Introduction

The manufacturing sector has traditionally been the main theatre of technological progress. This sector constantly upgrades the existing products and creates new ones that are, unlike agricultural products, demanded more and more, apparently without a limit, as income rises. That is the amazing ability of the capitalist civilization to enlarge the sphere of its needs indefinitely. Yet, as per national product data of a typical modern economy, the manufacturing sector gradually gets eclipsed by service production. This has stirred the interest of many an observer. A simple hypothesis of differential productivity growth across sectors with competitive factor rewards, elaborated in the previous chapter, leads to the conclusion that the relatively technologically non-progressive activities, which are typically to be found more in the service sector than in manufacturing, will experience above average cost and price increases paving the way for increase in value added faster than output. The reverse narrative holds for the more progressive sectors, particularly for manufacturing. This idea has being churned ever since it was propounded though much has changed on the technological front with revolution in information technology that has kept the service sector on the boil in recent times (Triplett and Bosworth, 2003).

We have indicated in the last chapter that the Indian economy shows strong evidence of changes consistent with the above observations. It is of natural interest to ask, precisely how relevant the cost (and value added) adjustment have been in the context of stagnant relative GDP share of the manufacturing sector and rapidly rising share of services since the turn of the 1970s. The present discussion takes lead from the last chapter to obtain more specific answers to the question of GVA adjustments.