Sectors of Indian Economy

Changes in the roles of sectors

• The chapter has taken the example of unemployment and what
the government can do to solve it.
• The declining importance of agriculture and growing
importance of industry and services
SECTORS OF ECONOMIC ACTIVITIES
People are engaged in
various economic activities.
● Some of these are
activities producing
goods.
● Some others are
producing services.
These groups are also
called sectors.
Primary Sector -There are many activities that are undertaken by directly
using natural resources.
2) Most of the natural products we get are from agriculture, dairy, fishing,
forestry, this sector is also called agriculture and related sector.
Example
Cultivation of cotton- 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.
Dairy, dependent on the biological process of the animals and availability of
fodder etc. Milk is a natural product.
Minerals and ores are also natural products.
Why primary?
● It forms the base for all other products that we subsequently make.
● Product of these activity is a natural product
The secondary sector- covers activities in which natural products
are changed into other forms through ways of manufacturing that
we associate with industrial activity.

2)Since this sector gradually became associated with the different

kinds of industries that came up, it is also called as industrial sector.

★ It is the next step after primary.

★ The product is not produced by nature
★ Some process of manufacturing is essential.
his 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.
Tertiary sector -
1)These are activities that help in the development of the primary and
secondary sectors.
2) Since these activities generate services rather than goods, the tertiary
sector is also called the service sector
3)These activities, by themselves, do not produce a good.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 by trucks or trains and then sold in wholesale and retail
shops
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.
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 -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, and people to do administrative and
accounting works.

In recent times, certain new services based on information technology such as

internet cafe, ATM booths, call centres, software companies etc have become
important.
 Comparing the Three Sectors

How much goods and services are produced

How many people work in each sector

How do we count the various goods and services and know the total
production in each sector?

Economists suggest that the values of goods and services should be used
rather than adding up the actual numbers.

Values used not quantity

-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.

Precaution one has to take.

Not every good (or service) that is produced and sold needs to be counted.
Only final goods and services are calculated.Intermediate goods are not calculated.
Intermediate goods and services are required for production of
other goods and services.
Why are only ‘final goods and services’ counted???
★ Intermediate goods are used up in producing final goods and
services.
★ The value of final goods already includes the value of all the
intermediate goods that are used in making the final good.

Precaution one has to take

Not every good (or service) that is produced and sold needs to be
counted.
Only final goods and services are calculated.Intermediate goods are
not calculated.
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.This reflects whether the country is poor or
rich and the status of employment and people.
● In India measuring GDP is undertaken by a central government ministry. This
Ministry, with the help of various government departments of all the Indian
states and union territories, collects information relating to total volume of goods
and services and their prices and then estimates the GDP.
Historical Change in Sectors
Generally, histories of many, now developed, countries that at initial stages of
development, primary sector was the most important sector of economic
activity.
(Primary Sector)
• As the methods of farming changed and agriculture sector began to
prosper, it produced much more food than before.
• Many people could now take up other activities.
• There were increasing number of craft persons and traders.
• Buying and selling activities increased many times.
• Besides, there were also transporters, administrators, army etc.

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.
Secondary Sector
• Over a long time (more than hundred years), and especially
because new methods of manufacturing were introduced,
factories came up and started expanding.
• Those people who had earlier worked on farms now began to
work in factories in large numbers.
• They were forced to do so.
• People began to use many more goods that were produced in
factories at cheap rates.
• Secondary sector gradually became the most important in total
production and employment. Hence, over time, a shift had taken
place. This means that the importance of the sectors had
changed.
Tertiary Sector
• In the past 100 years, there has been a further shift from
secondary to tertiary sector in developed countries.
• The service sector has become the most important in terms
of total production.
• Most of the working people are also employed in the
service sector.
• This is the general pattern observed in developed countries.
Graph 1 shows the
production of goods and
services in the three sectors.
This is shown for two years,
1973-74 and 2013-14
Why is the tertiary sector becoming so important in India? There could be
several reasons.

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 considered as basic services.They are
required.
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.
Greater the development of the primary and secondary sectors, more
would be the demand for such services.

3)Income levels rise, certain sections of people start demanding many

more services like eating out, tourism, shopping, private hospitals,
private schools, professional training etc.

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.
Not all the service sector is growing equally well.
Many people are employed in service sector in India.
➢ Limited number of services that employ highly skilled and educated workers.
➢ Very large number of workers engaged in services such as small shopkeepers,
repair persons, transport persons, etc.

No alternative opportunities for work are available to them. Hence, only a

part of this sector is growing in importance.
Where are most of the people employed?
➔ More than half of the workers in the country are working in the
primary sector producing only one sixth of the GDP.
➔ The secondary and tertiary sectors produce the rest of the produce
whereas they employ less about half the people.
➔ This mean that the workers in agriculture are not producing as much
as they could?
➔ More people in agriculture than is necessary.
➔ So, even if you move a few people out, production will not be
affected.
Why didn’t a similar shift out of primary sector happen in case of employment?
➔ It is because not enough jobs were created in the secondary and tertiary
sectors.
➔ 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.
➔ 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.
Laxmi(a small farmer)
Owning about two hectares of unirrigated land
Dependent only on rain
Crops grown - jowar and arhar.
All five members of her family work in the plot throughout the year.
They have nowhere else to go for work.
Everyone is working none remains idle
Their labour effort gets divided.
Each one is doing some work but no one is fully employed.

