India’s Service Sector Growth- A “New ” Revolution Preliminary Draft

Following the trade liberalization in 1991, the Indian economy embarked on a path of rapid growth of aggregate output. In particular, it witnessed a high growth rate of service sector output while that of industry was relatively muted. As a result, the share of services in GDP has come to resemble that of a high income country while its per capita income still remains that of a low income country. Further, we also observe a sharp increase in the rate of growth of service sector trade after liberalization. In this paper, we build a quantitative model which captures a falling share of agricultural output and a rapidly increasing share of service sector output as the economy grows. We develop a three sector open economy growth model and allow the economy to trade with the rest of the world by exporting as well as importing services and industria