Chapter 2. Sectors of the Indian Economy
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ECONOMIC ACTIVITIES - concerning earning and spending of
money or related to wealth
utilise scarce resources and, therefore, command a price.
NON-ECONOMIC ACTIVITY
Any activity performed for pleasure or out of love or out of pity –
not done for money
Primary Sector: The sector which carries out the first stage in the
process of production is known as Primary sector. They produce raw
materials either by extracting them or by growing them.
 In other words the primary sector consists of all those enterprises which
produce natural products making use of natural resources.
 It is also called agriculture and related sector.
Eg. Agriculture, forestry, mining, fishing, quarrying etc.
For example: Cotton is a natural product (by growing); minerals and ores
are also natural resources (by extracting)
 When we produce a good by exploiting natural resources, it is an activity
of the Primary Sector.
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Secondary sector: Processing and manufacturing sector which carries out the
second stage of production is known as secondary sector.
 Raw materials are changed into finished or semi finished products.
Eg. Manufacturing or construction activities.
 In other words the secondary sector covers activities in which natural
products are changed into other forms through ways of manufacturing that
we associate with industrial activity. So it is also known as industrial
sector.
 It is the next step after primary.
Examples: Industries producing steel, furniture, clothing, footwear etc.
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Tertiary sector: Service sector is known as tertiary sector. Industries which
provide all kinds of services to the firms in the primary and secondary sectors
known as tertiary sector.
 In other words tertiary sectors consists of all those activities (services) that
help in the development of 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: Services provided by banks, transports, insurance companies etc.
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Final goods: Final goods are those which are finally used by the final
consumers to satisfy their wants and there is no further change in their form or
shape.
Intermediate goods: are those goods which are used up in the production of
final goods.
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How do we count the various goods and services and know the total
production in each sector?
The money value of final goods and services in each sector in an economy
during a year provides the value of the total production of that sector during
the year.
The sum of the money value of production in the three sectors is called the
Gross Domestic Product. (GDP).
We include only final goods and services in our estimates. We ignore all
intermediate goods because it will result in double counting which may not be
a true estimate.
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Who is responsible for calculating National income or GDP?
GDP is undertaken by a central government ministry. This 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.
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Explain how the classification of economic activities into primary, secondary
and tertiary is useful?
1. Looking at the whole economy as one unit will not give a clear picture
about the growth and development of different activities. So it is better to
have classifications like primary, secondary and tertiary.
2. We can find out the relative contribution of each of the sectors to the
growth process.
3. We can find out the output and employment pattern in each of these
sectors and changes occurred in them.
4. We can identify easily the problems faced by each of the sectors in the
process of economic growth and thereby take necessary remedial
measures.
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How do we compare the relative importance of three different sectors in the
economy?
The relative importance of three different sectors in the economy is compared by
using two variables.
(i)
The percentage share of primary, secondary and tertiary sectors in the
national output, that is
a. Percentage share of primary sector in the national output
b. Percentage share of secondary sector in the national output
c. Percentage share of tertiary sector in the national output
(ii) Occupational structure – the contribution of each sector in the structure of
employment in the country
a) Percentage of workforce engaged in the primary sector
b) Percentage of workforce engaged in the secondary sector
c) Percentage of workforce engaged in the tertiary sector
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What does the history of developed countries indicate about the shifts that
have taken place between sectors?
A shift in relative importance of different sectors with respect to
(a) Generation of income and
(b) Generation of employment
(i) The history of developed countries indicate that t initial stages of
development, 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 and most people were also employed in this sector.
(ii) Over more than hundred years, when new methods of manufacturing
were introduced, factories came up and started expanding. In this
way, secondary sector gradually became the most important in total
production and employment.
(iii) During the past 100 years, there has been a further shift from secondary to
tertiary sector. The service sector has become the most important in
terms of total production and employment.
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What does the comparison between 1973 and 2003 show? (diagram in the
book)
1. The relative shares of the three sectors in India’s GDP are undergoing a
change
2. Agriculture was the dominant sector in 1973. In 2003, this position has
gone to the tertiary sector.
3. Comparatively the share of industrial sector has increased from 1973 to
2003.
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Why is the tertiary sector becoming so important in India?
1. In any country several services such as hospitals, educational institutions,
post and telegraphic services, police stations, courts, village administrative
offices, municipal corporations, defence, transport, banks, insurance
companies, etc are required. These can be considered as basic services.
The government has to take the 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 etc. Greater the development of
the primary and secondary sectors, more would be the demand for such
services.
3. 3. As income levels rise, people start demanding many more services like
eating out, tourism, shopping, private hospitals, private schools,
professional training etc.
