Tertiary Sector | ICSE Class 9 Economics Notes

This note covers the tertiary (service) sector of the Indian economy: what it is, how its size is measured, why it has grown in India, and what it means for jobs. It then takes each service in turn: education, healthcare, transportation, communication, banking, insurance, and storage and warehousing, with examples of the part each plays in economic development. The last section looks at who provides these services.

What is the tertiary sector, and how does it link to the other two sectors?

Economic activities fall into three sectors. The primary sector produces goods by directly using natural resources, and is also called the agriculture and related sector. The secondary sector changes natural products into other forms through manufacturing, and is also called the industrial sector.

Definition: The tertiary sector covers activities that help in the development of the primary and secondary sectors. By themselves these activities do not produce a good, but they are an aid or a support for the production process.

Since they generate services rather than goods, the tertiary sector is also called the service sector.

What counts as a tertiary activity?

Goods produced in the primary or secondary sector have to be transported by trucks or trains and sold in wholesale and retail shops. At times they have to be stored in godowns (warehouses). People talk to others over the telephone or send letters (communication), and borrow money from banks (banking) to help production and trade.

Transport, storage, communication, banking and trade are examples of tertiary activities.

The service sector also includes essential services that may not directly help the production of goods, such as teachers, doctors, washermen, barbers, cobblers, lawyers, and people who do administrative and accounting work.

In recent times, services based on information technology, such as internet cafes, ATM booths, call centres and software companies, have become important.

Three labelled boxes are drawn. The Primary (Agriculture) Sector box has small pictures of crops, a cow, a coal wagon and a tree, and is labelled "produces natural goods".

A large downward arrow leads to the Secondary (Industrial) Sector box, labelled "produces manufactured goods". The Tertiary (Service) Sector box sits between them, with pictures including a railway track, a loaded lorry and a computer, and is labelled "helps to develop other sectors".

Reference: NCERT Class 10 Economics, Chapter 2

How do the three sectors depend on each other?

The sectors are highly interdependent. If farmers refused to sell sugarcane to a sugar mill, the mill would have to shut down.

The tertiary sector shows the same dependence. If transporters went on strike and lorries refused to take vegetables and milk from rural areas, food would become scarce in urban areas and farmers would be unable to sell their products.

How is the size of the tertiary sector measured?

Adding up cars, computers, nails and furniture by number would make no sense. So economists suggest using the values of goods and services instead. The values for the three sectors are calculated and then added up.

Value of output = quantity × price per unit

Worked example 1. In an economy, 10,000 kg of wheat is sold at ₹20 per kg and 5,000 coconuts are sold at ₹15 per coconut. Find the total value of the two products.

Answer: Value of wheat = 10,000 × ₹20 = ₹2,00,000. Value of coconuts = 5,000 × ₹15 = ₹75,000. Total value = ₹2,00,000 + ₹75,000 = ₹2,75,000.

Why are only final goods and services counted?

Final goods are goods that reach the consumers. Intermediate goods are used up in producing final goods and services. Only final goods and services are counted.

Suppose a farmer sells wheat to a flour mill for ₹20 per kg, the mill sells flour to a biscuit company for ₹25 per kg, and the company makes four packets of biscuits and sells them to consumers for ₹80 (₹20 per packet).

Biscuits are the final good. The value of ₹80 already includes the value of the flour (₹25). Counting wheat, flour and biscuits separately would count the same things a number of times.

Definition: Gross Domestic Product (GDP) is the value of all final goods and services produced within a country during a particular year. The sum of the production of the different sectors gives GDP. GDP shows how big the economy is.

GDP = primary output + secondary output + tertiary output

Here "output" means the value of the final goods and services produced by that sector in the year.

What is Gross Value Added, and how is a sector's share worked out?

Recently the Government of India began to publish the contribution of the three sectors to Gross Value Added (GVA) in place of their contribution to GDP, to be at par with global practices. GVA measures the contribution of the three sectors after adjusting for taxes and subsidies.

