Economics

Lesson – 2

Sectors of the Indian Economy

Three sectors of the Indian Economy.
1.

When we produce a good by exploiting natural resources, it is an activity of

Primary Sector because it forms the base for all other products that we
subsequently make. Since most of the natural products we get are from
agriculture, dairy, etc. it is also known as agriculture and related sector.
 2.

Since secondary sector gradually became associated with the different kinds of
industries that came up, it is also called as industrial sector.
 3.

Tertiary sector helps in the development of the primary and secondary sectors. It
does not produce any good but they are an aid or a support for the production
process. Since tertiary sector generate services rather than goods, it is also known
as service sector.
 Does tertiary sector include only the services that help in the

production of goods ?

1. No, because tertiary sector also include some essential services

that may not help directly in the production of goods.

2. For example: a) It also includes some personal service providers

like washerman, barbers, cobblers, teachers and doctors, etc.

b) It also includes some new services based on information

technology like ATM booths, internet centres, call centres,

The interdependence of all the three sectors (primary,

secondary and tertiary sectors).

1. Primary sector produces cotton in the field which is taken to the secondary

sector for manufacturing through the transportation system like trucks. The

production process is supported by the financing and information technological

institution.

2. It is through the secondary sector that cotton is changed into cotton textile clothes

through the process of manufacturing. Manufacturing again needs the support of

the service sector in the form of engineers, electricians, etc.

3. The produced cotton textile clothes need transport to reach the market for their

sales. So vehicles are used for providing services in the tertiary sector and at the

same time support the primary and the secondary sectors to carry out their

processes.

4. Fertilizers are produced in the secondary sector that are used by the primary sector.
How can we count various goods and services and know the total production in each sector ?
• The total production of each sector is calculated by adding the value of all final goods and services
of the sector in a year.

• The total production of all three sectors within a country is known as the Gross domestic product
of the country.

To know the total production in any one of the three sectors, we need to count the goods and

services which involve two problems:

1. There are too many goods and services produced so counting them is difficult.

2. Sometimes Intermediate goods are also counted. It is called double counting. It will not give the

actual figures of goods and services produced.

These problems can be overcome by adding the values of final goods and services produced

rather than the actual numbers. For example, if 10,000 kg of sugar is sold at Rs. 20 per kg, then

value of sugar will be Rs. 2,00,000. The value of 5000 coconuts at Rs 15 per coconut will be

Rs 75,000. Similarly, the value of goods and services in the three sectors are calculated, and then added

up.
Final Goods: Final goods refer to the finished goods which are sold in the market.

Intermediate Goods: All those goods which are used by the producer for producing

other goods.

There is a precaution one (a person) has to take while calculating the total production of a

sector.

1. Not every good (or service) that is produced and sold needs to be counted. It makes

sense only to include the final goods and services.

2. For example: A farmer 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.

3. The biscuit company use the flour and things such as sugar and oil to make flour

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.
1. GDP – 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 the production in the three sectors is
called the Gross Domestic Product (GDP).
2. The task of measuring GDP – It is undertaken by a Central
Government ministry.
3. Measurement of GDP - The 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.
4. Importance of GDP – The GDP of a country shows the size of
economy of the country. It reflects whether the country is poor or
rich and the status of employment and people’s living condition.
 Historical Change in Sectors.

1. The history of developed countries indicates about the shifts that have taken place

between the sectors.

a) At the initial stages of development, primary sector (agriculture) was the most important sector

of economic activity.

b) With the changes in the methods of farming, agriculture production increased tremendously that

made people to take up other activities like trading. Some people become as craft-persons and

traders that led to growing need for transportation and other facilities.

c) With the passage of time, machines were invented that led to the establishment of factories to

manufacture various goods. Those people who earlier worked on farms began to work in factories

in large numbers. People began to use many more goods that were produced in factories at cheap

rates. So secondary sector gradually became the most important in total production and

employment.

d) In the past 100 years, there has been a further shift from secondary to tertiary sector in developed

countries and the tertiary sector has become the most important in terms of production.
1. Which was the largest producing
sector in 1973-74 ?
2. Which was the largest producing
sector in 2013-14 ?
3. can you say which sector has
grown the most over forty years ?

P + S + T = 900000 + 1400000 + 3220000 =

5520000
Share of primary sector 900000 ÷ 5520000 x 100 = 16.30
Share of secondary sector 1400000 ÷ 5520000 x 100 =
25.36
Share of tertiary sector 3220000 ÷ 5520000 x 100 = 58.34
 Reasons for rising importance of the Tertiary Sector in production.

