What are Sectors of the Indian Economy?
We see a lot of activities happening around us. Some people sell vegetables, some clean our houses, some are involved in agriculture while some work in banks and software and consultancy companies.
These various activities are divided into groups which we call sectors.
Primary Sector / Primary Activities
The activities in which we mainly use natural resources are called Primary Activities. The products achieved from Primary Activities
are natural resources. Such as Milk, Cotton, Vegetables, Minerals, Jute etc.
Since most of the natural products we get are from agriculture, dairy, fishing, forestry, this sector is also called agriculture and related sectors.
Secondary Sector / Secondary Activities
The activities in which we use natural resources as raw materials and convert them into other finished or unfinished goods is called the secondary sector. This sort of activity is associated with Industrial activity.
The products achieved are not obtained directly from nature but have to be processed or manufactured. Such as Jaggery (gud), Sugar, Bricks, Cloth use natural resources for their production etc.
Since this sector gradually became associated with the different kinds of industries that came up, it is also called the industrial sector.
Tertiary Sector / Tertiary Activities
This sector helps in development of primary and secondary activities. There is no good produced in these activities. These activities may or may not directly support the production process.
People such as teachers, doctors, lawyers, cobbler, washermen etc do not help in the production process but they provide their services.
This sector generally involves transport, communication, banking, consultancy etc that help in movement of finished goods, helps in marketing the products, helps in raising capitals etc.
Since these activities generate services rather than goods, the tertiary sector is also called the service sector.
Comparing The Sectors
The three sectors have a large number of people working in them to produce these goods and services in large numbers. In an economy, the share of three sectors might be different with one sector having more number of people working in it than the other.
This variation lets us analyse the type of economy of a region/nation and helps us identify the number of people dependent on each sector.
Countries with dominant primary sector
Certain countries have a primary sector as a dominant one as it contributes maximum to the national income; at the same time even if a sector is not contributing a lot to the economy of a country; a lot of people can be depending on the sector for their employment.
This is the case with India. The primary sector in India contributes only around 17% of India’s National Income but employs more than 50% of India’s population. This is not normal.
To correct this, the government of India is trying to reduce the number of people working in agricultural activities. The government has launched the scheme Make In India to shift the number of people working in Primary Sector to Secondary Sector.
But How Do We Measure This Contribution to GDP or Output?
One of the ways is to find out the number of products that are produced in each sector. But it would be very difficult to count the number of fruits and vegetables produced by primary sectors and number of screws made by a factory in the secondary sector.
To simplify this problem, we use the Total Value of Final Goods and Services that are produced in an economy.
Why only Final Goods and Services?
Because the price the end consumer pays includes the price of all intermediaries that are involved in production of that good or service. The price of Pizza for example includes the price of wheat, the cost of
grouping the wheat to flour, the packing, the price of milk and the cheese used and the salary of the cook who cooked it. If we add each of these separately, the value of Pizza will become too large.
What is Gross Domestic Product?
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. And the sum of production in the three sectors gives what is called the Gross Domestic Product - (GDP) of a country.
GDP: 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.
Stages of Development
Generally in initial stages of development, the economy is dependent on just natural resources and thus the primary sector is the most important sector. But with development of better farming practices and HYV seeds, the production in the primary sector increased with less number of people required to work in the sector.
The people who were earlier farming now started to work as artisans in the army and started trading the goods they produced such as wine, pottery etc. But with the advent of modern technology and after the industrial revolution, a lot of people started working in factories and there was an increase in the number of people working in the secondary sector. This made the secondary sector important at that time.
In the last 100 years there has been further development of technology which has created newer jobs in the services sector. Now most people in developed countries work in the Services Sector.
Indian Economy - Snapshot of Sectors
Rising Importance of Tertiary Sector
Production has increased in all sectors with maximum increase in the tertiary sector. It now contributes maximum to India’s GDP but it still employs only 27% of employees.
It is becoming important because many basic services such as hospitals, banking, educational institutions, transport etc are required by the increasing population of India.
