NCERT Summary: Sectors of the Indian Economy- 1 | Indian Economy for UPSC CSE PDF Download

Sectors of the Indian Economy

Understanding the Economy through Sectoral Classification:

1. Types of Sectoral Classification:

• Primary / Secondary / Tertiary:

  • Primary Sector: Involves extraction of raw materials from nature, e.g., agriculture, mining.
  • Secondary Sector: Involves processing and manufacturing of raw materials, e.g., manufacturing, construction.
  • Tertiary Sector: Involves providing services, e.g., banking, education, healthcare.

• Organised / Unorganised:

  • Organised Sector: Comprises businesses and enterprises that are regulated, with formal employment contracts and structures.
  • Unorganised Sector: Encompasses informal businesses and labor without clear regulations or formal structures.

• Public / Private:

  • Public Sector: Includes organizations owned and operated by the government.
  • Private Sector: Encompasses businesses owned and operated by private individuals or entities.

2. Changing Roles of Sectors:

• Shift to Service Sector:
  • Emphasize the significant growth of the service sector in modern economies.
  • Highlight the transition from agrarian and industrial economies to economies dominated by services.

3. Fundamental Concepts:

• Gross Domestic Product (GDP):

  • Explain the concept of GDP as the total value of goods and services produced in a country.
  • Illustrate how GDP is a key indicator of economic health and performance.

• Employment:

  • Discuss the role of different sectors in providing employment opportunities.
  • Emphasize how the structure of sectors influences employment patterns.

4. Problems Caused by Changes in Sectoral Roles:

• Structural Unemployment:

  • Explain how rapid changes in sectors can lead to structural unemployment as skills become mismatched with job requirements.

• Economic Disparities:

  • Discuss how changes in sectoral roles can contribute to economic disparities between regions and social groups.
  • Highlight the importance of addressing these disparities for inclusive economic growth.

• Environmental Impact:

  • Emphasize the environmental challenges associated with certain sectors, such as the primary sector's impact on natural resources.

• Policy Implications:

  • Discuss how government policies need to adapt to these changes, ensuring a smooth transition and addressing associated challenges.

SECTORS OF ECONOMIC ACTIVITIES

1. Primary Sector:

   • Nature of Activities: The primary sector involves activities that directly use natural resources. Examples include agriculture, dairy farming, fishing, forestry, and mining.

   • Dependency on Natural Factors: These activities are dependent on natural factors like rainfall, sunshine, climate, and biological processes of animals.

   • Natural Products: The products of the primary sector, such as cotton, milk, minerals, and ores, are considered natural products.

2. Secondary Sector:

   • Nature of Activities: The secondary sector encompasses activities in which natural products are transformed into other forms through manufacturing processes.

   • Manufacturing Process: Products in this sector are not produced by nature but require a manufacturing process. This can take place in factories, workshops, or even at home.

   • Examples: Examples include the production of cloth from cotton, sugar or gur from sugarcane, and the conversion of soil into bricks for construction.

3. Tertiary Sector:

   • Nature of Activities: The tertiary sector involves activities that support and aid the development of the primary and secondary sectors.

   • Service-oriented: Unlike the production of goods, tertiary activities primarily generate services. It is also known as the service sector.

   • Examples: Activities in this sector include transportation, storage, communication, banking, trade, and various services like education, healthcare, personal services (e.g., barbers, cobblers), legal services, and administrative work.

4. Service Sector and Information Technology:

   • Evolution of Services: The service sector not only includes traditional services but has expanded to incorporate new services based on information technology.

   • Examples of Modern Services: Internet cafes, ATM booths, call centers, software companies, and other IT-related services have become integral parts of the modern service sector.

5. Importance of Tertiary Sector:

   • Supporting Role: The tertiary sector plays a crucial supporting role in facilitating the production and distribution of goods from the primary and secondary sectors.

   • Essential Services: Apart from traditional services, essential services like education, healthcare, and personal services contribute significantly to the well-being of society.

COMPARING THE THREE SECTORS

1. Counting Goods and Services:

   • Diversity of Goods and Services: The primary, secondary, and tertiary sectors collectively produce a vast array of goods and services.

   • Measurement Challenge: Counting the actual number of goods and services is challenging due to the sheer volume and diversity of products.

   • Use of Values: Economists suggest using the values (prices) of goods and services as a measure instead of counting actual quantities.