Note: The sector figures below are GVA figures. A lakh is 1,00,000 and a crore is 1,00,00,000. A percentage point is the difference between two percentages, so a rise from 45 per cent to 50 per cent is a rise of 5 percentage points.

Sector share = (GVA of the sector ÷ total GVA) × 100

Table: GVA by the three sectors (₹ crore)

Worked example 2. Using the table, find the share of each sector in total GVA in 2001-02, correct to one decimal place.

Answer: Total GVA = 13,23,000 + 10,40,000 + 19,31,000 = ₹42,94,000 crore. Primary = 13,23,000 ÷ 42,94,000 × 100 = 30.8 per cent. Secondary = 10,40,000 ÷ 42,94,000 × 100 = 24.2 per cent. Tertiary = 19,31,000 ÷ 42,94,000 × 100 = 45.0 per cent.

Change in share = later share − earlier share

Worked example 3. Find the share of each sector in total GVA in 2021-22, correct to one decimal place, and the change in the tertiary share from 2001-02 (45.0 per cent).

Answer: Total GVA = 24,79,400 + 40,73,000 + 73,25,000 = ₹1,38,77,400 crore. Primary = 17.9 per cent, secondary = 29.3 per cent and tertiary = 52.8 per cent. Change in the tertiary share = 52.8 − 45.0 = 7.8 percentage points.

Why has the tertiary sector become so important in India?

What happened in India between 1977-78 and 2017-18?

Over the forty years between 1977-78 and 2017-18, production in all three sectors increased, and it increased the most in the tertiary sector. As a result, in 2017-18 the tertiary sector had emerged as the largest producing sector in India, replacing the primary sector.

A stacked bar chart with two bars, for 1977-78 and 2017-18. The vertical axis is marked in ₹ crores from 0 to 14000000.

Each bar is divided into primary (blue), secondary (red) and tertiary (green) parts. The 1977-78 bar is short, and the 2017-18 bar is much taller, with the green tertiary part the largest.

Reference: NCERT Class 10 Economics Graph 1

Two bars of equal height, for 1977-78 and 2017-18, each running from 0 to 100 on the vertical scale and divided into primary (blue), secondary (red) and tertiary (green) parts.

In 1977-78 the blue primary part is the largest. In 2017-18 the green tertiary part is the largest, filling about half of the bar, and the blue primary part is the smallest.

Reference: NCERT Class 10 Economics Graph 2

Why is the tertiary sector becoming so important?

There could be several reasons.

1. Basic services. Any country requires services such as hospitals, educational institutions, post and telegraph services, police stations, courts, defence, transport, banks and insurance companies. In a developing country the government has to take responsibility for providing them.
2. Growth of agriculture and industry. It leads to the development of services such as transport, trade and storage. The greater the development of the primary and secondary sectors, the more the demand for such services.
3. Rising incomes. Certain sections of people start demanding more services, such as eating out, tourism, shopping, private hospitals, private schools and professional training, especially in big cities.
4. New technology. Services based on information and communication technology have become important and essential, and their production has been rising rapidly.

However, not all of the service sector is growing equally. A limited number of services employ highly skilled and educated workers.

A very large number of workers are engaged in services such as small shopkeepers, repair persons and transport persons. They barely manage to earn a living, and perform these services because no alternative opportunities for work are available. Hence, only a part of this sector is growing in importance.

Does a larger tertiary sector mean more jobs?

While the share of the three sectors in GVA has changed, a similar shift has not taken place in employment. The primary sector continues to be the largest employer even now. This is because not enough jobs were created in the secondary and tertiary sectors.

Industrial output went up by more than nine times over the forty years, but employment in industry went up by around three times. Production in the service sector rose by 14 times, but employment in it rose around five times.

Two stacked bars, for 1977-78 and 2017-18, marked from 0 to 100, with primary (blue), secondary (red) and tertiary (green) parts.

The parts carry number labels. In 1977-78 the labels read 71 for primary, 11 for secondary and 18 for tertiary. In 2017-18 they read 44, 25 and 31.

