors, especially the industrial sector, has become more pronounced in recent years. Further, in view of the structural shift from food grain production to commercial crops, fruits and vegetables, flower and horticulture etc., and the increasing consumption preferences for differentiated food products, combined with the development of contract farming 167

3 and vertical linkages in agro-food supply chains, the possibility of improving the agriculture-industry inter-dependence in recent years can be well predicted. 6.2 Linkages among Sectors: Vision of different Scholars A number of researchers have studied sectoral inter-linkages in the Indian economy. In one of the earliest studies on the subject, Rangarajan (1982) found a strong degree of association between the agricultural and industrial sectors. In particular, it has been observed that an addition of 1% growth in the agriculture sector stimulates the industrial sector output to the extent of 0.5%. That study, however, claimed that the consumption linkages are much more powerful than the production linkages between sectors. A study by Bhattacharya and Mitra (1997) provided empirical evidence in support of a positive linkage among the broad sectors. It established that many services activities are significantly associated with the agricultural and industrial sectors and this helps in overall employment generation. Aydin (2007) identified some key sectors with strong backward and forward linkages of Turkish economy. The study found that for the development strategy it is very important to determine which industries possess high backward and forward linkages. Then stimulating final demand or primary inputs namely of these industries could positively influence the economic activity of the country. One of the studies which examined the inter-sectoral linkages among different sectors of the economy are Andreosso & Yue (1999), Bagchi et al. (2005), Chakravarty (2006), Ashwani & Vashist (2012), Papola (2012). Forthcoming section also presents the production, demand, forward and backward linkages computed from the data Production Linkages Before calculating the backward and forward linkages the study focuses on production and demand linkages by using Input-Output analysis. The production linkages have been explained by using the technological coefficient matrix. Production linkages refer to the input requirement of any sector, for producing its own output, from other sectors in the economy. In other words, if the output of one sector requires the inputs from other sectors, used in its production cycle then these types of linkages are known as production linkages. One can also term it as interdependence among the producing sectors in the economy. Table 6.1 presents the sector wise production 168

4 linkages shown by the technology coefficient matrix (A) of basic input-output analysis at different points of time. First column of the table 6.1 reveals that to produce one unit of agriculture, units of input were required from agriculture sector itself, units were required from industrial sector and were required from service sector in In , its dependence on agriculture (0.155) has declined and increased from industry (0.074) and followed by service sector (0.070); and continuously declining upto except and again declining in We can see fluctuations in industrial sector in column 1 while dependence on service sector continuously increased except in to produce one unit of agriculture. During , the input requirement of agriculture sector from the other two sectors changed in which industry required units and services required and it depended more upon service sector than industrial sector. In , for the production of one unit of agriculture, units were required from agriculture itself, units were required from industry and from service sector. Overall period from to shows that to produce one unit of agriculture, its dependence upon industrial sector and service sector increased. Second column of the table 6.1 shows that in respect of industry its dependence for inputs on agriculture decreased (from units to units) in than in During , to produce one unit of industry, units of input were required from agriculture sector, units were required from industrial sector itself and units were required from service sector. During post reform period, agriculture requirement increased in and to produce one unit of industry; further declined in and In , agriculture sector contributed units, industrial sector units and service sector with units added in the production of one unit of industry. Dependence on service sector increased from units in to units in and further decreased to units in Overall study period, shows that dependence of industry has decreased on agriculture but increased on industrial sector throughout the study period i.e. to use the more inputs from its own sector. However, the dependence of industrial sector on service sector reduced in than in

5 Table 6.1: Sector Wise Production Linkages Technology Coefficient Matrix for Sector Agriculture Industry Services Agriculture Industry Services Technology Coefficient Matrix for Sector Agriculture Industry Services Agriculture Industry Services Technology Coefficient Matrix for Sector Agriculture Industry Services Agriculture Industry Services Technology Coefficient Matrix for Sector Agriculture Industry Services Agriculture Industry Services Technology Coefficient Matrix for Sector Agriculture Industry Services Agriculture Industry Services Technology Coefficient Matrix for Sector Agriculture Industry Services Agriculture Industry Services Source: Author s Calculations 170