4. 4. 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.
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“Tertiary sector is not playing any significant role in the development of
Indian economy.” Do you agree? Give reasons.
(Refer the answer -Why is the tertiary sector becoming so important in
India?)
The tertiary sector has become the dominant sector. About 25% of total
employment is generated in the tertiary sector and about 60% of India’s GDP gets
generated in this sector.
A number of services produced in the tertiary sector like software solutions are also
being exported. These have emerged as big foreign exchange earners for the
country.
Thus it would be seen that tertiary sector is playing an significant role in the
development of Indian economy.
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Why didn’t a similar shift out of primary sector like tertiary sector, happen in
case of employment?
It is because not enough jobs were created in the secondary and tertiary sectors.
Even though industrial output or the production of goods went up by 8 times during
the period, employment in the industry went up by only 2.5 times. The same
applies to tertiary sector as well. While production in the service sector rose by 11
times, employment in the service sector rose less than three times. Other factors
which lead to such situation are:
- Lack of education
- Lack of skilled labours
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- Immobility of agricultural labourers
- Superstitious beliefs
- Ignorance
As a result, more than half of the workers in the country are working in the primary
sector, mainly in agriculture, producing only a quarter of the GDP. In contrast to
this, the secondary and tertiary sectors produce three-fourth of the produce whereas
they employ less than half the people.
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Unemployment: refers a situation wherein a person is willing to work and has the
ability to work yet he does not get work.
Underemployment: A situation in which a person does not get a job according to
his ability or capacity.
Disguised unemployment: A situation in which the number of persons employed
in a job are more than what are optimally required.
It is typical of Indian agriculture where more people are working in a
piece of farm than are required. They do not contribute to productive
work and when withdrawn do not result in a fall in output.
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What do you understand by disguised unemployment? Explain with an
example each from the urban and rural areas.
Disguised unemployment occurs when the number of persons engaged in an
activity is more than what is optimally required in a situation. If these extra persons
are removed from the activity, there will be no adverse effect on the volume of
output. These extra persons may be said to be disguised unemployment.
In rural sector, cultivation is the major economic activity. The whole family
participates in different operations in cultivation of land. If a few persons are
removed from the activity, output will not be adversely affected.
Similarly in urban areas we find that the whole family gets involved in small
cottage enterprises like roadside shops (petty shops) and artisan activities. In most
of these cases, surplus hands get involved in the activity. They do not make any
contribution to output. These persons are said to disguisedly unemployed.
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Compare and contrast the changes in India with the pattern that was observed
for developed countries. What kind of changes between sectors was desired
but did not happen in India?
In developed countries, the following changes took place:
(i)
The relative share of agriculture in both GDP and employment fell.
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(ii)
(iii)
The relative share of secondary and tertiary sectors both in GDP and
employment increased.
Ultimately the tertiary sector of the economy became the dominant sector
of the economy.
In India, the following changes have taken place:
(i)
The relative share of agriculture in both GDP and employment has fallen.
(ii)
The relative share of secondary and tertiary sectors in both GDP and
employment have comparatively increased. But secondary sector has
neither become the most important sector in terms of production and
employment.
(iii)
There is a shift in tertiary sector, but still its very slow comparatively with
the population. As a result, agriculture continues to be the principal source
of employment in the economy, although it generates less than 20% of the
GDP.
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Why should we be worried about underemployment?
Unemployment is a situation in which a worker is able to work only below his
ability and capacity.
Adverse effects:
- Low individual income
- Low national income
- Low per capita income
- Low standard of living
- Poverty
- Low aggregate demand- low investment
-Loss of skill and moral
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How to create more employment?
To remove open unemployment, underemployment and disguised unemployment,
there is a need to create more employment opportunities.
(i)
Provision of infrastructure facilities like irrigation in rural areas:
Construction of dams , canals, roads will generate many more jobs. This
will make agriculture more productive. Farmers can raise two or more
crops during a year and they will remain employed throughout the year.
(ii)
Expansion of transport and trade in rural areas: Building of roads, store
houses and other such facilities will create new employment opportunities
and it will add income to the people who are unemployed or under
employed.
(iii)
Provision of cheap and easy credit facilities: If the people are provided
loans at low rate of interest, they may become self-employed by starting
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own business or production. Farmers will be able to buy fertilisers and
agricultural equipments and increase their output.
(iv)
Setting up of industries and services: can provide employment
opportunities to many people.
(v)
Construction of school building, health centres etc: These would not only
create more employment opportunities but also contributes to human
development.