Reference: NCERT Class 10 Economics Graph 3

Worked example 4. The tertiary sector employed 18 per cent of workers in 1977-78 and 31 per cent in 2017-18. The primary sector employed 71 per cent in 1977-78 and 44 per cent in 2017-18. Find the change in each share in percentage points.

Answer: Tertiary: 31 − 18 = a rise of 13 percentage points. Primary: 44 − 71 = −27, a fall of 27 percentage points. The primary sector, with 44 per cent, was still the largest employer in 2017-18.

What is underemployment?

Laxmi owns about two hectares of unirrigated land, dependent only on rain, and grows crops like jowar and arhar. All five members of her family work in the plot throughout the year because they have nowhere else to go. Everyone is working, yet each person's labour effort gets divided and no one is fully employed.

This is underemployment: people are apparently working, but all of them work less than their potential. It is hidden, unlike a person with no job who is clearly visible as unemployed, so it is also called disguised unemployment.

It also occurs in services, among casual workers such as painters, plumbers and repair persons, many of whom do not find work every day, and among people who push a cart or sell something on the street and earn very little.

How can services create more jobs?

If the government invests in the transportation and storage of crops, or makes better rural roads, farmers can sell more crops, and this gives employment to people in transport and trade.

Education and health also need many more workers. A study by the erstwhile Planning Commission (now known as NITI Aayog) estimates that nearly 20 lakh jobs can be created in the education sector alone, and that improving tourism could give additional employment to more than 35 lakh people every year.

What is the role of education in economic development?

Educational institutions are among the basic services that every country requires. In a developing country the government has to take responsibility for providing them. Running proper schools and providing quality education, particularly elementary education, is the duty of the government.

Education is also an indicator of development. The Human Development Report compares countries on the educational levels of the people, their health status and per capita income.

What do the figures for Haryana, Kerala and Bihar show?

Per capita income is the average income: the total income divided by the total population. The figures below are Per Capita Net State Domestic Product at Current Prices for 2023-24, which can roughly be taken as the per capita income of the state.

Table: Income and education in three states

The literacy rate measures the proportion of the literate population in the 7-and-above age group. The net attendance ratio is the number of children aged 15 to 17 years attending school as a percentage of all children in that age group.

Haryana has the highest per capita income, yet Kerala has the highest literacy rate and attendance ratio.

Why does education need public provision?

In India about 60 per cent of the population belongs to the age group 5 to 29 years, and only about 51 per cent of them are attending educational institutions. The rest, particularly those aged less than 18 years, may be at home or working as child labourers. To bring them into school we require more buildings, more teachers and other staff.

In general, education gives people knowledge and skills. Educated and trained workers can earn more, and they can run the banks, hospitals, transport and communication services described in this note.

What is the role of healthcare in economic development?

Hospitals are among the basic services every country needs, and providing health facilities for all is a primary responsibility of the government. To improve the health situation, we need many more doctors, nurses and health workers in rural areas.

As incomes rise, some people also demand private hospitals, and foreign tourists visit India for medical tourism among other kinds of tourism.

What does the infant mortality rate show?

The infant mortality rate (IMR) is the number of children who die before the age of one year as a proportion of 1,000 live children born in that year.

Table: Health and income in three states

Kerala's rate of 6 is far lower than Haryana's 28, although Haryana's per capita income is higher. Money cannot buy all the goods and services you need to live well.

Normally money cannot buy a pollution-free environment or ensure unadulterated medicines, unless you can afford to shift to a community that already has all these things. It may also not protect you from infectious diseases unless the whole community takes preventive steps.

Note: Kerala has a low infant mortality rate because it has adequate provision of basic health and educational facilities. In general, healthier workers lose fewer days to illness, so health services support economic development as well as human welfare.

What is the role of transportation?

Goods and services do not move from the places where they are supplied to the places where they are demanded on their own. Their movement needs transport.

The pace of development of a country depends on the production of goods and services as well as their movement over space, so efficient means of transport are prerequisites for fast development.

