Can Service be a Catalyst for Industrial Output? Insights from Indian Manufacturing Industries

The motivation of the current work is derived from the Paper by Marjit, Sasmal and Sasmal (2020) where they show the importance of services in generating growth and development of Indian organised and unorganised sectors. Following the paper, the current paper focuses on the relevance of increased use of service inputs on manufacturing output, for the 6 major manufacturing industries of India. The Levinsohn- Petrin estimation of the production function shows no dynamism between Service input and Labour employment/quality in Indian context compared to studies done on other countries. However, our regression analysis using Fixed effect panel data model shows a positive impact of increased service input use on manufacturing output at both the average industry level as well as industry-specific level. In the end, we segregate the services into traditional and complex services to capture the nature of the services used in different industries and interestingly find that most of the services used for production are traditional in nature.