6 Third column of the table 6.1 explains that to produce one unit of service sector, units of agriculture sector, units of industrial sector and units were required from service sector itself in Further, the analysis of service sector reveals that its dependence on agriculture increased in to units. It continuously decreased till and again increased in Industrial requirement to the production of service sector decreased further from units in to units in and further increased in and Overall dependence on service sector itself has increased from units in to units in In , to produce one unit of service sector, units were required from agriculture sector, units from industry and units were required from service sector itself. Overall study period from to , shows that dependence of service sector has decreased on agriculture throughout the study period but fluctuated in case of industry and services itself and increased at the end of the study period. Production linkages explain that dependence has increased on industry and services than agriculture in production of the Indian economy. Agriculture sector also plays a vital role in the growth of the country but now a days, it is lagging behind Demand Linkages Like production linkages, demand linkages can also be presented by using Leontief inverse matrix of simple input-output analysis. The logic behind the demand linkages is that if we want to increase the production of sector one then due to production linkages inputs from every sector should increase to meet the new demand requirement. So it explains the increase in demand for goods from all sectors to produce additional unit of output in one sector. Table 6.2 presents the Leontief inverse matrix for the given study period. Column one of table 6.2 reveals that in , one unit increase in demand of agricultural output increased the demand for agriculture itself by units, industrial goods by units and demand for services by units. Demand for agricultural goods regularly decreased from units in to units in and further increased to units in and again declined to units in

7 07. Demand for industrial goods increased in to units from units in Further it fluctuated and finally increased to units in Demand for services increased from units in upto units in and further increased its demand continuously except in In , for one unit increase in demand of agriculture output, units of agriculture itself were demanded and demand for industrial goods was units and services demanded were units. Demand linkages in service sector become stronger in Overall study period shows that demand linkages of services were higher than industry as well as agriculture. Column second of table 6.2 explains that for increase in demand of industrial goods by one unit, demand from agriculture increased by units, industry by units and services by units in Demand linkages of agriculture have decreased in to units and they have been increasing in post reform period except in Fluctuations have been shown in case of demand linkages of industry over the study period. Demand linkages of industry increased from units in to units in and decreased for the years and In and , industry has shown high demand linkages as compared to the previous years. In case of services, over the study period services have been showing increasing trend of demand linkages to increase in demand of one unit of industry in the economy. In , after every increase in demand of industrial goods by one unit, demand of agriculture increased by units, industry by units and services by units. Overall scenario shows that industry has higher demand linkages with services than industry itself and agriculture. Column third of table 6.2 explains that due to increase in demand of services by one unit, demand from agriculture increased by units, industry by units and services by units in Demand linkages of agriculture have decreased in to units and declined in and They further increased with the demand of units of agriculture and declined again in Demand linkages of industry decreased from units in to units in and further decreased for the years and In and , industry has shown high demand linkages to the previous years. Over the study period, 172

8 Table 6.2: Sector Wise Demand Linkages Leontief Inverse Matrix for Sector Agriculture Industry Services Agriculture Industry Services Leontief Inverse Matrix for Sector Agriculture Industry Services Agriculture Industry Services Leontief Inverse Matrix for Sector Agriculture Industry Services Agriculture Industry Services Leontief Inverse Matrix for Sector Agriculture Industry Services Agriculture Industry Services Leontief Inverse Matrix for Sector Agriculture Industry Services Agriculture Industry Services Leontief Inverse Matrix for Sector Agriculture Industry Services Agriculture Industry Services Source: Author s Calculations 173

