Chapter 2: Sectors of the Indian Economy
Sectors of Economic Activities
Economic activities are classified into three sectors on the basis of the nature of the activity:
| Sector | What it does | Also called | Examples |
|---|---|---|---|
| Primary | Produces goods by exploiting natural resources; forms the base for all other products | Agriculture and related sector (most natural products come from agriculture) | Farming, dairy, fishing, forestry, mining, animal husbandry |
| Secondary | Natural products are changed into other forms through manufacturing; associated with industry | Industrial sector | Making sugar from sugarcane, cloth from cotton, bricks from earth, steel, car manufacture, construction |
| Tertiary | Activities that help the primary and secondary sectors; they do not produce a good but are an aid or support for production — they generate services | Service sector | Transport, storage, communication, banking, trade, teachers, doctors, lawyers, IT/call centres, barbers, washermen |
The three sectors are interdependent — e.g. the sugar mill (secondary) needs sugarcane from farmers (primary), and trucks and banks (tertiary) to move and finance the product.
Comparing the Sectors — GDP
To compare sectors we use the value of final goods and services produced in each sector. Only final goods are counted, not intermediate goods (wheat and flour used to make biscuits are already included in the value of biscuits — counting them separately would be double counting).
Gross Domestic Product (GDP) is the value of all final goods and services produced within a country during a particular year. GDP shows how big the economy is. In India, the task of measuring GDP is undertaken by a central government ministry with the help of various government departments of states and union territories.
Historical Change in Sectors
Generally, development has followed a pattern observed in developed countries:
- Initial stage: primary sector was the most important sector of economic activity; most people were employed in agriculture.
- Industrialisation: with new manufacturing methods, factories came up; secondary sector became the most important in total production and employment.
- Past 100 years (developed countries): a shift from secondary to tertiary sector — the service sector has become the most important in terms of total production and most working people are employed in services.
Rising Importance of the Tertiary Sector in India
Over the forty years between 1973-74 and 2013-14, production in the tertiary sector rose the most, and by 2013-14 the tertiary sector had emerged as the largest producing sector in India, replacing the primary sector. Reasons:
- Basic services: in any country, the government must provide hospitals, schools, post and telegraph, police, courts, municipal corporations, defence, transport, banks, insurance, etc.
- Development of agriculture and industry leads to development of services such as transport, trade and storage.
- Rise in income levels: as incomes rise, people demand more services — eating out, tourism, shopping, private schools and hospitals, professional training.
- New services based on information and communication technology have become important and essential.
But a caution: not all service sector workers are prospering. At one end are highly skilled and educated workers; at the other are very large numbers in small jobs — shopkeepers, repair persons, transport workers — who barely manage to earn a living, yet perform these services because no alternative job is available.
Where Are Most People Employed? — Underemployment
The primary sector continues to be the largest employer in India (about half the workers even in 2017-18), although it produces only about a sixth of GDP. The secondary and tertiary sectors produce the bulk of output but employ far fewer people. The reason: enough jobs were not created in the secondary and tertiary sectors, so more workers than needed remain crowded in agriculture.
Underemployment is a situation where people are apparently working but all of them are made to work less than their potential. If some workers are withdrawn, production does not fall. It is hidden — in contrast to someone who is visibly without a job — and is therefore also called disguised unemployment.
Example: a farming family of five works on the same plot which actually needs only two or three; the others are disguisedly unemployed. Underemployment also exists in urban areas — casual workers, painters, plumbers, street vendors who spend the day but may not find enough work.
How to Create More Employment
- Irrigation and credit: government/banks can provide cheap loans for wells, irrigation, seeds and equipment so farmers can grow a second crop — more work on the same land (e.g. dams and canals).
- Rural infrastructure: invest in transport, storage and marketing so crops can be sold in towns — creates productive employment in agriculture and services.
- Promote local industries and services — dal mills, cold storage, honey collection centres, food processing in semi-rural areas.
- Education, health and tourism: a study by the erstwhile Planning Commission estimated that nearly 20 lakh jobs can be created in the education sector alone; more in health and tourism (35 lakh jobs).
- MGNREGA 2005: the central government implemented the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 — the "Right to Work". All those able and in need of work in rural areas are guaranteed 100 days of employment in a year by the government; if the government fails to provide employment, it will give unemployment allowance. Preference is given to works that also help increase production from land.
Organised vs Unorganised Sector
| Basis | Organised Sector | Unorganised Sector |
|---|---|---|
| Terms of employment | Regular; employment is assured | Not regular; jobs are low-paid and often not stable |
| Rules and regulations | Registered by the government; follows rules such as the Factories Act, Minimum Wages Act, Payment of Gratuity Act, Shops and Establishments Act | Small and scattered units largely outside government control; rules exist but are not followed |
| Working hours and overtime | Fixed working hours; extra pay for overtime | No fixed hours; no provision for overtime |
| Benefits | Paid leave, holidays, provident fund, gratuity, medical benefits, pension, safe working environment | No paid leave, holidays or sickness leave; no job security; no benefits |
| Security | Cannot be dismissed without reason/procedure | Can be asked to leave at any time; work is seasonal (people may go without work) |
| Examples | Government employees, workers in registered factories, banks | Casual construction workers, street vendors, small workshop workers, agricultural labourers |
Protection of Workers in the Unorganised Sector
Since the 1990s, many organised-sector workers have lost jobs or been shifted to unorganised, low-paid work — so protection and support for unorganised workers is essential:
- Rural areas: the unorganised sector mostly comprises landless agricultural labourers, small and marginal farmers, sharecroppers and artisans (weavers, blacksmiths, carpenters, goldsmiths). Nearly 80% of rural households are small/marginal farmers — they need timely delivery of seeds, agricultural inputs, credit, storage and marketing facilities.
- Urban areas: workers in small-scale industry, casual construction workers, trade and transport workers, street vendors, head-load workers, garment makers, rag pickers. Small-scale industry needs government support for procuring raw material and marketing of output; casual workers need protection.
- Besides being economically exploited (low wages), a majority of workers from Scheduled Castes, Scheduled Tribes and backward communities are in the unorganised sector and also face social discrimination — protection is thus necessary for both economic and social development.
Public Sector vs Private Sector
| Basis | Public Sector | Private Sector |
|---|---|---|
| Ownership | Government owns most of the assets and provides all the services | Ownership of assets and delivery of services is in the hands of private individuals or companies |
| Motive | Not just profit — public welfare is the purpose | Activities guided by the motive to earn profits |
| Payment for services | Government raises money through taxes and other means | We pay the companies for their services |
| Examples | Railways, post office, SAIL, BHEL | TISCO (Tata Steel), Reliance Industries (RIL) |
Why the public sector is needed: (i) some things — roads, bridges, railways, harbours, electricity generation, irrigation through dams — need huge spending beyond private capacity or would be too costly if priced privately; (ii) the government supports production/business by selling inputs cheap (e.g. buying wheat and rice at fair price from farmers and selling cheaper through ration shops, bearing part of the cost); (iii) primary responsibility for health, education, safe drinking water, housing for the poor, food and nutrition; (iv) running proper schools and quality education, especially where a large section of the population is illiterate or malnourished, and looking after the poorest and most ignored regions.