An Analysis of Backward and Forward Linkages of Pharmaceutical Sector in India Based on an Input- Output Model

Aims: The paper study about the inter-linkages between pharmaceutical sector and other sectors of Indian economy. The paper also measures the effects of growth in pharmaceutical sector on other sector’s growth.

Study Design: The study is mainly a static analysis based on secondary data concentrated in studying the production structure of Indian pharmaceutical sector.

Duration of Study: The time taken for the research to be completed is for a period of four months.

Methodology: We have used the latest input-output table available for the period of 2015-16 to conduct the analysis. First, we converted the input-output table from 131 sectors structure to a 60 sectors structure by aggregation of most related sectors. Then, technical coefficient matrix and Leontief inverse matrix for the 60 sectors included in the table has been calculated to analyze the forward and backward linkages of the industry. In addition to that we have calculated output multiplier of pharmaceutical industry to know the effects of changes in the growth of pharmaceutical sectors on all other sectors of the economy.

Results: The input-output analysis reveals that both forward linked indicator and backward linked indicator are greater than one. The forward linked indicator is of value 1.12 and backward linked indicator is of value 1.50. These results indicated that pharmaceutical sector is strongly inter-linked both backwardly and forwardly with other industries in the Indian economy. The value of output multiplier of the industry is 2.34; it indicates positive contribution of the pharmaceutical sectors both directly and indirectly to the Indian economy.

Conclusion: The study finds that pharmaceutical industry is a key industry in stimulating the production activities of other industries. Thus with proper planning and execution of pharmaceutical industry it can help in promoting other sectors growth.