2. Calculation of Value:

   • Example: If 10,000 kg of wheat is sold at Rs 8 per kg, the value is Rs 80,000. Similarly, the value of goods and services in each sector is calculated.

   • Summation: The values of goods and services in each sector are added up to get a comprehensive measure of the total production in that sector.

3. Final Goods and Services:

   • Selection Criteria: Not every good or service produced and sold is counted; only final goods and services are considered.

   • Definition of Final Goods: Final goods are those that reach the consumers and are not used as intermediate goods in further production.

   • Avoiding Double Counting: Intermediate goods, which are used in producing final goods, are not separately counted to avoid double-counting the value of the same item.

4. Understanding Intermediate Goods:

   • Example: If a farmer sells wheat to a flour mill, and the flour is sold to a biscuit company, the biscuits produced by the company are the final goods.

   • Intermediate Goods Explanation: Wheat and wheat flour, in this example, are intermediate goods as they are used in producing the final good (biscuits).

   • Avoiding Duplication: Counting the value of intermediate goods separately would result in duplication, as the value of the final good already includes the value of all intermediate goods used.

5. Calculation of GDP (Gross Domestic Product):

   • Definition of GDP: GDP is the total value of all final goods and services produced within a country during a specific year.

   • Sum of Sectoral Production: The sum of the values of final goods and services in the three sectors gives the Gross Domestic Product of the country.

   • Economic Indicator: GDP is a crucial economic indicator that reflects the overall size and health of an economy.

6. Measurement of GDP in India:

   • Central Government Ministry's Role: In India, the measurement of GDP is a significant task undertaken by a central government ministry.

   • Data Collection: The ministry collaborates with various government departments across Indian states and union territories to collect information on the total volume of goods and services, their prices, and other relevant data.

   • Estimation Process: Based on the collected data, the ministry estimates the Gross Domestic Product, providing insights into the economic performance of the country.

Historical Change in Sectors

1. Evolution of Sectors in Developed Countries:

• Initially, the primary sector dominated economic activity during the early stages of development.
• Technological advancements in agriculture led to increased production, allowing people to diversify into crafts, trade, and other activities.
• Over a century, with the introduction of manufacturing methods, the secondary sector (industrial) became prominent as factories expanded.

2. Shift to Tertiary Sector:

• Over the past 100 years, a significant shift occurred, with developed countries moving from the secondary to the tertiary sector.
• The service sector, including services like healthcare, education, and information technology, became the largest producing sector.

Primary, Secondary, and Tertiary Sectors in India

1. Tertiary Sector's Ascendancy:

• Between 1973 and 2003, production in all sectors increased, but the tertiary sector experienced the most significant growth in India.
• By 2003, the tertiary sector became the largest producing sector, surpassing the primary sector.

2. Reasons for Tertiary Sector's Importance in India:

• Basic Services: Essential services provided by the government, such as healthcare, education, and public administration, contribute to the importance of the tertiary sector.
• Development of Agriculture and Industry: Growth in primary and secondary sectors stimulates demand for services like transport and trade.
• Rising Income Levels: As incomes rise, there is an increased demand for services like dining out, tourism, and professional training.
• Information and Communication Technology: The emergence of new services, especially those based on information and communication technology, contributes to the growth of the tertiary sector.

3. Disparities in the Service Sector:

• The service sector in India employs a diverse range of workers, from highly skilled professionals to small shopkeepers and repair persons.
• While some segments of the service sector grow rapidly, others, especially those with less skilled workers, face challenges.

4. Shifts in GDP vs. Employment:

• The share of sectors in GDP has changed, but a similar shift has not occurred in employment by the year 2000.
• The primary sector continues to be the largest employer, while the secondary and tertiary sectors, which produce three-fourths of the GDP, employ less than half the workforce.

5. Underemployment in Agriculture:

• The primary sector, particularly agriculture, experiences underemployment where more people are engaged than necessary.
• This underemployment, also known as disguised unemployment, is hidden as people appear to be working but are not fully employed.

6. Addressing Underemployment:

• Providing alternative employment opportunities in other sectors, such as industry or services, can alleviate underemployment in agriculture.
• The example of a small farmer's family illustrates how a few members moving to other sectors can enhance overall family income without affecting agricultural production.

7. Challenges in Service Sector Employment:

• The service sector in urban areas often sees casual workers searching for daily employment, facing challenges in finding consistent work.
• Some workers in the service sector, like street vendors, may spend long hours but earn relatively little, highlighting the lack of better opportunities.