(vi)
Promotion of activities like tourism, regional crafts, information etc. can
result in creation of more employment opportunities.
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Qn. Write about ‘Right to work’ or National Rural Employment Guarantee
Act 2005.
(or) objective of implementing the NREGA 2005.
The central government in India made a law implementing the Right to Work in
200 districts of India. It is called National Rural Employment Guarantee Act 2005.
Under this Act
(i)
All those persons who are able and willing to work have been guaranteed
100 days of employment in a year by the government.
(ii)
If the government fails to provide employment, it will have to provide
unemployment allowance to affected persons.
(iii)
The types of work that would in future help to increase the production
from land will be given preference under the Act.
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Qn. Why do you think NREGA 2005 is referred to as ‘Right to work’?
(Refer the previous qn- ans)
Every able and willing individual has been guarenteed a job for a minimum of 100
days a year under this act. So it is referred to as ‘Right to work’.
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Qn. What ways can employment be increased in urban areas?
a) Education should be employment-oriented and it should be compulsory to
all children. Vocational education should be imparted.
b) Adequate arrangement should be made for provision of training in
industrial skills.
c) Special emphasis should be laid on promotion of labour-intensive small
scale industries.
d) Rapid industrialisation
e) Career counselling
f) Promotion of IT sector
g) Promotion of tertiary sector – with increase in education and skill, there
will be an increase in demand for different types of services. This may
generate new employment opportunities.
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Qn. Suggest some activities that can be taken up under the NREGA.
 Building of canals and dams
 Building of roads
 Construction of store houses and ware houses
 Construction of school buildings, health centres and other public utilities
 Construction of housing
 The villagers should be given loan at low rate of interest so that they could
adopt modern farming techniques and start different non-farming
activities.
Labour intensive activities will create a large number of jobs.
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Qn. How would income and employment increase if farmers were provided
with irrigation and marketing facilities?
a. Irrigation facilities: Irrigation is an important source to increase
agricultural output, employment and income. Water is essential for
agricultural production. Rainfall in many areas is not only adequate but
also uncertain. Construction of dams, canals will generate direct
employment. With better irrigation facilities, every farmer will be in a
position to raise two or more crops a year from the same piece of land. So
income of the farmers will increase.
b. Marketing facilities: Marketing facilities include storage facilities of
agricultural produces, adequate and cheap transport facilities, information
regarding marketing conditions etc. Construction of store houses and ware
houses will create direct employment. Provision of better marketing
facilities will make the farmers to be in a position to get a better price for
their products. Their income will go up.
With increase in income levels, farmers will have surplus with them. This
can be used to purchase
seeds, fertilisers and modern agricultural
equipments. This will increase their agricultural productivity,
employment
and income level.
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ORGANISED AND UNORGANISED SECTORS
Qn. How are the activities in the economy classified on the basis of
employment conditions?
Organised sector: It consists of those enterprises which are registered by the
government and have to follow various rules and regulations. These are the places
of work where the terms of employment are regular and people have assured work.
Unorganised sector: It consists of small and scattered enterprises which are
largely outside the control of the government. They generally do not follow any
rules and regulations.
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Qn. Compare the employment (working) conditions prevailing in the
organised and unorganised sectors.
(or) Distinguish between organized and unorganized sectors.
Organised sectors
Unorganised sectors
These are registered by the government
and have to follow its rules and
regulations which are given in various
laws such as Factories Act, Minimum
Wages Act, Payment of Gratuity Act,
Shops and Establishments Act etc.
These are small and scattered units
which are largely outside the control of
the government. There are rules and
regulations but are not followed.
It has some formal processes and
procedures.
No formal processes and procedures.
Workers in the organized sector enjoy
security of employment. They are
expected to work only a 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 etc. They are supposed to
get medical benefits and, under the
laws, the organization has to ensure
facilities like drinking water and safe
working environment. When they
retire, workers get pensions as well.
Employment is not secure. People can be
asked to leave without any reason. When
there is less work, some people may be
asked to leave.
Jobs are low-paid and often not regular.
There is no provision for overtime, paid
leave, holidays, leave due to sickness etc.
Qn. Workers are exploited in the unorganised sector. Do you agree with this
view? Give reasons.
(Refer the Qn -distinguish between organised and unorganised sectors)
Page no 31:
i.
A teacher taking classes in a school – organised sector
ii.
A headload worker carrying a bad of cement on his back in a market –
unorganised
iii.
A farmer irrigating his field – unorganised
iv.
A doctor in a hospital treating a patient – organised
v.
A daily wage labourer working under a contractor – unorganised
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vi.
A factory worker going to work in a big factory – organised
vii.
