SECTORS OF THE INDIAN ECONOMY

 Economic activities are grouped (classified) using some important criterion. These groups are
also called sectors.

Primary sector

 There are many activities that are undertaken by directly using natural resources.

For example - cultivation of cotton. It takes place within a crop season. For the growth of the
cotton plant, we depend mainly, but not entirely, on natural factors like rainfall, sunshine and
climate. The product of this activity, cotton, is a natural product.
-Similarly, in the case of an activity like dairy, we are dependent on the biological process of
the animals and availability of fodder etc. The product here, milk, also is a natural product.
-Similarly, minerals and ores are also natural products.

 When we produce a good by exploiting natural resources, it is an activity of the primary

sector.
 Why primary?
This is because it forms the base for all other products that we subsequently make.
 Since most of the natural products we get are from agriculture, dairy, fishing, forestry, this
sector is also called agriculture and related sector.

Secondary sector

 The secondary sector covers activities in which natural products are changed into other
forms through ways of manufacturing that we associate with industrial activity.
 It is the next step after primary.
 The product is not produced by nature but has to be made and therefore some process of
manufacturing is essential. This could be in a factory, a workshop or at home.

For example - using cotton fibre from the plant, we spin yarn and weave cloth.
-Using sugarcane as a raw material, we make sugar or gur.
-We convert earth into bricks and use bricks to make houses and buildings.

 Since this sector gradually became associated with the different kinds of industries that came
up, it is also called as industrial sector.

Tertiary sector

 After primary and secondary, there is a third category of activities that falls under tertiary
sector and is different from the above two.
 These are activities that help in the development of the primary and secondary sectors.
 These activities, by themselves, do not produce a good but they are an aid or a support for
the production process.

For example - goods that are produced in the primary or secondary sector would need to be
transported trucks or trains and then sold in wholesale and retail shops. At times, it may be
necessary to store these in godowns.
-We also may need to talk to others over telephone or send letters (communication) or
borrow money from banks (banking) to help production and trade.

 Transport, storage, communication, banking, trade are some examples of tertiary activities.
Since these activities generate services rather than goods, the tertiary sector is also called
the service sector.
 Service sector also includes some essential services that may not directly help in the
production of goods. For example, we require teachers, doctors, and those who provide
personal services such as washermen, barbers, cobblers, lawyers etc.

 Economic activities, though, are grouped into three different categories, are highly
interdependent.

 The various production activities in 3 sectors produce a very large number of goods and
services and have a large number of people working in them to produce these goods and
services.
 The next step, therefore, is to see how much goods and services are produced and how
many people work in each sector.

Q. How do we count the various goods and services and know the total production in each
sector?
 ANS: 1) To get around this problem, economists suggest that the values of goods and
services should be used rather than adding up the actual numbers.

For example, if 10,000 kgs of wheat is sold at Rs 20 per kg, the value of wheat will be Rs
2,00,000. The value of 5000 coconuts at Rs 15 per coconut will be Rs 75,000. Similarly, the
value of goods and services in the three sectors are calculated, and then added up.

2) There is one precaution one has to take that Not every good (or service) that is produced
and sold needs to be counted. It makes sense only to include the final goods and services.

For example, a farmer who sells wheat to a flour mill for Rs 20 per kg. The mill grinds the
wheat and sells the flour to a biscuit company for Rs 25 per kg. The biscuit company uses the
flour and things such as sugar and oil to make four packets of biscuits. It sells biscuits in the
market to the consumers for Rs 80 (Rs 20 per packet). Biscuits are the final goods, i.e., goods
that reach the consumers.

Q. Why are only ‘final goods and services’ counted?

ANS: 1)In contrast to final goods, are intermediate goods.
2) Intermediate goods are used up in producing final goods and services.
3) The value of final goods already includes the value of all the intermediate goods that are
used in making the final good.
Example: Hence, the value of Rs 80 for the biscuits (final good) already includes the value of
flour (Rs 25). Similarly, the value of all other intermediate goods would have been included.
To count the value of the flour and wheat separately is therefore not correct because then
we would be counting the value of the same things a number of times. First as wheat, then
as flour and finally as biscuits.