Draw a box labelled Transport with three branches. Under land write roadways, railways and pipelines, under water write inland waterways and sea routes, and under air write airways.

What do roadways and railways contribute?

India has the second largest road network in the world, about 62.16 lakh km (2020-21). Roads are cheaper to build than railway lines, can negotiate higher gradients and so cross mountains such as the Himalayas, give door-to-door service, and act as feeders to other modes, providing links with railway stations, air ports and sea ports. Under the Pradhan Mantri Grameen Sadak Yojana, every village is to be linked to a major town by an all-season motorable road.

Railways are the principal mode of transportation for freight and passengers in India. They bind the economic life of the country and accelerate the development of industry and agriculture.

The first train steamed off from Mumbai to Thane in 1853, covering 34 km. The Indian Railways is the largest public sector undertaking in the country and runs on multiple gauges (track widths) over 67,956 km.

What do pipelines, waterways and airways contribute?

Pipelines carry crude oil, petroleum products and natural gas from oil and natural gas fields to refineries, fertiliser factories and big thermal power plants. The initial cost of laying pipelines is high but the subsequent running costs are minimal, and pipelines rule out trans-shipment losses or delays (the losses and delays when goods are transferred from one mode of transport to another).

Waterways are the cheapest means of transport and are most suitable for carrying heavy and bulky goods. They are fuel-efficient and environment friendly. About 95 per cent of India's foreign trade by volume is moved by sea, and Mumbai is the biggest port.

Airways are the fastest mode of transport and can cover difficult terrains such as high mountains, deserts, dense forests and long oceanic stretches with great ease. In the north-eastern part of the country, with its big rivers, dense forests and frequent floods, air travel has made access easier.

The UDAN (Ude Desh ka Aam Nagrik) scheme encourages airlines to operate flights on regional and remote routes, making flying affordable for the common citizen.

What is the role of communication?

Besides goods, people exchange ideas, views and messages with the help of various means of communication. Transport, communication and trade are complementary to each other, and a dense and efficient network of transport and communication is a prerequisite for local, national and global trade.

How do the postal and telephone networks help?

The Indian postal network is the largest in the world. It handles parcels as well as personal written communications. Cards and envelopes are first-class mail and are airlifted between stations, while book packets, registered newspapers and periodicals are second-class mail carried by surface mail.

India has one of the largest telecom networks in Asia. Excluding urban places, more than two-thirds of the villages have already been covered with Subscriber Trunk Dialling (STD) telephone facility. The government has made special provision to extend a 24-hour STD facility to every village, at a uniform rate all over India.

How does mass communication help?

Mass communication includes radio, television, newspapers, magazines, books and films. It provides entertainment and creates awareness among people about national programmes and policies.

All India Radio (Akashwani) broadcasts programmes in national, regional and local languages, and Doordarshan is one of the largest terrestrial (land-based) television networks in the world. Special weather bulletins and agricultural programmes for farmers were also introduced on radio and television.

What do the internet, satellites and information technology add?

Among personal communication systems, the internet is the most effective and advanced. It enables direct contact through e-mail and is increasingly used for e-commerce and for money transactions. Satellite images can be used for weather forecasts, monitoring of natural calamities and surveillance of border areas.

India has emerged as a software giant at the international level and earns large foreign exchange through the export of information technology. Digital India is an umbrella programme to prepare India for a knowledge based transformation.

What is the role of banking?

Modern forms of money are currency (paper notes and coins) and deposits with banks. People who have extra cash deposit it with a bank by opening an account. Banks accept the deposits and also pay an amount as interest.

Since the deposits can be withdrawn on demand, they are called demand deposits. A cheque is a paper instructing the bank to pay a specific amount from the person's account to the person in whose name the cheque has been issued. Cheques make it possible to settle payments without the use of cash.

A bank building labelled "Bank" stands in the middle. On the left are the depositors, with arrows labelled "People make deposits" and "People make withdrawals and get interest".

On the right are the borrowers, with arrows labelled "People take loans" and "People repay loans with interest".