9 services have been showing increasing trend of demand linkages except in In , after the increase in demand of services by one unit, demand of agriculture increased by units, industry by units and services by units. So, overall study period shows that services have higher demand linkages with services itself followed by industry and agriculture. 6.3 Backward and Forward Linkages One of the most important uses of an input output table is that the interdependence between various sectors of the economy can be visualized. The aspect of interdependence arising through technological interconnections between the various sectors of the economy has led to explore the notion of the Key Sectors. Once the Key Sectors are identified, it is suggested that these sectors be given priority in investment allocation and in industrial promotion strategy. It is believed that if resources can be concentrated on these Key Sectors, output, income and employment in the country will grow more rapidly than if these resources were allocated in some alternative way. In this section, an attempt has been made to analyze the backward linkages with the help of demand-driven input-output model and the forward linkages with the help of supply-driven input-output model. Before we discuss the backward and forward linkages, let us first see the intersectoral linkages between different sectors of the inputoutput tables. As we know that one of the important features of an input-output transaction table is that it illustrates the manner in which the activities of the one sector are linked with the other sectors. The input-output model enables us to analyze the impact of change in the public and private expenditure upon the different sectors of the economy. Any general familiarity with such input-output technique would convince that the impact of an initial expenditure on an economic system depends not merely in its expenditure volume but on the inter-industry linkages of the sector with the rest of the economy (Saxena, 1989). For the study purpose, the given Input-Output Transaction Tables (IOTTs) for the years , , , , and have been adjusted to aggregate the whole economy into three sectors i.e. Agriculture, Industry 174

10 and Services. To neutralize the effect of change in prices, the values of Input-Output tables have been deflated at prices. Hence, all the variables are measured at prices Linkages Based on Rasmussen Method In the input-output framework the production activity of a particular sector has two kinds of economic effects on other sectors in the economy. If a particular sector increases its output, this means that there will be increased demand of the other sectors on which output of that particular sector depends. In this way, the term backward linkages is used to indicate the kind of interconnection of a particular sector to those sectors from which it purchases inputs. In other words, we can say each new investment offers opportunity for the other sectors via demanding raw material and other required inputs for its own production. This demand creation in the economy is known as backward linkages. However, some of the sectors have forward linkages in which new output, from new investment, worked as supply for the other sectors to expand. So, following paragraphs present the backward and forward linkages calculated by applying Rasmussen method Backward Linkages As the Indian economy has grown, it has witnessed several changes in its structure. Present section attempted to study the structural changes in the Indian economy from the year and onwards by using input output analysis, which provides the tools necessary to evaluate industries including their relationships to the rest of the economy. To make it more convenient and understand the results, the whole economy is aggregated into three sectors i.e. Agriculture, Industry and Services. Table 6.3: Backward Linkages Based on Rasmussen Method Agriculture Industry Services Source: Author s Calculations 175

11 The results in table 6.3 reveal that the magnitude of backward linkages increased for agriculture from points in to points in During post reform period, backward linkages for agriculture decreased in and to points and points respectively. After , they have increased and have shown decline in In general, industry also experienced a trend of increase in terms of the values of direct backward linkage; with continuous increase upto It has shown points in with consistent boost to points in It shows that demand for industry is increasing over time from pre reform period to post reform period. It has depicted no more fluctuations. But on the other hand, services have shown that linkages fluctuate over time and finally increased in and They had been decreasing upto and its demand as an input has increased in further time period which showed more backward linkages Agriculture Industry Services Figure 6.1: Backward Linkages Based on Rasmussen Method Figure 6.1 describes that industry has been showing higher linkages followed by services and agriculture in The industry has shown more improvement in terms of backward linkages. The reason might be its expansion over the years. The expansion of this sector requires the more construction material, more labor, technology and other equipments. However, the backward linkages of the agriculture sector became less in The highest difference from to shown by industry is 176

12 0.316 followed by services i.e and agriculture i.e This is an evidence of the overall expansion of the industrial sector Forward linkages It is clear from table 6.4 that the magnitude of forward linkages decreased for agriculture from points in to points in After , forward linkages for agriculture further decreased in and to points and points respectively. In , they have increased and have shown decline in Overall forward linkages have shown decline from to i.e points to points in case of agriculture. In case of industry, they have shown approximate stagnation upto and exposed increment in and Table 6.4: Forward Linkages Based on Rasmussen Method Agriculture Industry Services Source: Author s Calculations Industry has shown highest forward linkages in than other sectors. Agriculture has revealed forward linkages with points, industry with points and services with points. It explains that industry has highest forward linkages due to increased demand of industrial goods by remaining other sectors. So, industry plays an important role in the progress of the country. This increasing trend of industry is shown in fig It confirms that Industry is one of the most important sectors of the Indian economy. But on the other hand, services have experienced a trend of increase in terms of the values of direct forward linkages; with continuous increase in overall study period except It has shown the figure of points in with consistent boost to points in It shows that demand for services is increasing over time from pre reform period to post reform period. It has depicted no 177