 The value of final goods and services produced in each sector during a particular year
provides the total production of the sector for that year.
 The sum of production in the three sectors gives what is called the Gross Domestic Product
(GDP) of a country. It is the value of all final goods and services produced within a country
during a particular year.
 GDP shows how big the economy is.
 In India, the mammoth task of measuring GDP is undertaken by a central government
ministry.

 Generally, it has been noted from the histories of many, now developed, countries that at
initial stages of development, primary sector was the most important sector of economic
activity. Why?

1) As the methods of farming changed and agriculture sector began to prosper, it produced
much more food than before.
2) Many people could now take up other activities.
3) There were increasing number of craftpersons and traders.
4) Buying and selling activities increased many times.
5) Besides, there were also transporters, administrators, army etc.
6) However, at this stage, most of the goods produced were natural products from the
primary sector and most people were also employed in this sector.
 Q. Secondary sector gradually became the most important in total production and
employment. How?
ANS: 1) Over a long time (more than hundred years), and especially because new
methods of manufacturing were introduced, factories came up and started expanding.
2) Those people who had earlier worked on farms now began to work in factories in large
numbers. They were forced to do so.
3) People began to use many more goods that were produced in factories at cheap rates.
4) Secondary sector gradually became the most important in total production and
employment.
5) Hence, over time, a shift had taken place. This means that the importance of the
sectors had changed.

Q. How was there a shift from secondary to Tertiary sector?

ANS: 1) In the past 100 years, there has been a further shift from secondary to tertiary sector
in developed countries.
2) The service sector has become the most important in terms of total production.
3) Most of the working people are also employed in the service sector. This is the general
pattern observed in developed countries.

 Over the forty years between 1973-74 and 2013-14, while production in all the three
sectors has increased, it has increased the most in the tertiary sector.
 As a result, in the year 2013-14, the tertiary sector has emerged as the largest
producing sector in India replacing the primary sector.

Q. Why is the tertiary sector becoming so important in India?

ANS: 1) In any country several services such as hospitals, educational institutions, post and
telegraph services, police stations, courts, village administrative offices, municipal
corporations, defence, transport, banks, insurance companies, etc. are required. These can
be considered as basic services. In a developing country the government has to take
responsibility for the provision of these services.
2) The development of agriculture and industry leads to the development of services such as
transport, trade, storage and the like, as we have already seen. Greater the development of
the primary and secondary sectors, more would be the demand for such services.
3) As income levels rise, certain sections of people start demanding many more services like
eating out, tourism, shopping, private hospitals, private schools, professional training etc. We
can see this change quite sharply in cities, especially in big cities.
4) Over the past decade or so, certain new services such as those based on information and
communication technology have become important and essential. The production of these
services has been rising rapidly.

 A remarkable fact about India is that while there has been a change in the share of
the three sectors in GDP, a similar shift has not taken place in employment.
 The primary sector continues to be the largest employer even now.

Q. Why didn’t a similar shift out of primary sector happen in case of employment?
ANS: 1) It is because not enough jobs were created in the secondary and tertiary
sectors.
 2) Even though industrial output or the production of goods went up by more than
nine times during the period, employment in the industry went up by around three
times.
3) The same applies to the tertiary sector as well. While production in the service
sector rose by 14 times, employment in the service sector rose around five times.

 As a result, more than half of the workers in the country are working in the primary
sector, mainly in agriculture, producing only about one sixth of the GDP.
 In contrast to this, the secondary and tertiary sectors produce the rest of the
produce whereas they employ less about half the people.
 It means is that there are more people in agriculture than is necessary. So, even if we
move a few people out, production will not be affected. In other words, workers in
the agricultural sector are underemployed.