A handloom weaver working in her house – unorganised
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Qn. Do you agree that agriculture is an unorganized sector activity? Why?
Yes, Agriculture is an unorganized sector activity.
(i)
This is because agricultural units are not registered by the
government.
(ii)
Though there are rules and regulations here also, but are not followed.
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Qn. Why more people are in unorganised sector?
1. The employment opportunities in the organized sector have been
expanding very slowly. As population rate is very high, these sectors are
not able to accommodate all educated, skilled and the people who are able
to work.
2. Many organized enterprises are in unorganized sector to evade taxes and
refuse to follow laws that protect labourers. As a result, a large number of
workers are forced to enter the unorganized sector jobs, which pay a very
low salary without any benefits.
Qn. How to protect workers in the unorganized sector?
Workers in the unorganized sector get low wages which is less than minimum
wages. Their jobs are not secure and they have no other benefits. They are often
exploited. Hence there is a need for protection and support of workers in the
unorganized sector.
In the rural areas, the unorganized sector mostly consists of landless agricultural
labourers, small and marginal farmers, sharecroppers, artisans. These persons need
to be supported through adequate facilities for timely delivery of seeds, agricultural
inputs, credit, storage facilities and marketing outlets.
In the urban areas, unorganized sector consists mainly of workers in small-scale
industries, casual workers in construction, trade and transport, street vendors etc.
These sections of the society need to be supported by way of easy credit facilities
and other concessions.
Protection and support to unorganized sector workers is necessary for both
economic and social development.
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PUBLIC SECTOR AND PRIVATE SECTOR
On the basis of the ownership and management control, enterprises can be
classified into two categories.
(i) Public sector
(ii) Private sector
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(i)
Public sector: It consists of all those enterprises which are owned
and managed by the government. Public sector activities are
motivated by social welfare not by profits.
Example: DTC, Indian Railways, MTNL, BSNL, Post office etc
(ii)
Private sector: It consists of all those enterprises which are owned
and managed by private capital and enterprise. Private sector
activities are motivated by profits.
Example: Reliance Industries Ltd, Airtel, Tata Steel, Maruti Suzuki
Ltd, Honda Motor Co. etc.
Qn. Distinguish between Public Sector and Private Sector
Public sector
It consists of all those enterprises
which are owned and managed
by the government. Example:
DTC, Indian Railways, MTNL,
BSNL, Post office etc
Private sector
It consists of all those enterprises which
are owned and managed by private capital
and enterprise.Example: Reliance
Industries Ltd, Airtel, Tata Steel, Maruti
Suzuki Ltd, Honda Motor Co. etc.
Public sector activities are
motivated by social welfare not
by profits.
Private sector activities are motivated
by profits.
There are certain goods which are
There is no such responsibility of the
needed by the society as a whole
private sector. If they provide these
(public goods) like roads, public
services, they charge high cost for them.
parks etc. There are certain goods
which the government used to think
the people ought to have (merit
goods) like education, health care etc.
These are primary responsibility of
the government. It provides these
services at a reasonable cost or no
cost.
Qn. Modern day governments spend on a whole range of activities. What
are these activities? Why do governments spend on such activities?
1.
There are certain goods which are needed by the society as a whole.
Individuals cannot be asked to pay a price for using them. These are called
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public goods which are produced by the government. Examples:roads,
bridges, harbours, dams, public parks, national defence etc.
2.
There are some activities which the government has to support. Examples:
Supplying electricity at a price which may be less than the cost of
production; Supplying fertilizers and seeds to farmers at subsidized prices.
3. The government has to protect the interests of both consumers and
producers at times. Examples: Government purchases wheat from farmers
at a minimum support price, and sells the same to consumers at a lower
price.
4. There are a large number of activities which are primary responsibility of
the government. (merit goods) Examples: Provision of quality education
and health facilities.
5. The government has to make arrangements for human development such
as safe drinking water, housing facilities for the poor and food and
nutrition.
6. The government has to take care of the poorest and most ignored regions
of the country through increased spending in such areas.
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Qn. Explain how public sector contributes to the economic development of a
nation.
Meaning of public sector
1. Rapid economic growth: the primary objective is to generate and increase
the volume of goods and services in the economy. This will increase the
national income and percapita income.and ultimately the economic growth
of the country.
2. To create employment opportunities (explain)
3. To set up key and basic industries (explain)
4. Balanced regional development (explain)
5. to promote equal distribution of income and wealth
6. It generates financial resources for development
7. It encourages development of cottage and small scale industries
8. It controls private monopolies
9. It ensures easier availability of goods at cheaper rates.
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