13 more fluctuations. Figure 6.2 describes that services have shown higher forward linkages after agriculture in The reason might be its expansion over the years. The highest difference from to shown by industry is points followed by services i.e and with negative increment by agriculture i.e Agriculture Industry Services Figure 6.2: Forward Linkages Based on Rasmussen Method Overall time period shows that industry has higher forward linkages than services and agriculture. 6.4 Intersectoral Dependence for the 58 Sectors (Rasmussen Method) The focus of this section is on the results derived from 58 sectors to disclose the intersectoral linkages and interdependence for the detailed sectors and a comparison of the results derived from the last two methods Backward Linkages Table 6.5 shows the values of direct backward linkages calculated by the Rasmussen Method which shows a consistent increase in the case of Electrical, Electronic Machinery and Appliances (41) over the study period. There are some sectors for which the backward linkages experienced are higher in the initial year and lower in These are Plantation Crops (3), Animal Husbandry (5), Fishing (7), Other Minerals (11), Tobacco Products (15), Furniture & Fixture (21), Coal Tar Products (27), Organic Heavy Chemicals (29), Paints, Varnishes & Lacquers (31), 178

14 Pesticides, Drugs & Other Chemicals (32), Gas & Water Supply (47), Trade (52), Hotels & Restaurants (53), Education & Research (56) and Medical & Health (57). It means with the passage of time their demand from other sectors decreased with decrease in the backward linkages. The only sector which has been showing stability over the study period is Banking (54), as there are very little fluctuations nearly negligible for its backward linkages. In case of backward linkages, there are some sectors which show increasing trend during the same time period except for a slight jump or fall in an individual year. These are Forestry & Logging (6), Pesticides, Drugs & Other Chemicals (32), Industrial Machinery for Food & Textiles (39), Other Transport Equipment (43), Construction (45) and Electricity (46). Table 6.5 depicts that there is no such sector of Indian economy which is showing overall decreasing trend from the initial year to final year of the study but there are some sectors which are showing decreasing trend except for a slight jump or fall in an individual year. These are Animal Husbandry (5) and Trade (52). In , highest backward linkages are for sector Food Products excluding Sugar (13) with first rank followed by Coal Tar Products (27), Iron & Steel Industries & Foundries (35), Agricultural Machinery (38), Inorganic Heavy Chemicals (28), Industrial Machinery for Food & Textiles (39) and Fertilizers (30) with rank seven in the series of backward linkages. Low backward linkages with rank 50 which have shown in the table 6.5 are Communication (51), followed by Plantation Crops (3), Insurance (55), Other Services (58), Other Crops (4), Crude Petroleum & Natural Gas (9), Forestry & Logging (6), Fishing (7). However, lowest backward linkages have been shown by Wood & Wood Products except Furniture (20) with last rank assigned by Rasmussen Method. In , highest backward linkages are for sector Industrial Machinery for Food & Textiles (39) with first rank followed by Iron & Steel Industries & Foundries (35), Paints, Varnishes & Lacquers (31), Wool, Silk & Synthetic Fibre Textiles (17), Fertilizers (30) and Inorganic Heavy Chemicals (28) with rank six in the series of backward linkages. Low backward linkages with rank 52 are in case of Fishing (7) subsector, followed by Other Minerals (11), Insurance (55), Crude Petroleum & Natural Gas (9), Other Services (58), Education & Research (56). Lowest backward linkages have been exhibited by Forestry & Logging (6) with lowest rank. 179

