Key Concepts: Sectors of the Indian Economy

Sectors of Economic Activities

All activities that give an income in return are called economic activities.
Example: People going to work in factories, banks, schools, etc.

Economic activities can be classified into different sectors on the basis of the nature of work.

Primary Sector

• Goods which are produced by exploiting natural resources come under the category of the primary sector.
• This sector is also called the agriculture and related sector.
  Example: Cotton cultivation

Primary Sector of Economy

Secondary Sector

• Transformation of one good into another comes under the category of the secondary sector.
• Manufacturing is one of the important components of this sector.
  Example: Transformation of sugarcane into sugar.

Tertiary Sector 

• All production units that provide services to support the development of primary and secondary sectors fall under the tertiary sector category. This is also known as the service sector.
  Example: Services given by doctors, teachers, lawyers, etc.

Comparing the three Sectors

These three sectors are highly interdependent on one another.

This can be explained with the help of an example: 

• Farmers buy goods such as tractors, pump sets, fertilisers (manufacturing sector) to produce agricultural goods (primary sector).
• This shows the dependence of the primary sector on the secondary sector. 
• Now farmers want to sell their output. For this, they need transport facilities. It shows the dependence of the primary sector on the tertiary sector.

The Dependency of 3 Sectors on Each Other

• There are thousands of goods and services produced in an economy. We cannot add different types of goods in practice. So the value of these goods and services should be used rather than adding up the actual numbers. Comparisons are made among these three sectors on the basis of the value of final goods and services produced.
• Gross Domestic Product (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. The sum of production in these sectors gives us the gross domestic product (GDP) of a country.
• The tertiary sector has emerged as the largest sector because it helps in the development of the primary and secondary sectors.
• Several services, such as hospitals, banks, insurance companies, transport, and educational institutions, are the basic services required by the primary and secondary sectors for their normal functioning.

Division 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.
• They are registered by the government and have to follow its rules and regulations.
• Therefore, people have job security.

Unorganised Sector 

• The unorganised sector covers small and scattered units that are largely outside the control of the government. 
• There are rules and regulations, but they are generally not being implemented by the unorganised sector.
• Employment is not secure in the unorganised sector.

How to Protect Workers in the Unorganised Sector?

In the unorganised sector, protection and support are required for the workers for their economic and social development. Besides getting irregular and low-paid work, they also face social discrimination.

Sectors in terms of Ownership

• The public sector is the sector that is owned, controlled, and managed by the government. Activities in the government sector are guided by the motive of social welfare and not to earn profit.
• In the private sector, ownership of production units is in the hands of private individuals. Activities in the private sector are mainly guided by the motive to earn profit.
  Example: Tata Iron and Steel Company (TISCO) and Reliance Industries Limited (RIL).
• Employment is an activity from which a person earns the means of living, i.e. income in cash or in kind.
• Unemployment refers to a situation where persons who can work and are willing to work fail to secure work.
• Underemployment is a situation in which a worker gets work for less time than the time he can work. In other words, he remains unemployed for some months in a year or some hours every day.

There was a big change in the share of three sectors in G.D.P. (from 1973 to 2000), but the data show that a similar shift has not taken place in terms of employment.

• In the secondary sector, output went up by 8 times, but it rose only 2.5 times in terms of employment.
• In the tertiary sector, output went up 11 times, whereas employment rose 3 times.
  The government can create more employment opportunities by providing better:
• Infrastructure such as roads, dams, canals, etc. 
• Further, this can be enhanced by providing services like banks, transport and communication.
• Set up industries that process vegetables and agricultural products such as potatoes, rice, wheat, tomatoes, and fruits, which can be sold in outside markets.
• This will be employed in industries located in semi-rural areas.

Mahatma Gandhi National Rural Employment Guarantee Act-2005 (NREGA -2005) 

• This act is implemented as "Right to Work" in all the districts of India.
• Under this act, all those who can work and need work have been guaranteed 100 days of employment in a year by the government.

Intermediate and Final Goods

While calculating the total production of an economy, only final goods and services are included.
Final goods are those goods and services that reach the consumers and are not used for further production.
Goods that are used as raw materials or inputs in the production of other goods are called intermediate goods.
If intermediate goods are counted along with final goods, it would lead to double counting. Therefore, only the value of final goods and services is considered while calculating GDP.

Disguised Unemployment

Disguised unemployment is a form of underemployment where more people are engaged in a job than actually required.
In this situation, even if some workers are removed, total production does not fall.
This type of unemployment is commonly found in the agricultural sector, especially on small farms where all family members are engaged in farming, though the work can be done by fewer people.

Historical Changes in the Importance of Sectors

In the early stages of development of most countries, the primary sector was the most important sector of economic activity.
As agricultural production increased and methods of farming improved, people began to engage in manufacturing activities, leading to the growth of the secondary sector.
Over time, with further development, the tertiary sector became more important, especially in developed countries.
In India, although the contribution of the tertiary sector to GDP has increased significantly, a similar shift has not taken place in terms of employment, as a large proportion of people are still engaged in the primary sector.

Reasons for the Growth of the Tertiary Sector

The tertiary sector has grown rapidly due to several reasons.
First, the government has to provide basic services such as education, health, transport, banking, defence and administration.
Second, the development of agriculture and industry increases the demand for services such as transport, storage and trade.
Third, with rising income levels, people demand more services like tourism, private schools, private hospitals and professional training.
Fourth, new services based on information and communication technology have become increasingly important.

Gross Value Added (GVA)

Gross Value Added (GVA) measures the contribution of each sector to the economy by calculating the value of output after deducting the cost of intermediate goods.
It helps in understanding the actual contribution of different sectors to the economy.
In recent years, GVA has been used alongside GDP to assess economic performance.

Worker Benefits in the Organised Sector

Workers in the organised sector enjoy several benefits such as job security, fixed working hours, paid leave, medical benefits, provident fund, gratuity and pension after retirement.
Employers in this sector are required to follow government rules and labour laws to protect workers' rights.

Vulnerable Groups in the Unorganised Sector

The unorganised sector includes a large number of vulnerable workers such as landless agricultural labourers, small and marginal farmers, street vendors, construction workers and domestic workers.
Many workers from scheduled castes, scheduled tribes and backward communities are also employed in this sector.
These workers often face low wages, irregular employment and social discrimination.

Role of the Public Sector

The public sector undertakes activities that are important for the welfare of society but may not be profitable for private enterprises.
These include providing education, healthcare, safe drinking water, electricity, roads, railways and irrigation facilities.
The government also supports farmers by procuring food grains at fair prices and distributing them at subsidised rates through ration shops.

Employment Guarantee Scheme

The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005 provides a legal guarantee of 100 days of employment in a year to rural households.
This scheme aims to enhance livelihood security, reduce unemployment and create durable assets in rural areas.