This is the situation of underemployment (people who are visibly employed)

People are 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. In such a situation more people are engaged in a work than
required.
Landlord, Sukhram
Hires one or two members of the family to work on his land.
Laxmi’s family is now able to earn some extra income through wages.
Since you do not need five people to look after that small plot, two
people moving out does not affect production on their farm.
Agricultural production did not suffer.
This underemployment can also happen in other sectors.
For example - painters, plumbers, repair persons and others doing odd
jobs. Many of them don’t find work everyday

They do not have better opportunities.

Ans 3
Secondary and tertiary sector is
increasing.Increase in tertiary
sector is more.
It was desired to increase
secondary sector more to make
India a strong industrialised
country.

Ans 4
Earning capacity of the person
is reduced. It will lead to
poverty.
How to Create More Employment?
● Loans should be provided to small farmers by the government or banks to have
more irrigation facilities like wells and tubewells in order to enable them to
grow second crop.
● New dams and canals should be constructed. This will lead to more
employment in the agricultural sector.
● Transportation and storage facilities must be improved to provide productive
employ­ment to not only the farmers but also others in services like transport
and trade.
● Banks should provide agricultural credit to the farmers to improve farming.
● Industries such as dal mill, cold storage, honey collection centres, processing
of vegetables should be set up in rural or semi-rural areas. Such industries will
get raw materials from the rural areas and will create more employment
opportunities for the rural people.
● Schools should be opened in rural areas. Planning Commission (now known as
NITI Aayog) estimates that nearly 20 lakh jobs can be created in the education
sector alone.
● Health services should be improved in rural areas by opening dispensaries and
hospitals. This will create jobs for doctors, nurses and other staff.
● Tourism, regional craft industry or Information Technology should be
● Providing irrigation - able to grow second crop, wheat, during the rabi season
● Construction of dam- This could lead to a lot of employment generation within
the agricultural sector itself reducing the problem of underemployment.
● Transportation and storage of crops, or makes better rural roads so that mini-
trucks reach everywhere several farmers like Laxmi, who now have access to
water, can continue to grow and sell these crops. This activity can provide
productive employment to not just farmers but also others such as those in
services like transport or trade
● If the local bank gives her credit at a reasonable rate of interest, she will be able
to buy all these in time and cultivate her land.
● Many farmers decide to grow arhar and chickpea (pulse crops). Setting up a dal
mill to procure and process these and sell in the cities is one such example.
● Opening a cold storage could give an opportunity for farmers to store their
products like potatoes and onions and sell them when the price is good.
● In villages near forest areas, we can start honey collection centres where farmers
can come and sell wild honey. It is also possible to set up industries that process
vegetables and agricultural produce like potato, sweet potato, rice, wheat, tomato,
fruits, which can be sold in outside markets. This will provide employment in
industries located in semi-rural areas and not necessarily in large urban centres.
MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) 2005
State funded work creation programme
● 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.
● If the government fails in its duty to provide employment, it will give unemployment
allowances to the people.
● The types of work that would in future help to increase the production from land will be
given preference under the Act.
DIVISION OF SECTORS AS ORGANISED AND UNORGANISED
Organised sector covers those enterprises or places of work where the terms of
employment are regular and people have assured work.

● They are registered by the government and have to follow its rules and
regulations.
( Factories Act, Minimum Wages Act, Payment of Gratuity Act, Shops and
Establishments Act etc.)
● Workers in the organised sector enjoy security of employment.
● They are expected to work only a fixed number of hours.
● 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, facilities like
drinking water and a safe working environment should be provided.
● When they retire, these workers get pensions as well.

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.
Unorganised sector

● The unorganised sector is 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.

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.
● Employment opportunities in the organised sector have been expanding
very slowly.
● It is also common to find many organised sector enterprises in the
unorganised sector.
● They adopt such strategies to evade taxes and refuse to follow laws that
protect labourers.

A large number of workers are forced to enter the unorganised sector jobs.
Paid 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.
Who are these vulnerable people who need protection? How to Protect
Workers in the Unorganised Sector?
The unorganised sector mostly comprises of-

In the rural areas

● landless agricultural labourers,
● small and marginal farmers,
● share croppers and artisans (such as weavers, blacksmiths,
carpenters and goldsmiths)

These farmers need to be supported through adequate facility

● timely delivery of seeds
● agricultural inputs
● credit, storage facilities
● marketing outlets
 In the urban areas Protection
● workers in small-scale industry Government should support in

● casual workers in construction the procurement of raw materials

● trade and transport etc.
● those who work as street vendors, Special government programme
● head load workers
● garment makers
● rag pickers

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.
 Sectors in terms of ownership (own assets and provide services)
PUBLIC PRIVATE

Owned by government Owned by private individual

The purpose of the public sector is not just The purpose of the public sector is just to
to earn profits. earn profits.

Example- Railways or post office Example- TISCO or Reliance Industries

Limited
There are a large number of activities which are the primary responsibility of the
government. The government must spend on these. What are these activities?

★ Providing health and education facilities for all. 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.
Half of India’s children are malnourished.
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.
Modern day governments spend on a whole range of activities.

Why do governments spend on such activities?

➔ There are several things needed by the society as a whole but which the private
sector will not provide at a reasonable cost.
➔ Some of these need spending large sums of money, which is beyond the
capacity of the private sector.
➔ 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.
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.

The government has to bear some of the cost. The government supports both
farmers and consumers.
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.

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.