Identifying the high linked sectors for India: An application of import adjusted domestic input-output matrix

One of the most important ways to sustain high growth path in any economy is by promoting the high linkage sectors of the economy. However, a high linked sector may also be import intensive. Development of such a sector may create strain on limited foreign exchange resources of a country especially so in case of a developing country. This paper considers an emerging nation like India to identify the key high linkage sectors through measuring the linkage effect (both backward and forward linkages) of each sector separately for the entire economy in a comprehensive manner. Subsequently it constructs an input-output matrix that takes into account import of inputs for each sector. By using this (import-adjusted) domestically produced input based matrix (to be called domestic flow matrix henceforth) for the latest year 2007-08, the exercise next identifies the high linked sectors --development of which can generate substantial impact within the domestic economy through their forward and backward linkage effects without creating a strain on foreign exchange reserves. Policy emphasis should, therefore be more on the development of such sectors so as to ensure rapid growth of the overall economy.