Reference: NCERT Class 10 Economics, Chapter 3

How do banks lend and earn?

Banks in India these days hold about 5 per cent of their deposits as cash, as a provision to pay depositors who come to withdraw money on any given day. Banks use the major portion of the deposits to extend loans.

In this way they mediate between those who have surplus funds (the depositors) and those who need funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. The difference is their main source of income.

Main income of a bank = interest charged on loans − interest paid on deposits

Why does cheap credit matter for development?

Credit (a loan) is an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment.

Credit helped Salim, a shoe manufacturer, to deliver an order of 3,000 pairs of shoes and make a good profit. It left Swapna, a small farmer, worse off when her groundnut crop failed and she had to sell part of her land. So whether credit is useful depends on the risks in the situation and on whether there is some support in case of loss.

Cheap and affordable credit is crucial for the country's development. When banks and cooperative societies lend more, many people can borrow cheaply to grow crops, do business and set up small-scale industries.

Simple interest = (Principal × Rate × Time) ÷ 100

Here the principal is the amount borrowed, the rate is the interest per 100 per year, and the time is in years.

Worked example 5. Rama owes ₹5,000 to her employer, who charges interest of 5 per cent per month. Arun borrows from a bank at 8.5 per cent per annum. Using simple interest, find the interest on ₹5,000 for one year at each rate.

Answer: Employer: 5 per cent per month for 12 months is 60 per cent per annum, so interest = (5,000 × 60 × 1) ÷ 100 = ₹3,000. Bank: interest = (5,000 × 8.5 × 1) ÷ 100 = ₹425.

Who supervises banks, and who else lends?

In India the Reserve Bank of India (RBI) issues currency notes on behalf of the central government. It also supervises the functioning of formal sources of loans.

It monitors the banks in maintaining a minimum cash balance, and it sees that banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries and small borrowers.

Loans from banks and cooperatives are formal sector loans. Informal lenders include moneylenders, traders, employers, relatives and friends. No organisation supervises the credit activities of lenders in the informal sector, and most informal lenders charge a much higher interest than formal lenders.

A pie chart with seven labelled slices: Commercial Banks 51%, Moneylenders 23%, Cooperative Banks and Society 10%, Relatives and Friends 7%, Other Formal Agencies 5%, Other Informal Agencies 3% and Landlords 1%.

The commercial banks slice is the largest, a little over half of the circle.

Reference: NCERT Class 10 Economics, Chapter 3, Graph 1

Bank loans require documents and collateral, an asset that the borrower owns and uses as a guarantee to the lender until the loan is repaid.

To help the poor, some people organise the rural poor, in particular women, into Self Help Groups (SHGs) of typically 15 to 20 members who meet and save regularly. After a year or two, if the group is regular in savings, it becomes eligible for a bank loan sanctioned in the name of the group, even though the members have no collateral as such.

What is the role of insurance?

Definition: Insurance is an arrangement in which a person or business pays a sum of money, called a premium, to an insurance company, and the company promises to pay compensation if a specified loss or event occurs.

The company is the insurer and the person covered is the insured.

Insurance companies are among the basic services that every country requires. The risk of a loss that would be heavy for one person becomes lighter when many people pay small premiums, because the few who suffer a loss can be compensated from the premiums of all.

What kinds of insurance are there?

Insurance is commonly divided into life insurance, which covers the risk to a person's life, and general insurance, which covers other risks such as fire, accidents and crop failure.

It is provided by public sector and private sector companies. The Life Insurance Corporation of India (LIC) is an example of a public sector insurer.

How does insurance support farmers, workers and firms?

• Crop insurance. Provision for crop insurance against drought, flood, cyclone, fire and disease is among the steps taken to improve Indian agriculture. The Personal Accident Insurance Scheme (PAIS) is another scheme for the benefit of farmers.
• Health insurance. Sushila, a permanent worker in a garment export factory in Delhi, was entitled to health insurance and overtime at a double rate.
• Support to trade. Kolkata, as a large urban centre, provides banking, insurance and port facilities for the export of jute goods.