E.G.:
o Laxmi, owning about two hectares of unirrigated land dependent only on
rain and growing crops, like jowar and arhar.
o All five members of her family work in the plot throughout the year. Why?
o They have nowhere else to go for work. You will see that everyone is
working, none remains idle, but in actual fact, their labour effort gets
divided.
o Each one is doing some work but no one is fully employed.
o This is the situation of underemployment, where people are apparently
working but all of them are made to work less than their potential.

 This kind of underemployment is hidden in contrast to someone who does not have a job
and is clearly visible as unemployed. Hence, it is also called disguised unemployment.

o Now, supposing a landlord, Sukhram, comes and hires one or two

members of the family to work on his land.
o Laxmi’s family is now able to earn some extra income through
wages.
o Since you do not need five people to look after that small plot, two
people moving out does not affect production on their farm.
o In the above example, two people may move to work in a factory.
o Once again, the earnings of the family would increase and they
would also continue to produce as much from their land.

 In India about 60 per cent of the population belong to the age group 5-29 years. Out of this,
only about 51 per cent are attending educational institutions.
 The rest and particularly those aged less than 18 years may be at home or many of them may
be working as child labourers.
 If these children are to attend schools, we will require more buildings, more teachers and
other staff.
 A study conducted by the erstwhile Planning Commission (now known as NITI Aayog)
estimates that nearly 20 lakh jobs can be created in the education sector alone.
  Similarly, if we are to improve the health situation, we need many more doctors, nurses,
health workers etc. to work in rural areas. These are some ways by which jobs would be
created and would also be able to address the important aspects of development.
 Every state or region has potential for increasing the income and employment for people in
that area. It could be tourism, or regional craft industry, or new services like IT.
 Some of these would require proper planning and support from the government.

For example, the same study by the Planning Commission says that if tourism as a sector is
improved, every year we can give additional employment to more than 35 lakh people.

Some of the suggestions would take a long time to implement. For the short-term, we need
some quick measures.
Recognising this, the central government in India made a law implementing the Right to
Work in about 625 districts of India.

Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA 2005)

o Under MGNREGA 2005, all those who are able to, and are in need of, work in rural
areas are guaranteed 100 days of employment in a year by the government.
o If the government fails in its duty to provide employment, it will give unemployment
allowances to the people.
o The types of work that would in future help to increase the production from land
will be given preference under the Act.

Organised Sector
 covers those enterprises or places of work where the terms of employment are regular and
therefore, people have assured work.
 They are registered by the government and have to follow its rules and regulations which are
given in various laws such as the Factories Act, Minimum Wages Act, Payment of Gratuity
Act, Shops and Establishments Act etc.
 It is called organised because it has some formal processes and procedures.
 Some of these people may not be employed by anyone but may work on their own but they
too have to register themselves with the government and follow the rules and regulations.
 Workers in the organised sector enjoy security of employment.
 They are expected to work only a fixed number of hours. If they work more, they have to be
paid overtime by the employer. They also get several other benefits from the employers.
 They get paid leave, payment during holidays, provident fund, gratuity etc.
 They are supposed to get medical benefits and, under the laws, the factory manager has to
ensure facilities like drinking water and a safe working environment.
 When they retire, these workers get pensions as well.

Unorganised Sector
 characterised by small and scattered units which are largely outside the control of the
government. There are rules and regulations but these are not followed.
 Jobs here are low-paid and often not regular.
 There is no provision for overtime, paid leave, holidays, leave due to sickness etc.
 Employment is not secure.
 People can be asked to leave without any reason.
 When there is less work, such as during some seasons, some people may be asked to leave.
 A lot also depends on the whims of the employer.
 This sector includes a large number of people who are employed on their own doing small
jobs such as selling on the street or doing repair work. Similarly, farmers work on their own
and hire labourers as and when they require.

