ICT and services-led productivity growth and its economy-wide impacts: evidence from CGE model for India

This paper assesses the medium-run, economy-wide effects of AI- and ICT-enabled productivity growth in India using a computable general equilibrium (CGE) model calibrated to a 2019 Social Accounting Matrix. Three counterfactual scenarios are simulated: (i) cumulative total factor productivity (TFP) gains in modern services driven by AI adoption; (ii) identical service-sector productivity gains combined with adverse global terms-of-trade shocks for tradable services; and (iii) broad-based productivity improvements across agriculture, industry, and services. The results indicate that productivity growth in modern services operates as a general-purpose technology(GPT), generating sizeable gains in GDP, exports, investment, and real household incomes, with relatively stronger welfare effects for rural and lower-income households. However, these gains are substantially attenuated under unfavourable external price movements and trade frictions, reflecting India’s exposure as a service-export-oriented economy. In contrast, broad-based productivity growth delivers larger and more robust improvements in output, fiscal balances, and external stability. The analysis contributes to the literature on India’s services-led growth and structural transformation, and to debates on premature deindustrialisation, by demonstrating that service-sector AI-driven productivity gains are most effective when complemented by sustained productivity growth in agriculture and manufacturing.