In general, insurance gives farmers and businesses security, so that one loss need not wipe out their savings.

What is the role of storage and warehousing?

Goods produced in the primary or secondary sector may need to be stored in godowns before they are sold, which makes storage a tertiary activity. A warehouse is a place where goods are stored safely until they are needed.

In general, warehousing protects goods from damage and keeps supply steady between harvests.

How does storage help farmers?

Opening a cold storage gives farmers an opportunity to store products like potatoes and onions and sell them when the price is good. Small and marginal farmers need to be supported through adequate facilities for the timely delivery of seeds, agricultural inputs and credit, and for storage and marketing outlets.

Storage can be linked to credit. Arun, a farmer with a bank loan for cultivation, plans to repay it after harvest by selling a part of the crop. He then intends to store the rest of the potatoes in a cold storage and apply for a fresh loan from the bank against the cold storage receipt.

How does government storage support farmers and consumers?

The Government in India buys wheat and rice from farmers at a "fair price". It stores this in its godowns and sells it at a lower price to consumers through ration shops. The government has to bear some of the cost, and in this way it supports both farmers and consumers.

The Food Corporation of India (FCI) is the agency that carries out this procurement and storage of foodgrains.

Note: Storage works together with the other services in this note. Transport carries the produce to the godown, banks can lend against the stored produce, and insurance can cover stored goods against loss.

Who provides tertiary services?

What is the difference between public and private sector services?

In the public sector the government owns most of the assets and provides all the services. In the private sector ownership of assets and delivery of services is in the hands of private individuals or companies. The railways and the post office are examples of the public sector.

Activities in the private sector are guided by the motive to earn profits, so we have to pay to get such services. The purpose of the public sector is not just to earn profits.

Some things needed by society as a whole are not provided by the private sector at a reasonable cost, such as roads, bridges, railways, harbours, electricity generation and irrigation through dams. Governments therefore undertake such heavy spending and ensure the facilities are available for everyone.

What is the difference between organised and unorganised service workers?

Table: Organised and unorganised sectors compared

Kanta works in an office, gets her salary regularly and has a paid holiday on Sundays. Kamal is a daily wage labourer in a grocery shop, is not paid for days he does not work, and can be asked to leave any time.

Glossary

• Tertiary sector — The sector whose activities help the development of the primary and secondary sectors by supporting production; it generates services rather than goods and is also called the service sector.
• Gross Domestic Product (GDP) — The value of all final goods and services produced within a country during a particular year; it shows how big the economy is.
• Gross Value Added (GVA) — A measure of the contribution of the three sectors of an economy after adjusting for taxes and subsidies, which the Government of India now publishes in place of GDP shares.
• Final goods — Goods that reach the consumers; only these are counted in GDP, because their value already includes the value of the intermediate goods used to make them.
• Intermediate goods — Goods used up in producing final goods and services, such as wheat and flour in the making of biscuits; they are not counted separately.
• Underemployment — A situation in which people are apparently working but all of them work less than their potential; when it is hidden it is also called disguised unemployment.
• Demand deposits — Deposits in bank accounts that can be withdrawn on demand; with the facility of cheques they are accepted as a means of payment along with currency.
• Collateral — An asset that the borrower owns, such as land, a building, a vehicle, livestock or bank deposits, used as a guarantee to the lender until the loan is repaid.
• Infant mortality rate (IMR) — The number of children who die before the age of one year as a proportion of 1,000 live children born in that year.
• Premium — The sum of money that a person or business pays to an insurance company in return for insurance cover against a specified loss.
• Warehouse — A place where goods are stored safely until they are needed, such as a godown for foodgrains or a cold storage for potatoes and onions.