In India, we generally use these services provided by the government. But lately, a lot of private organisations are also getting into the sector.
Also with development of the primary and secondary sector, the development of the tertiary sector takes place to support these services.
Rise in income levels also leads to more consumption of goods and services such as eating out, movies, shopping and better healthcare.
Development of new technology and associated services such as in communication technology and intelligence have also created new jobs.
Not all services are growing equally. Some jobs require highly skilled people while some do not. The unskilled services sector has a lot of people and hence they do not command a high price for their services and still have to work because there is no alternative.
Maximum Employment in Primary Sector
Even with the rise in the importance of the tertiary sector, maximum people are still employed in the primary sector. But Why?
Not enough jobs were created in the two sectors even when the output increased due to new technology and automation. Even with change in share of 3 sectors in the Indian economy, a similar change was not seen in the pattern of employment. Change in employment was less than the change in contribution to GDP. This means that more people are employed in the agricultural sector than required leading to disguised unemployment.
What is Disguised Unemployment?
When the actual work potential of workers is not used it is called disguised employment.
How to Create Employment?
Employment generation requires a series of measures have to be taken such as:
Cheap Credit : Providing Loans for creation of infrastructure and cheap agricultural credit to farmers.
Infrastructure Development : The development of infrastructure such as dams, irrigation canals, wells etc will create employment.
Technology Adoption : Use of better technology and HYV seeds will increase the production of crops.
Marketing of Surplus : When the production increases in agricultural fields, the surplus food will have to be transported and marketed, this will further create employment.
Promoting Local Industries : Setting up and supporting local industries such as a Food Processing (Dal Mill, Pickle Factory, Juice Factory), Cold Storage, Honey Collection Centers etc. which can create more employment.
Support to Art, Crafts and Tourism : Local Artisans, Crafts, Tourism and special services in a particular state can also generate employment.
Skill Development : Employment of people requires them to be educated and skilled. This can lead to employment generation in education sector.
Access to Healthcare : people need to be healthy to be able to work well. This will require better healthcare facilities and will lead to employment generation in the healthcare sector.
With Growth in Primary an Secondary Sector, the Tertiary Sector Grows
These are however long term factors and will take time, for quick employment the government has taken some steps such as MNREGA
What is MNREGA?
MNREGA - Mahatma Gandhi National Rural Employment Guarantee Act 2005 is a law to implement the Right To Work that guarantees 100 days of employment in rural areas. The people are employed in the creation of infrastructure such as wells, canals, etc which can lead to increased production from land.
If people are not employed for 100 days, they are eligible for unemployment allowances by the government.
What is the difference between Organised and Unorganised Sector?
Has Regular and Formal Terms of Employment
Business is Registered with Government
Has to Follow Laws and Regulations such as Factory Act, Minimum Wages Act, Payment of Gratuity Act etc.
There is clean and safe working environment
Workers enjoy security of employment
Workers are expected to work only for fixed hours
Paid overtime for extra work
They get paid leaves, provident fund, gratuity etc
They get medical benefits such as insurance
Workers get pension after retirement
No Regular Terms of Employment
Not registered with the government
Rules and Regulations are there but are not followed
Working environment is generally not safe
No security of employment - Can be asked to leave anytime
Irregular hours and low wages
No overtime wages
No paid leaves or other facilities
No Medical Benefits
Since the organised sector is growing slowly, there are less formal jobs and most people have to work in the unorganised sector. They are often exploited and not paid fair wages. They are also not aware of their rights and are treated unfairly.
Public and Private Sector - Basis of Ownership
Characteristics of Public Sector Enterprises
Government or government companies owns most assets and provides employment
Motive is to ensure public welfare and availability of public goods at affordable prices. Earning profit is not the prime motive.
Government bears the cost of certain goods and services to make it affordable such as providing subsidies
Basic services such as education, health, nutrition, energy etc are normally undertake by government
Characteristics of Private Sector Enterprises
Assets are owned by private individuals and private companies with the motive to earn profits. They do not offer subsidies or support