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 required. These can be considered as basic

services. 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, as we have already seen. Greater the development of the

primary and secondary sectors, more would be the demand for such services.

3. 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.

4. Over the past decade certain new services like information and communication technology have

become important and essential. The production of these services has been rising rapidly.
‘Tertiary sector is not playing any significant role in the development of

Indian economy’.

1. We do not agree with this statement because over the forty

years between 1973-74 and 2013-14, the production has

increased the most in the tertiary sector.

2. In 2017-18, about 31 percent of total employment is generated

in the tertiary sector.

3. In recent years, about 65 percent of India’s GDP get generated

Service sector in India employs two different kinds of people. Who
are they ?
They are highly skilled and educated workers A large number of workers
(Minority of the people engaged) working in low paid jobs like
shopkeepers, repair persons,
transport persons, etc.
(Majority of the people
engaged themselves).
 Why has the entire tertiary sector not grown as

important ?
1. Peculiarity of skills in the tertiary sector – Highly educated and

skilled professionals only are able to get employment. Others

engage themselves in low paid jobs.

2. High incomes – Higher incomes are available for the top-level

administrative jobs only. Low paid job do not attract

employment.

3. No job security – Large number of workers are causal workers

Why did not a shift out of primary sector happen in case of employment as
it happened in case of GDP ? (or) Why does the primary sector in India still
continue to employ maximum number of people ?

1. Because enough jobs have not been created in the secondary and tertiary
sectors.
2. Even though industrial output of production of goods has increased by more
than nine times, but the employment in the industry has increased by around
three times only.
3. Similarly in tertiary sector, the production has increased by 14 times but the
employment has increased only around five times.
4. As a result of it, more than half of the workers in the country are working in
the primary sector, mainly in agriculture.
 The status of employment in India
(Where are most of the people employed ?).

1. The distribution of work-force has improved but even today primary sector continues

to be the largest employer. There has been a shift directly from primary sector to

tertiary sector in India.

2. Though agriculture contributes one sixth of the GDP, it employs more than half of

the workforce because not enough jobs were created in the secondary and tertiary

sectors.

3. The secondary and tertiary sectors produce four-fifths of the produce, but they

employ less than half the people.

3. We face a situation of underemployment in our country. It means that a person is

willing to work but is not able to get employment of his choice. Disguised

unemployment is very common in the agriculture sector.

4. Apart from that the secondary and the tertiary sectors employ people with high skills
The primary sector is the largest employer in India. But it

produces only one sixth of the GDP because

1. Productivity in the primary sector is very low due to the use of outdated

means of production.

2. Land holdings are very small which cannot produce the desired output.

3. It lacks modern irrigation facilities and dependence on monsoons add to the

problem.

4. The government has not been able to provide an effective system of financing

and transport in the rural areas.

5. Difficulty in accessing the marketing facilities.

6. Absence of alternative employment in the rural areas.

How can we create more employment ?
How can we create more employment opportunities in the rural and

semi-rural areas ?
1. Loans should be provided to small farmers by the government or bank to have more irrigation

facilities like wells and tube-wells in order to enable them grow second crop.

2. New dams and canals should be constructed which lead to more employment in the agricultural

sector.

3. Transportation and storage facilities must be improved to provide productive employment to not

only the farmers but also to others in services like transport and trade.

4. Banks should provide agricultural credit to the farmers for farming to improve.

5. Industries like dal mill, cold storage, honey collection centres and processing of vegetables should

be set up in rural or semi-rural areas.

6. More schools should be opened in rural areas which provide jobs to about 20 lakh people in the

education sector..

7. Health services should be improved by opening dispensaries and hospitals.

8. Tourism, regional craft industry and information technology should be encouraged by the
How can employment opportunities be increased in urban areas ?

1. Reform of the educational system to make it vocational schemes

at the school stage.

2. Concrete action can be taken to promote decentralization and

dispersal of industrial activity.

3. Promotion of small-scale industries and encouragement to

create self-employment by bank credit.

4. Development of new techniques of production.

5. Provision of infrastructure facilities like railways, roads,

hospitals and schools which will not only create employment

 Planning Commission of India.
1. Planning Commission is a body set up by the Central government that

conducts economic survey and chalks out programmes and policies to tackle

economy-related issues.