15 Table 6.5: Backward Linkages Based on Rasmussen Method for 58 Sectors Sector Agriculture (39) (36) (39) (39) (18) (22) (45) (47) (46) (47) (43) (46) (51) (50) (53) (48) (58) (58) (54) (51) (54) (54) (53) (53) (38) (45) (45) (46) (49) (51) (56) (58) (57) (58) (57) (57) (57) (52) (49) (53) (51) (49) (42) (38) (41) (43) (47) (44) (55) (55) (52) (55) (46) (47) (49) (43) (42) (44) (48) (48) (47) (53) (48) (50) (55) (54) Industry (20) (25) (26) (26) (21) (23) (1) (22) (24) (17) (11) (15) (21) (26) (31) (31) (19) (16) (34) (33) (34) (30) (38) (38) (14) (9) (21) (3) (3) (4) (22) (4) (7) (16) (7) (11) (15) (19) (9) (25) (16) (19) (18) (23) (15) (21) (31) (29) (58) (34) (38) (36) (35) (35) (40) (40) (40) (37) (42) (42) (8) (16) (19) (19) (13) (13) (17) (8) (18) (18) (23) (24) (13) (7) (14) (9) (22) (20) (26) (20) (5) (7) (25) (21) (28) (35) (25) (28) (28) (28) (2) (15) (13) (11) (34) (34) (5) (6) (37) (41) (40) (40) (35) (41) (35) (40) (36) (36) 180

16 (7) (5) (3) (10) (5) (5) (23) (3) (17) (20) (33) (33) (16) (21) (20) (15) (20) (17) (25) (18) (22) (23) (17) (18) (33) (13) (27) (27) (26) (26) (3) (2) (1) (12) (8) (6) (9) (10) (12) (14) (2) (3) (29) (17) (10) (24) (27) (27) (4) (14) (8) (13) (10) (8) (6) (1) (2) (2) (1) (1) (10) (12) (11) (5) (15) (12) (24) (24) (4) (4) (4) (2) (43) (39) (16) (1) (9) (10) (11) (11) (6) (6) (6) (7) (32) (32) (23) (8) (12) (14) Services (31) (27) (28) (35) (30) (25) (27) (28) (29) (22) (14) (9) (37) (42) (44) (42) (41) (41) (30) (31) (36) (33) (24) (32) (36) (37) (32) (34) (32) (30) (41) (44) (43) (38) (37) (37) (50) (48) (50) (52) (45) (45) (44) (46) (47) (51) (52) (55) (12) (30) (33) (32) (29) (31) (46) (49) (55) (49) (50) (50) (52) (54) (51) (45) (44) (43) (48) (57) (56) (56) (56) (56) (19) (29) (30) (29) (39) (39) (53) (56) (58) (57) (54) (52) Note: Figures in parenthesis are their respective Ranks Source: Author s Calculations 181

17 In , highest backward linkages are for sector Iron & Steel Industries & Foundries (35) with first rank followed by Industrial Machinery for Food & Textiles (39), Fertilizers (30), Electrical, Electronic Machinery & Appliances (41), Plastic & Rubber Products (25) and Other Transport Equipment (43) with rank six in the series of backward linkages. Low backward linkages with rank 52 which have shown in the table 6.5 are Crude Petroleum & Natural Gas (9) followed by Plantation Crops (3), Other Crops (4), Banking (54), Education & Research (56), Forestry & Logging (6). Above all, lowest backward linkages have been exhibited by Other Services (58) with rank 58. In , highest backward linkages are for sector Railway Transport Equipment (42) with first rank followed by Industrial Machinery for Food & Textiles (39), Cotton Textiles (16), Electrical, Electronic Machinery & Appliances (41), Other Machinery (40) and Other Transport Equipment (43) with rank six in the series of backward linkages. Low backward linkages have shown with rank 52 by Rasmussen Method in case of Communication (51), followed by Fishing (7), Other Crops (4), Crude Petroleum & Natural Gas (9), Education & Research (56), Other Services (58). However, rank 58 has been shown by Forestry & Logging (6) with lowest backward linkages. In , highest backward linkages are for sector Industrial Machinery for Food & Textiles (39) with first rank followed by Other Basic Metal Industry (36), Cotton Textiles (16), Electrical, Electronic Machinery & Appliances (41), Fertilizers (30) and Other Transport Equipment (43) with rank six in the series of backward linkages. Low backward linkages with rank 52 which have shown in the table 6.5 in case of Trade (52) followed by Other Crops (4), Other Services (58), Other Minerals (11), Education & Research (56), Forestry & Logging (6) and rank 58 has been depicted by Plantation Crops (3). Similarly, in , highest backward linkages shown by Industrial Machinery for Food & Textiles (39) with first rank followed by Electronic Machinery & Appliances (41), Other Basic Metal Industry (36), Cotton Textiles (16), Electrical, Fertilizers (30) and Iron & Steel Industries & Foundries (35) with rank six in the series of backward linkages. Low backward linkages with rank 52 are in case of Other 182

