Sectors of the Indian Economy
Sectors Of Economic Activities
Economic activities are those activities that result in the production of goods and services and add value to the national income. To understand an economy, it is essential to classify these activities into meaningful groups or sectors. The most common classification is based on the nature of the activity.
The Indian economy can be classified into three main sectors:
- Primary Sector: This sector includes all those activities that are undertaken by directly using natural resources. 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, and forestry, this sector is also called the agriculture and related sector.
Examples: Cultivation of cotton, mining of iron ore, fishing, and forestry.
- Secondary Sector: This sector includes activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential. This sector is also called the industrial sector as it is associated with different kinds of industries.
Examples: Using cotton fibre from the primary sector to spin yarn and weave cloth. Using iron ore to manufacture steel and then making machinery.
- Tertiary Sector: This sector includes 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. This sector is also known as the service sector because it generates services rather than goods.
Examples: Transportation of goods (like cloth or steel) by trucks or trains, banking services to provide loans for businesses, communication services like telephones, and services of teachers, doctors, and lawyers.
These three sectors are highly interdependent. For instance, farmers (primary sector) buy goods such as tractors and fertilisers (secondary sector). Industrial activities need raw materials from the primary sector and services like transport and banking (tertiary sector) to function.
Comparing The Three Sectors
The three sectors produce a very large number of goods and services. To understand the total production in each sector and in the country, we need a way to measure and compare them. The value of goods and services is used rather than adding up the actual numbers.
Gross Domestic Product (GDP)
The value of all final goods and services produced within a country during a particular year is called the Gross Domestic Product (GDP) of that country. It shows how big an economy is. The task of estimating the GDP in India is undertaken by a central government ministry.
$ \text{GDP} = (\text{Value of final goods and services in Primary Sector}) + (\text{Value of final goods and services in Secondary Sector}) + (\text{Value of final goods and services in Tertiary Sector}) $
It is important to count only the final goods to avoid the problem of double counting. Intermediate goods, which are used up in producing final goods, are not counted separately.
Example 1. A farmer sells wheat to a flour mill for ₹10 per kg. The mill grinds the wheat and sells the flour to a biscuit company for ₹15 per kg. The biscuit company uses the flour, sugar, and oil to make biscuits and sells them in the market for ₹25 (for a packet containing that much flour). What is the value that should be added to the GDP?
Answer:
The value that should be added to the GDP is ₹25.
Here, the biscuits are the final good, i.e., the good that is reaching the consumer. The wheat and flour are intermediate goods, as they are used up in the process of making the final good. The value of the final good (₹25) already includes the value of the intermediate goods (₹10 for wheat and ₹5 value added by the mill). If we were to add the value of wheat (₹10), flour (₹15), and biscuits (₹25), we would be counting the value of wheat three times and the value of flour twice. This is called double counting. Therefore, only the value of the final good is included in GDP.
Primary, Secondary And Tertiary Sectors In India
Over the last few decades, there has been a significant structural shift in the Indian economy. While the primary sector was the most dominant in terms of production at the time of independence, the tertiary sector has now taken its place.
| Year | Share of Primary Sector (%) | Share of Secondary Sector (%) | Share of Tertiary Sector (%) |
|---|---|---|---|
| 1973-74 | ~ 42% | ~ 22% | ~ 36% |
| 2013-14 | ~ 14% | ~ 26% | ~ 60% |
Note: Figures are approximate for historical comparison.
Rising Importance Of The Tertiary Sector In Production
The service sector has become the most important sector in India in terms of total production. There are several reasons for this:
- Demand for Basic Services: In any country, several services such as hospitals, schools, post offices, police stations, courts, and banks are considered basic services. The government has to take responsibility for providing these.
- Development of Other Sectors: The development of agriculture and industry leads to the development of services such as transport, trade, and storage.
- Rise in Income Levels: As income levels rise, people start demanding more services like tourism, private schools, professional training, and restaurants.
- Growth of New Services: Over the past couple of decades, new services based on information and communication technology (ICT), like software development and business process outsourcing (BPO), have become very important.
Where Are Most Of The People Employed?