2. The steps taken by the NITI Aayog (Planning Commission) to tackle the

economic issues.

a) 20 lakh jobs can be created in the educational sector alone.

b) To improve the health situation, we need to appoint many more doctors,

nurses, health workers, etc.

c) Tourism industry is be developed in the regional areas.

d) Development of IT sector provides employment to lakhs of people in urban

areas.
NREGA - 2005
The objectives of Mahatma Gandhi National Rural Employment

Guarantee Act – 2005 (MGNREGA – 2005).

1. The central government in India made a law implementing the ‘Right to

Work’ in about 625 districts of India. It is called MGNREGA – 2005.

2. 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.

3. If the government fails in its duty to provide employment, it will give

unemployment allowances to the people.

Organized sector Unorganized sector
 Conditions of workers in the organized and unorganized sectors
Organized Sector Unorganized Sector
1. Workers have job security. 1. Workers do not have job security.
2. Workers get regular monthly salary. 2. Workers get daily wages.

3. Rules and Regulations are followed. 3. Rules and regulations are not followed.
4. Workers get benefits like provident 4. Workers do not get any such benefits.
fund, paid leave and medical benefits.

5. Working hours are fixed. 5. Working hours are not fixed. Sometimes,
workers work for 10 - 12 hours straight.
6. It has some formal processes and 6. It has no formal processes and
procedures. procedures.

7. Working conditions are favourable to 7. Working conditions are not favourable to

workers. workers.
Who are the vulnerable people and who need protection?

1. 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).
2. 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.
3. 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, ragpickers, etc.
4. Small-scale 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.
5. We also find that majority of workers from scheduled castes, tribes and backward communities
find themselves in the unorganised sector.
6. 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.
 How to protect workers in the unorganized sector ?

1. The vulnerable people in the unorganized sector are landless agricultural labourers,

small and marginal farmers, artisans, weavers, carpenters, etc. who should be given

support by the government in procuring seeds, agricultural inputs, credit, storage

facilities and marketing of goods.

2. In urban areas, government should help small-scale industry in procuring raw material

and marketing of goods.

3. The interests of the casual workers in rural and urban areas must be protected by

enacting law.

4. As majority of the workers are generally from low castes who are also socially

discriminated. The government should take steps to ensure equal treatment for all.

5. Minimum Wages Act should be passed and enforced strictly.

6. The government should take steps to ensure regulation of working hours and grant medical

facilities, etc. 7. The government should take strict action against those employers who
Public sector Private sector
 Distinguish between
Public Sector Private Sector
1. In public sector, ownership of assets 1. In private sector, ownership of assets and
and delivery of services are in the delivery of services are in the hands
hands of government. private individuals or companies.

2. It aims to provide services to the 2. It aims to earn more profit.

people.

3. The government raises fund through 3. To get such services, we have to pay
taxes and other ways to meet the money to the individuals or companies.
expenses on the services rendered by it
to the people.

4. For example: Railways and post offices. 4. For example: Tata Iron and Steel
Company (TISCO) and Reliance.
There are several things needed by the society as a whole but which the private

sector will not provide at a reasonable cost. Why?

1. Some of these need spending large sums of money, which is beyond the capacity of

the private sector.

2. Also, collecting money from thousands of people who use these facilities is not easy.

3. Even if they provide these things they would charge a high rate for their use.

4. Examples are construction of roads, bridges, railways, harbours, generating

electricity, providing irrigation through dams etc.

5. 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.
1. The private sector may not continue their production or business unless

government encourages it.

2. For example, selling electricity at the cost of generation may push up the
costs of production of goods in many industries.
3. 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.
4. Government has to bear part of the cost. Similarly, the Government in India
buys wheat and rice from farmers at a ‘fair price’.
5. This it stores in its godowns and sells at a lower price to consumers through
ration shops.
6. Government has to bear some of the cost. 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.
1. The government must spend on providing health and education facilities for all is one
example.
2. Running proper schools and providing quality education, particularly elementary
education, is the duty of the government.
3. India’s size of illiterate population is one of the largest in the world.
4. Similarly, we know that nearly half of India’s children are malnourished and a quarter
of them are critically ill.
5. In India, the infant mortality rate of Odisha (40) or Madhya Pradesh (48) is higher
than some of the poorest regions of the world.
6. 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.
7. 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.
Thank you