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12 Sectors of the Indian Economy
"You will find in your surroundings, various people are engaged in various activities such as production of goods, production of services. These activities are happening around us every minute. We can understand these activities by classifying them into groups called sectors."
1.0Sectors of Economic Activities
Primary sector
Activities that are undertaken by directly using natural resources. When we produce a good by exploiting natural resources, it is an activity of the primary sector (Example: Cultivation of Cotton-Dependent on Rainfall, Climate, Sunshine and Dairy- Dependent on Biological process of Animals, availability of fodder). It forms the base for all other products that we subsequently make. e.g. agriculture, dairy, fishing, forestry, etc. 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. For example, using cotton fiber 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 is gradually associated with the different kinds of industries, it is also called as Industrial sector.
Tertiary sector
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 for e.g. 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, 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 centers, software companies etc. have become important.
2.0Comparing the three sectors
The various production activities in the primary, secondary and tertiary sectors produce a very large number of goods and services. Also, the three sectors have a large number of people working in them to produce these goods and services.
(a) How do we count the various goods and services and know the total production in each sector?
The value of goods and services in the three sectors are calculated, and then added up. Not every good (or service) that is produced and sold needs to be counted only the final goods and services are counted. Take, for instance, a farmer who sells wheat to a flour mill for Rs 8 per kg. The mill grinds the wheat and sells the flour to a biscuit company for Rs 10 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 60 (Rs 15 per packet). Biscuits are the final goods, i.e., goods that reach the consumers.Why are only 'final goods and services' counted? In contrast to final goods, goods such as wheat and the wheat flour in this example are intermediate goods. 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. 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.
(b) Historical change in sectors
(i) In developed countries, initially primary sector was the most important sector of economic activity 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, 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. (ii) 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. 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. (iii) 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.3.0Primary, secondary and tertiary sector in India
(a) Rising Importance of the tertiary sector in production
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. In the year 201314, the tertiary sector has emerged as the largest producing sector in India replacing the primary sector.Why is the tertiary sector becoming so important in India? First, in any country several services, considered as basic services such as hospitals, educational institutions, post and telegraph services, police stations, etc. are required. In a developing country the government has to take responsibility for the provision of these services.
Second, 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.
Third, 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. This change occurred quite sharply in big cities.
Fourth, 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
(b) Where are most of the people employed?
Graph 3 shows the share of employment in the three sectors in 1977-78 and 2017-18. 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 because not enough jobs were created in the secondary and tertiary sectors. Even though industrial output or the production of goods went up more than 9 times during the period, employment in the industry went up by
Graph 3 : Share of Sectors in Employment (%)
As a result, more than half of the workers in the country are working in the primary sector, mainly in agriculture, producing only a one-sixth of the GDP. In contrast to this, the secondary and tertiary sectors produce the rest of the produce whereas they employ less than half the people.
4.0Underemployment
What it means is that there are more people in agriculture than is necessary? So, even if you move a few people out, production will not be affected. In other words, workers in agricultural sector are under-employed.
A 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.
This underemployment can also happen in other sectors. For example, there are thousands of casual workers in the service sector in urban areas who search for daily employment.
The NITI Aayog, National Institution for Transforming India serves as the apex public policy think tank of the Government of India, and the nodal agency tasked with catalysing economic development and planning.
Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA 2005). The central government in India recently made a law implementing the Right to Work in 625 districts of India. Under MGNREGA 2005, all those who are able to, and need, work are guaranteed 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
5.0Division of sectors as organised and unorganised
- 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.
- Workers in the organised sector enjoy security of employment, 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, 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.
- 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 leaves, 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.
6.0How to protect workers in the unorganised sector?
- 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.
- 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. Smallscale 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, 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.
7.0Sectors in terms of Ownership: Public and Private Sectors
- On the basis of who owns assets and is responsible for the delivery of services economic activities can be categorised into - Public and Private Sector.
- In the public sector, the government owns most of the assets and provides all the services. Railways or Post Office is an example of the public sector. 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.
- In the private sector, ownership of assets and delivery of services is in the hands of private individuals or companies. Companies like Tata Iron and Steel Company Limited (TISCO) or Reliance Industries Limited (RIL) are privately owned. Activities in the private sector are guided by the motive to earn profits.
8.0Why do governments spend on Public Sector 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 needs spending large sums of money, which is beyond the capacity of the private sector. 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.
- 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. 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.
- 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.
(a) Organised Sector and Unorganised Sector
(b) Public Sector and Private Sector
(c) Final Goods and Intermediate goods
9.0Glossary
- Sectors - Different area of economic activity in country.
- Public Sector- Production activities or services which is run by Government and regulate it.
- Organised Sector - Where employment is having predefined rules and regulation of employment.
- MNREGA Act - Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA 2005).
- Intermediate Goods - Raw materials which is used in process of production.
- GDP. - Gross domestic product (GDP)
10.0MIND MAP