The objectives of this paper are to test whether there are any significant trickling down effects of economic growth across the Indian states and to identify the factors influencing the existence of such effects. Using data from 1971 to 1998, and the standard statistical test of causality, this study suggests that the transmission of growth impulses across states have been limited. The results indicate that the structure of the economies, the growth rates of the states and the quality of state-specific institutions appear to raise the potential for significant trickle down growth effects across states.

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HE process of major economic reforms undertaken in the Indian economy has now completed six years of implementation. The economy has entered into a new phase of development directed towards becoming globally competitive through opening up to trade, foreign investment, and technology inflows. The unilateral reforms of the trade and domestic policies of India, along with reforms of the tax regime since 1991, represent a significant departure from the policy framework of the previous four decades and are important to the future course of the Indian economy. There is an ongoing debate in India regarding the likely impacts of sectoral reforms on output, employment and other variables that affect the economic wellbeing of the country's population. It thus becomes important to evaluate the effects of such policy reforms on factor prices, output, and trade, along with inter-sectoral movement of resources, viz. land, labour, and capital. To address these issues, we use a 34-sector computable general equilibrium (CGE) model for India. Though such ex-ante analysis may not be replicated ex-post due to various macroeconomic and other factors that our model does not capture, the positive results nevertheless go a long way in establishing the credibility of the reforms process. We hope therefore that our analysis will provide a more solid underpinning for the ongoing policy debate. The paper proceeds as follows. The policy relevance of our research is outlined in Section 2. In Section 3, we elaborate briefly the essential features of the India CGE model. The various policy scenarios are discussed in Section 4, and the results are presented in Section 5. In Section 6, we report on the sensitivity of the model to changes in some of its essential parameters. Our findings are summarised in Section 7.

The paper contributes to understanding the impact of opening up of imports of mining and manufacturing sectors on resource allocation across sectors of production. India is expected to leverage its comparative advantage in labour-intensive sectors of production when its mining and manufacturing sectors are opened up to external competition, along with its trading partners also lowering their tariff barriers. This study shows that trade liberalisation is expected to lead to positive outcomes by expanding sectors that produce manufactured goods in which the country has a comparative advantage due to its wage rate advantage. This does not mean that we are ignoring the importance of hi-tech, capital-intensive manufacturing sectors. The trade opportunities must be exploited through a well-chartered regional trade agreements route along with implementing the right domestic policy regime so as to leverage India's comparative advantage and economic growth along with rapid job creation.

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