18 Services (58), followed by Other Crops (4), Other Minerals (11), Trade (52), Education & Research (56), Forestry & Logging (6). Above all, lowest backward linkages have been exhibited by Plantation Crops (3) with rank 58 assigned by Rasmussen Method Forward Linkages Table 6.6 shows the values of direct forward linkages calculated by the Rasmussen Method in which it is depicted that there is not even a single sector which shows consistent increment during the overall study period. There are some sectors for which the forward linkages experienced are high in the initial year and low in These are Food Crops (1), Cash Crops (2), Other Crops (4), Animal Husbandry (5), Coal & Lignite (8), Cotton Textiles (16), Wool, Silk & Synthetic Fibre Textiles (17), Jute, Hemp & Mesta Textiles (18), Textile Products including Wearing Apparel (19), Wood & Wood Products except Furniture (20), Furniture & Fixture (21), Paper & Paper Products (22), Coal Tar Products (27), Cement (33), Non Metallic Mineral Products (34), Iron & Steel Industries & Foundries (35), Agricultural Machinery (38), Industrial Machinery for Food & Textiles (39), Railway Transport Equipment (42), Other Transport Equipment (43), Electricity (46), Railway Transport Services (48), Storage & Warehousing (50), Medical & Health (57) and Other Services (58). It means with the passage of time their demand of final goods by other sectors decreased with decrease in the forward linkages. Only one sector which has been showing stability over the study period is Education & Research (56), as there are very little fluctuations nearly negligible for its forward linkages. In case of forward linkages, there are some sectors which show increasing trend during the time period except for a slight jump or fall in an individual year. These are Fishing (7), Beverages (14), Pesticides, Drugs & Other Chemicals (32), Other Basic Metal Industry (36) and Communication (51). Table 6.6 depicts that there is no such sector of Indian economy which is showing overall decreasing trend of forward linkages from the initial year to final year but there are some sectors which are showing decreasing trend except for a slight jump or fall in an individual year. These are Cotton Textiles (16), Jute, Hemp & Mesta Textiles (18), Cement (33), Agricultural Machinery (38), Railway Transport Equipments (42) and Storage & Warehousing (50). 183

19 Table 6.6: Forward Linkages Based on Rasmussen Method for 58 Sectors Sector Agriculture (19) (26) (32) (31) (26) (27) (9) (7) (10) (11) (10) (11) (38) (49) (48) (46) (38) (35) (17) (16) (15) (16) (28) (29) (22) (18) (21) (23) (25) (25) (36) (19) (24) (26) (27) (26) (56) (54) (54) (56) (53) (51) (10) (8) (8) (8) (11) (12) (6) (9) (7) (10) (5) (4) (55) (56) (55) (51) (52) (53) (24) (20) (19) (17) (23) (23) Industry (46) (51) (50) (52) (43) (42) (39) (44) (42) (37) (31) (32) (57) (53) (57) (54) (49) (49) (51) (55) (56) (53) (51) (50) (23) (27) (26) (29) (35) (33) (32) (32) (31) (33) (36) (37) (34) (37) (46) (43) (50) (52) (41) (40) (41) (42) (44) (46) (35) (39) (33) (27) (37) (36) (52) (57) (52) (50) (56) (57) (13) (12) (13) (12) (18) (20) (48) (50) (44) (45) (42) (41) (44) (38) (39) (35) (41) (40) (26) (29) (22) (24) (21) (21) (5) (13) (14) (14) (4) (5) (40) (41) (38) (38) (46) (44) (18) (23) (20) (13) (16) (16) (21) (17) (16) (18) (17) (17) 184