Common errors and misconceptions

• Misconception: The tertiary sector produces goods in the same way as factories do. Correct: Its activities generate services rather than goods, and by themselves they do not produce a good. They are an aid or a support for the production process.
• Misconception: The whole service sector is growing in importance and offers good jobs. Correct: Only a part of it is growing in importance. A very large number of workers, such as small shopkeepers, repair persons and transport persons, barely manage to earn a living.
• Misconception: Because the tertiary sector is the largest producer, it must also be the largest employer. Correct: The primary sector continues to be the largest employer. In 2017-18 it employed 44 per cent of workers against 31 per cent in the tertiary sector.
• Misconception: GDP is found by adding up the value of wheat, flour and biscuits. Correct: Only final goods and services are counted, because the value of a final good already includes the value of the intermediate goods used in making it.
• Misconception: A bank keeps all the money deposited with it in cash. Correct: Banks in India these days hold about 5 per cent of their deposits as cash and use the major portion of the deposits to extend loans.
• Misconception: A state with a higher per capita income must have better health and education. Correct: Haryana has a higher per capita income than Kerala, yet Kerala has an infant mortality rate of 6 against 28 and a literacy rate of 94 per cent against 82.

Exam-style questions with model answers

Q1. Define the tertiary sector and give two examples of tertiary activities. [2 marks]

1. The tertiary sector covers activities that help in the development of the primary and secondary sectors. By themselves they do not produce a good, and as they generate services it is also called the service sector.
2. Examples are transport and banking. Storage, communication and trade are also tertiary activities.

Q2. In 2021-22 the GVA of the tertiary sector was ₹73,25,000 crore and the total GVA of the three sectors was ₹1,38,77,400 crore. Calculate the share of the tertiary sector in total GVA, correct to one decimal place. [2 marks]

1. Sector share = (GVA of the sector ÷ total GVA) × 100.
2. Tertiary share = (73,25,000 ÷ 1,38,77,400) × 100 = 52.8 per cent.

Q3. State any three reasons why the tertiary sector has become important in India. [3 marks]

1. Basic services such as hospitals, educational institutions, police stations, transport, banks and insurance companies are required in any country, and in a developing country the government has to provide them.
2. The development of agriculture and industry leads to the development of services such as transport, trade and storage.
3. As income levels rise, certain sections of people demand more services such as eating out, tourism, shopping, private hospitals, private schools and professional training.

Q4. Explain three ways in which communication services help economic development. [3 marks]

1. The postal network, the largest in the world, handles parcels and personal written communications, and the government has made special provision to extend a 24-hour STD telephone facility to every village to strengthen the flow of information from the grassroot to the higher level.
2. Mass communication such as radio, television and newspapers creates awareness about national programmes and policies, and carries special weather bulletins and agricultural programmes for farmers.
3. The internet is used for e-commerce and money transactions, and the export of information technology earns large foreign exchange for India.

Q5. Explain four ways in which banks contribute to economic development. [4 marks]

1. Banks accept deposits from people who have surplus funds, keep the money safe and pay interest on it, and depositors can withdraw it on demand.
2. Cheques against demand deposits let payments be settled without cash, so deposits work as money along with currency.
3. Banks use the major portion of deposits to give loans, mediating between depositors and borrowers. Cheap and affordable credit is crucial for development.
4. Banks lend not just to profit-making businesses and traders but also to small cultivators, small scale industries and small borrowers, as the Reserve Bank of India sees that they do, and they lend to Self Help Groups of poor women even without collateral.

Q6. Describe the role of five modes of transport in India, giving one point or example for each. [5 marks]

1. Roadways are cheaper to build than railway lines, give door-to-door service and feed other modes, and the Pradhan Mantri Grameen Sadak Yojana is to link every village to a major town.
2. Railways are the principal mode of transportation for freight and passengers, bind the economic life of the country and accelerate the development of industry and agriculture.
3. Pipelines carry crude oil, petroleum products and natural gas to refineries and power plants, with high initial cost but minimal running cost.
4. Waterways are the cheapest means of transport and suit heavy and bulky goods. About 95 per cent of India's foreign trade by volume is moved by sea.
5. Airways are the fastest mode and can cover difficult terrain, making access easier in the north-eastern states. The UDAN scheme encourages flights on regional and remote routes.