 A large number of workers are forced to enter the unorganised sector jobs, which pay a very
low salary.
 They are often exploited and not paid a fair wage.
 Their earnings are low and not regular.
 These jobs are not secure and have no other benefits.
 Since the 1990s, it is also common to see a large number of workers losing their jobs in the
organised sector.
 These workers are forced to take up jobs in the unorganised sector with low earnings.
 Hence, besides the need for more work, there is also a need for protection and support of
the workers in the unorganised sector.

 In the rural areas, the unorganised sector mostly comprises of landless agricultural labourers,
small and marginal farmers, sharecroppers and artisans (such as weavers, blacksmiths,
carpenters and goldsmiths).
 Nearly 80 per cent of rural households in India are in small and marginal farmer category.
 These farmers need to be supported through adequate facility for timely delivery of seeds,
agricultural inputs, credit, storage facilities and marketing outlets.

 In the urban areas, unorganised sector comprises mainly of workers in small-scale industry,
casual workers in construction, trade and transport etc., and those who work as street
vendors, head load workers, garment makers, rag pickers etc.
 Small-scale industry also needs government’s support for procuring raw material and
marketing of output.
 The casual workers in both rural and urban areas need to be protected.

 Majority of workers from scheduled castes, tribes and backward communities find
themselves in the unorganised sector.
 Besides getting the irregular and low paid work, these workers also face social
discrimination.
 Protection and support to the unorganised sector workers is thus necessary for both
economic and social development.

Q. How to Protect Workers in the Unorganised Sector?

 ANS: 1) Minimum working hours and wages should be fixed by the government.
2) To help self-employed people, the government can provide loans with low-interest rates
3)Basic services such as education, health, and food should be taken care of by the
government.
4) The government can enact new laws on overtime and salary range
5) Open small-scale industry

 On the basis of who owns assets and is responsible for the delivery of services:

Public sector
 the government owns most of the assets and provides all the services.
 primary responsibility of the government. The government must spend on these.
 The purpose of the public sector is not just to earn profits.
 Governments raise money through taxes and other ways to meet expenses on the services
rendered by it. Modern day governments spend on a whole range of activities.

Private Sector
 ownership of assets and delivery of services is in the hands of private individuals or
companies.
 Railways or post office is an example of the public sector whereas companies like Tata Iron
and Steel Company Limited (TISCO) or Reliance Industries Limited (RIL) are privately owned.
 guided by the motive to earn profits.
 several things are needed by the society as a whole but which the private sector will not
provide at a reasonable cost. Why?
Some of these need spending large sums of money, which is beyond the capacity of
the private sector.
Also, collecting money from thousands of people who use these facilities is not easy.
Even if they do provide these things, they would charge a high rate for their use.
Examples are construction of roads, bridges, railways, harbours, generating
electricity, providing irrigation through dams etc.
Thus, governments have to undertake such heavy spending and ensure that these
facilities are available for everyone.

 There are some activities, which the government has to support.

 The private sector may not continue their production or business unless government
encourages it.
 For example, selling electricity at the cost of generation may push up the costs of production
of goods in many industries. Many units, especially small-scale units, might have to shut
down.
 Government here steps in by producing and supplying electricity at rates which these
industries can afford.
 Government has to bear part of the cost.
  Similarly, the Government in India buys wheat and rice from farmers at a ‘fair price’. This it
stores in its godowns and sells at a lower price to consumers through ration shops.
 The government has to bear some of the cost.
 In this way, the government supports both farmers and consumers.

 There are a large number of activities which are the primary responsibility of the
government.
 The government must spend on these.
 Providing health and education facilities for all is one example.
 Running proper schools and providing quality education, particularly elementary education,
is the duty of the government.
 India’s size of illiterate population is one of the largest in the world.

The infant mortality rate of Odisha (40) or Madhya Pradesh (48) is higher than some of the poorest
regions of the world.

Government also needs to pay attention to aspects of human development such as availability of
safe drinking water, housing facilities for the poor and food and nutrition.

It is also the duty of the government to take care of the poorest and most ignored regions of the
country through increased spending in such areas.