20 (30) (30) (34) (25) (30) (30) (42) (36) (37) (36) (40) (39) (8) (4) (5) (7) (6) (6) (47) (48) (49) (48) (48) (47) (28) (42) (40) (40) (32) (31) (3) (3) (4) (3) (8) (7) (15) (11) (11) (9) (9) (9) (14) (15) (17) (19) (22) (19) (43) (43) (45) (49) (57) (56) (45) (35) (29) (32) (47) (48) (20) (21) (23) (21) (15) (15) (27) (24) (25) (22) (12) (13) (25) (28) (35) (39) (34) (43) (33) (31) (36) (41) (33) (34) (31) (33) (27) (30) (19) (18) Services (16) (22) (18) (20) (13) (10) (2) (2) (2) (1) (2) (3) (49) (45) (51) (47) (45) (45) (12) (14) (12) (15) (20) (22) (7) (6) (3) (5) (3) (2) (53) (52) (53) (55) (54) (54) (37) (34) (28) (28) (24) (24) (1) (1) (1) (2) (1) (1) (50) (47) (47) (44) (39) (38) (11) (10) (6) (4) (7) (8) (29) (25) (30) (34) (29) (28) (58) (58) (58) (58) (58) (58) (54) (46) (43) (57) (55) (55) (4) (5) (9) (6) (14) (14) Note: Figures in parenthesis are their respective Ranks Source: Author s Calculations 185

21 In , highest forward linkages are for sector Trade (52) with first rank followed by Electricity (46), Iron & Steel Industries & Foundries (35), Other Services (58), Petroleum Products (26), Crude Petroleum & Natural Gas (9) and Other Transport Services (49) with rank seven in the series of backward linkages. Low forward linkages with rank 50 as depicted in the table 6.6 in case of Hotels & Restaurants (53), followed by Tobacco Products (15), Furniture & Fixture (21), Storage & Warehousing (50), Medical & Health (57), Iron Ore (10), Fishing (7), Beverages (14). However, lowest forward linkages have been shown by Education & Research (56) with rank 58 assigned by Rasmussen Method. In , there are highest forward linkages for sector Trade (52) with first rank followed by Electricity (46), Iron & Steel Industries & Foundries (35), Pesticides, Drug & Other Chemicals (32), Other Services (58) and Other Transport Services (49) with rank six in the series of backward linkages. Less forward linkages which have been shown in the table 6.6 with rank 52 in case of Storage & Warehousing (50), followed by Beverages (14), Fishing (7), Tobacco Products (15), Iron Ore (10), Furniture & Fixture (21). Among all sectors Education & Research (56) have shown lowest rank. In , highest forward linkages are for sector Trade (52) with first rank followed by Electricity (46), Other Transport Services (49), Iron & Steel Industries & Foundries (35), Pesticides, Drug & Other Chemicals (32) and Banking (54) with rank six in the series of backward linkages. Low forward linkages have been shown by Furniture & Fixture (21) with rank 52, followed by Storage & Warehousing (50), Fishing (7), Iron Ore (10), Tobacco Products (15), Beverages (14) and lowest forward linkages have been shown with rank 58 by Education & Research (56). In , there are highest forward linkages for sector Electricity (46) with first rank followed by Trade (52), Iron & Steel Industries & Foundries (35), Banking (54), Other Transport Services (49) and Other Services (58) with rank six in the series of backward linkages. Less forward linkages have been shown in the table 6.6 with rank 52 in case of Sugar (12) sub-sector and lowest forward linkages in descending order have shown by Tobacco Products (15), Beverages (14), Storage & Warehousing (50), Fishing (7), Medical & Health (57) and Education & Research (56). 186

