Assessing the Resilience of India’s Service Sector to Shocks and Fluctuations

Abstract

This study analyzed the resilience and adaptability of India’s service sector, offering valuable insights into its overall performance and the intricate dynamics of its sub-sectors affecting gross value added compared to other sectors. We employed the HP filter method and vector autoregressive model to unveil the remarkable resilience of the service sector in the face of economic shocks, such as significant cyclical fluctuations and short-term disruptions experienced during the challenging year of 2020 marked by the COVID-19 pandemic. Moreover, the study identified sectors trade, hotels and restaurants, and business services, which caused heightened impulses to the economy, while others, such as agriculture, industry, transport, storage and communication, financial services, public administration, and other services, were capable of absorbing shocks and stabilizing the economy. These findings have significant implications for policymakers, emphasizing the need for investment in the service sector, particularly in infrastructure development, to foster economic resilience and stability.