Growth of Finance, Real Estate and Business Services: Explorations in an Inter-Sectoral Framework

The Indian growth experience over the past several decades has been service led. More recently, within services, Finance, Insurance, Real Estate and Business Services (FINREBS) has been the fastest growing sector, with its share in GDP rapidly rising to around 22 percent in a relatively short time-frame. What relation does the growth of FINREBS have with the rest of the sectors of the economy? Empirical exploration using input-output tables and econometric methods shows that FINREBS ranks low in backward and forward linkages compared to most other sectors of the economy. It is difficult to imagine FINREBS as a `leading sector' in the Hirschman sense. Rolling co-integration to study the evolution of long-term relationships shows an increasing co-movement in output of FINREBS and agriculture and allied activities. However, for most other sectors the association with FINREBS is insignificant or weak. Variance decomposition of forecast error corroborates that a large percentage of variation in the growth of FINREBS cannot be explained by other sectors of the economy, which gives FINREBS an autonomous character. The probable reasons for the `autonomous' nature of growth in FINREBS are explored briefly in the paper.