Services sector growth and interstate income divergence in India

Abstract

One distinctive characteristic of an acceleration in the services sector in India is that only a few segments within the overall services sector have shown high and persistent growth. Moreover, these segments are concentrated in a few states leading to regional income disparity across states. Using data from 25 states for the period 1995–2020, we examined whether there is convergence or divergence in services net state domestic product (NSDP) across Indian states. We utilized parametric as well as non-parametric econometric techniques in the study. Non-parametric methods such as kernel density estimation and transition probability matrix allowed us to visualize the complete distribution dynamics of the convergence for the entire period considered in this study. Findings of our study suggest diverging trends in the per capita services NSDP across states with an indication of convergence in the first 10 years of the sample period.