Q7. Haryana has a per capita income (2023-24) of ₹3,25,759, an infant mortality rate of 28 per 1,000 live births (2020) and a literacy rate of 82 per cent (2017-18). Kerala has ₹2,81,001, 6 and 94 per cent. Bihar has ₹60,337, 27 and 62 per cent. Using these data, explain the role of education and healthcare in development. [5 marks]

1. Kerala has a lower per capita income than Haryana (₹2,81,001 against ₹3,25,759) yet a lower infant mortality rate (6 against 28) and a higher literacy rate (94 per cent against 82), so income alone does not show development.
2. Bihar has the lowest per capita income (₹60,337) and the lowest literacy rate (62 per cent) of the three states.
3. Kerala has a low infant mortality rate because it has adequate provision of basic health and educational facilities.
4. Health and education indicators are now widely used along with income as a measure of development.
5. Schools and hospitals also create jobs for teachers, doctors, nurses and health workers, so they add to the tertiary sector.

Q8. Explain four ways in which insurance supports the economy. [4 marks]

1. Insurance covers a specified loss in return for a premium, which gives people and businesses protection from risk.
2. Crop insurance against drought, flood, cyclone, fire and disease, and the Personal Accident Insurance Scheme, help farmers.
3. Health insurance, such as the cover a permanent worker in a garment export factory was entitled to, protects workers from the cost of illness.
4. Insurance is one of the facilities, with banking and port services, that support trade, as in Kolkata for the export of jute goods.

Q9. Explain three ways in which storage and warehousing help farmers and consumers. [3 marks]

1. The government buys wheat and rice from farmers at a fair price and stores them in its godowns, so farmers get a fair price for their produce.
2. It sells the stored grain at a lower price to consumers through ration shops, and bears part of the cost.
3. A cold storage lets farmers keep potatoes and onions and sell when the price is good, and the cold storage receipt can support a fresh bank loan.

Key takeaways

• The tertiary sector helps develop the primary and secondary sectors. It generates services rather than goods, so it is also called the service sector.
• GDP counts only final goods and services, because the value of a final good already includes the value of the intermediate goods used in making it.
• Between 1977-78 and 2017-18 production rose in all three sectors, most in the tertiary sector, which became the largest producing sector in 2017-18.
• The tertiary share of employment rose from 18 per cent to 31 per cent, but the primary sector, at 44 per cent in 2017-18, remained the largest employer.
• Education and healthcare are basic services. Kerala's infant mortality rate of 6 and literacy of 94 per cent, with lower income than Haryana, show that income alone is not enough.
• Transport moves goods by road, rail, pipeline, water and air, and communication moves messages. Both are prerequisites for local, national and global trade.
• Banks mediate between depositors and borrowers, keep about 5 per cent of deposits as cash, and earn from the gap between interest on loans and deposits.
• Insurance protects against loss for a premium, and storage in godowns and cold storages helps farmers sell at a good price and obtain credit.

Test yourself

Why is the tertiary sector also called the service sector?

Its activities, such as transport, storage, communication and banking, generate services rather than goods. They support production in the primary and secondary sectors instead of producing a good themselves.

Why are intermediate goods not counted separately in GDP?

The value of the final good already includes the value of the intermediate goods used in making it, so counting them separately would count the same things a number of times.

What was the share of the primary sector in employment in 1977-78 and 2017-18?

It was 71 per cent in 1977-78 and 44 per cent in 2017-18. It remained the largest employer even though its share fell.

What is disguised unemployment?

It is hidden underemployment. People appear to be working, as when five family members all work on a small farm, but all of them work less than their potential.

Name two advantages of pipelines.

The running costs are minimal after the high initial cost of laying them, and they rule out trans-shipment losses or delays when carrying crude oil, petroleum products and natural gas.

Name two sources of formal credit and two of informal credit.

Formal: banks and cooperatives. Informal: moneylenders, traders, employers, relatives and friends. The Reserve Bank of India supervises only the formal sources.