22 In , highest forward linkages are for sector Trade (52) with first rank followed by Electricity (46), Other Transport Services (49), Petroleum Products (26), Crude Petroleum & Natural Gas (9) and Pesticides, Drugs & Other Chemicals (32) with rank six in the series of backward linkages. However, low forward linkages with rank 52 have exhibited in the table 6.6 are Iron Ore (10), followed by Fishing (7), Storage & Warehousing (50), Medical & Health (57), Furniture & Fixture (21), Agricultural Machinery (38) and lowest rank has been shown by Education & Research (56). In , highest forward linkages are for sector Trade (52) with first rank followed by Other Transport Services (49), Electricity (46), Crude Petroleum & Natural Gas (9), Petroleum Products (26) and Pesticides, Drugs & Other Chemicals (32) with rank six in the series of backward linkages. Low forward linkages have shown in case of Jute, Hemp & Mesta Textiles (18) sub-sector with rank 52 followed by Iron Ore (10), Storage & Warehousing (50), Medical & Health (57), Agricultural Machinery (38), Furniture & Fixture (21). However, lowest forward linkages have been shown by Education & Research (56) with last rank i.e Linkages Based on Chenery & Watanabe Method Each new investment offers opportunity for the other sectors via demanding raw material and other required inputs for its own production. This demand creation in the economy is known as backward linkages. However, some of the sectors have forward linkages in which new output, from new investment, worked as supply for the other sectors to expand. Table 6.7 presents the forward and backward linkages calculated by applying Rasmussen method Backward Linkages The results in Table 6.7 reveal that the backward linkages of industrial and service sector are more in as compared to the backward linkages in of the same sectors. However, the backward linkages of the agriculture sector decreased in The service sector has shown more improvement in terms of backward linkages. The reason might be its expansion over the years. The expansion of this sector requires more construction material, more labor, technology and other equipments. With growth of Indian economy lot of changes have occurred in the structure of the 187

23 country. To make understanding easier, all sub sectors of the economy have been aggregated into three major sectors, which can seen in following table. Table 6.7: Backward Linkages Based on Chenery & Watanabe Method Agriculture Industry Services Source: Author s Calculations The results in table 6.7 explain the magnitude of backward linkages. Agriculture sector has shown increment from points in to points in During post reform period, backward linkages for agriculture decreased in and to points and points respectively. In , it has shown increment and again declined in In general, industry also experienced a trend of increase in terms of the values of direct backward linkages; with continuous increase upto It has shown points in with consistent improvement to points in It shows that demand for industrial production is increasing over time from pre reform period to post reform period. It has given a picture of little fluctuations in and shows increased backward linkages in But on the other side, service sector has depicted increasing trend from and became stagnant in and with points. In , it decreased and showed highest linkages in i.e points. It means with increase in infrastructure, demand for services is increasing over time. Figure 6.3 describes that industry has been showing highest linkages followed by services and agriculture during overall study period. The industry has more backward linkages because of the development of Indian economy which is due to the expansion of other sectors of the economy too. However, the backward linkages of the agriculture sector become less in The highest difference from to shown by industry i.e followed by agriculture i.e and services i.e

24 Agriculture Industry Services Figure 6.3: Backward Linkages Based on Chenery & Watanabe Method It shows that demand of industrial goods is increasing over time Forward Linkages The results in table 6.8 reveal that the highest forward linkages are shown by industrial sector followed by service sector in , the same trend is in case of backward linkages. However, the forward linkages of the agriculture sector decreased marginally from in to in The industrial sector has shown improvement in terms of forward linkages. The magnitude of forward linkages decreased for agriculture from points in to points in Agriculture sector has shown declining trend in case of forward linkages throughout the study period except in In case of industry, it has shown increment from points in to points in With decline in forward linkages upto , it has shown increment again in and maintains this increment in with increase in forward linkages. Service sector has shown highest forward linkages after post reform period in i.e Overall study period shows that service sector depicts increasing trend but it showed tremendous increment in and moved back to points in It shows that demand for services increased due to economic reforms. 189