While the share of the tertiary sector in GDP has increased dramatically, a similar shift has not taken place in employment. The primary sector continues to be the largest employer in India. This leads to a situation of low productivity and disguised unemployment in agriculture.
| Year | Share in Employment (Primary) | Share in Employment (Secondary) | Share in Employment (Tertiary) |
|---|---|---|---|
| 1977-78 | ~ 71% | ~ 11% | ~ 18% |
| 2017-18 | ~ 44% | ~ 25% | ~ 31% |
This means that while the industrial and service sectors produce more than three-fourths of the GDP, they employ less than half the workforce. In contrast, the agricultural sector, which employs nearly half the workers, produces only about a sixth of the GDP. This implies that there are more people in agriculture than is necessary. This is a situation of underemployment or disguised unemployment.
How To Create More Employment?
The challenge of underemployment in agriculture can be addressed through various measures:
- Government Investment: The government can invest in rural infrastructure like irrigation (dams, canals), transportation (all-weather roads), and storage facilities. This would create jobs both in construction and later in enabling farmers to sell their produce more efficiently.
- Promoting Rural Industries: Promoting and locating industries and services in semi-rural areas can provide employment to a large number of people. This could include setting up dal mills, cold storages, or food processing units.
- Education and Health: Investing in education and health can create a huge number of jobs for teachers, doctors, and other staff, while also improving the country's human capital.
- Employment Generation Schemes: The government has implemented schemes to provide employment directly. The most significant one is the Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA), which guarantees 100 days of wage employment to every rural household.
Division Of Sectors As Organised And Unorganised
Another way to classify economic activities is to look at the conditions of work and whether workers get regular employment. This leads to the classification of sectors as organised and unorganised.
Organised Sector
The 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 which are given in various laws such as the Factories Act, Minimum Wages Act, etc. Workers in this sector enjoy job security and receive social security benefits like paid leave, payment during holidays, provident fund, and gratuity.
Examples: A government school teacher, a software engineer at a large IT company, a bank employee.
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, or sick leave. Employment is not secure, and workers can be asked to leave without any reason. 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.
Examples: A daily wage construction worker, a domestic helper, a street vendor, a small farm labourer.
A vast majority of India's workforce is employed in the unorganised sector.
How To Protect Workers In The Unorganised Sector?
Workers in the unorganised sector are highly vulnerable and need protection. The following measures can be taken:
- Enforcement of Laws: The government needs to strictly enforce laws like the Minimum Wages Act to ensure workers get fair wages.
- Social Security: The government can provide social security benefits to unorganised workers through schemes offering pensions, health insurance (like Ayushman Bharat), and life insurance.
- Support for Small-Scale Industries: In rural areas, the government can support farmers through timely delivery of seeds, credit, and marketing outlets. In urban areas, the government can help small-scale industries with access to raw materials and marketing.
- Protection for Vulnerable Groups: A majority of workers from scheduled castes, scheduled tribes, and backward communities find themselves in the unorganised sector. It is crucial to protect them from social discrimination alongside economic exploitation.
Sectors In Terms Of Ownership: Public And Private Sectors
A third way of classifying economic activities is based on who owns the assets and is responsible for the delivery of services. This classification divides the economy into the public and private sectors.
Public Sector
In the public sector, the government owns most of the assets and provides all the services. The purpose of the public sector is not just to earn profits but to promote public welfare. Governments raise money through taxes and other means to meet the expenses on the services rendered by it. Many essential things needed by society, which the private sector will not provide at a reasonable cost (like building roads, bridges, or providing electricity), are undertaken by the public sector.
Examples: Indian Railways, Bharat Sanchar Nigam Limited (BSNL), Life Insurance Corporation of India (LIC), public sector banks like State Bank of India (SBI).
Private Sector
In the private sector, ownership of assets and delivery of services is in the hands of private individuals or companies. The primary motive of the private sector is to earn profit. To get services from this sector, we have to pay money to these individuals and companies.
Examples: Reliance Industries Limited (RIL), Tata Iron and Steel Company (TISCO), Infosys, private banks like HDFC and ICICI Bank.
The Indian economy is a mixed economy, where both the public and private sectors coexist and play important roles. While the private sector drives consumer goods production and innovation, the public sector plays a crucial role in developing heavy infrastructure and ensuring the delivery of essential public services to all citizens.