Services Outsourcing and Productivity Growth

The article studies the impact of outsourcing services on the productivity growth of the Indian manufacturing firms. By the term services we mean different expenses on services incurred by the manufacturing firms, such as, advertising, marketing, research and development, consultancy, auditing, business services, knowledge-based services, technical, legal and other professional services (including information communication and technology services). With further expansion in newer services, a higher demand has come from the Indian manufacturing sector. With intensive usage of services in the manufacturing production process, the performance and the manufacturing can focus on the core competencies with outsourced and cheaper services from expert service provider. For this purpose, the firm-level data have been collected from the annual financial statements of the Centre for Monitoring of the Indian Economy’s Prowess database. The econometric results conclude that services have played a positive role in improving the productivity growth of the aggregate Indian manufacturing firms and at the disaggregated level, especially for industrial groups such as food, beverage and tobacco; textiles, gems and jewellery; transport; machinery; metal, rubber and plastic; leather and footwear; and chemicals, services have played a favourable role in boosting the productivity growth. JEL: D24, L80, L60