Sectors of the Indian Economy – Comprehensive Study Notes

Sectoral Classifications Overview

• An economy is easier to analyse when its activities are grouped (classified) into sectors.
• Three parallel sets of classifications are used throughout the chapter:
– By NATURE of activity ➜ Primary, Secondary, Tertiary.
– By EMPLOYMENT CONDITIONS ➜ Organised, Unorganised.
– By OWNERSHIP ➜ Public, Private.
• Teachers are encouraged to connect each abstract idea with day-to-day examples (shopkeepers, domestic helpers, vegetable vendors, etc.) and to highlight how the relative importance of sectors is changing, especially the rapid growth of services.

Primary, Secondary & Tertiary Sectors

• Primary (Agriculture & Related) Sector
– Direct use of natural/biological resources.
– Examples: cultivation of cotton, dairy, fishing, forestry, extraction of minerals & ores.
– Called “primary” because it forms the base for all subsequent production.
• Secondary (Industrial) Sector
– Natural products are transformed by manufacturing processes.
– Can occur in factories, workshops or homes.
– Examples: spinning cotton into yarn, weaving cloth, making sugar or gur from sugarcane, firing bricks, assembling cars.
• Tertiary (Service) Sector
– Does not itself produce tangible goods; instead supports development of primary & secondary sectors.
– Examples that aid production: transport, storage, communication, banking, trade.
– Essential personal services: teachers, doctors, washermen, barbers, lawyers, administrators.
– New IT-enabled services: internet cafés, ATMs, call centres, software firms.
• Key classroom exercise: classify a given list of occupations—fisherman (primary), basket weaver (secondary), courier (tertiary), etc.

Measuring Production: GDP & GVA

• Counting every finished good/service produced in a year gives Gross Domestic Product (GDP).
• Only FINAL goods/services are counted; all INTERMEDIATE goods are excluded to avoid double counting.
– Example chain: wheat ➜ flour ➜ biscuits.
• Monetary value is used instead of physical units: e.g. 10{,}000 \text{ kg} \times Rs\,20 = Rs\,2{,}00{,}000.
• GDP compilation in India is handled by a Central Government ministry with data from all States & UTs.
• India now also publishes sectoral Gross Value Added (GVA), i.e.
\text{GVA} = \text{GDP} - \text{(Taxes on products)} + \text{(Subsidies on products)}
allowing international comparability.

Historical Shifts Among Sectors (Global & India)

• Pattern in today’s developed countries:

1. Early stage: Primary dominant.
2. Industrialisation: Secondary overtakes.
3. Post-industrial: Tertiary becomes largest in both output & employment.
   • Indian data (1977-78 vs 2017-18)
   – Production has grown in all sectors, but Tertiary rose the fastest.
   – By 2017-18 tertiary became India’s largest GVA contributor.
   • Reasons for India’s service-sector surge:
4. Basic services (health, education, police, courts, defence, transport, banks) expand with population.
5. Growth of agriculture & industry increases demand for support services—transport, storage, trade.
6. Rising incomes create demand for restaurants, tourism, private schools/hospitals, etc.
7. Information & Communication Technology (ICT) services become vital over the last decade.
   • Uneven growth: highly-skilled IT jobs coexist with low-income petty services (push-cart vendors, repairmen).

Interdependence Among Sectors

• Example table (sugarcane–sugar–tractor–food transport) shows that no sector functions in isolation.
• Thought experiment questions for students:
– What if farmers refused to sell cane to mills?
– What if cotton buyers shifted to imports?
– What happens in a transporter strike?

Employment Patterns & Underemployment

• Share in GVA vs Share in Employment (1977-78 ➜ 2017-18):
– Primary sector still employs >50 % of workers but produces only ≈16 % of GVA.
– Secondary & Tertiary together produce ≈84 % of GVA while employing <50 % of workers.
• Disguised / Hidden / Under-employment
– Many more people engaged than actually required; marginal productivity of some workers ≈0.
– Example: Laxmi’s five-member family farming 2 ha of unirrigated land; removing two members does not change output.
– Occurs in agriculture and also among casual urban service workers (painters, plumbers, street vendors).

Generating More Employment

• Within Agriculture
– Provide irrigation (well, canals, dams) so second crop possible.
– Offer cheap institutional credit for seeds, fertiliser, pumpsets.
• Beyond Farms
– Rural roads + storage ➜ job creation in transport & trade.
– Locate small industries in semi-rural areas (dal mills, cold storages, honey collection centres, vegetable processing, gur-making).
• Social Sectors
– 60 % of Indians are 5-29 yrs; only 51 % attend educational institutions.
– Building schools + hiring teachers can create ≈20 lakh jobs.
– Health sector expansion (doctors, nurses, health workers) especially in villages.
• Tourism potential: better policy could add >35 lakh jobs annually (Planning Commission estimate).
• Short-term Legal Guarantee: Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005
– Guarantees 100 paid days/year to any adult in rural areas who demands work.
– If work is not provided, the state owes unemployment allowance.
– Priority to labour-intensive projects that raise land productivity.

Organised vs Unorganised Sector

• Organised Sector (e.g. Kanta’s office job)
– Registered with government; follows labour laws (Factories Act, Minimum Wages Act, etc.).
– Features: security of employment, fixed hours, overtime pay, provident fund, gratuity, paid leave, medical benefits, safe workplace, pension.
• Unorganised Sector (e.g. Kamal’s daily-wage grocery helper)
– Small, scattered units; often outside formal regulation.
– Low & irregular wages, no formal appointment letter, can be fired any time, rarely paid overtime, no paid leave or social security.
– Includes self-employed street vendors, repair workers, landless labourers, small/marginal farmers.
• Late-1990s employment snapshot (Table 2.3): organised sector only ≈10 % of total workers; agriculture is overwhelmingly unorganised.

Protection of Unorganised Workers

• Rural vulnerable groups: landless labourers, small & marginal farmers, sharecroppers, artisans.
– Need timely supply of seeds, credit, storage & marketing.
• Urban vulnerable groups: casual construction labour, small-scale industrial workers, street vendors, rag-pickers, head-loaders.
– Need raw-material support, legal vending zones, safety regulations, access to credit & insurance.
• Scheduled Castes/Tribes & other backward communities over-represented in unorganised sector ➜ social as well as economic support required.

Public vs Private Sector Ownership

• PUBLIC = Government owns assets & delivers services (e.g. Railways, Post Office, BSNL).
– Financed via taxes; motive is public welfare, not profit.
– Undertakes heavy-investment projects (roads, bridges, dams, electricity) that private firms avoid due to high cost or low immediate returns.
– Intervenes to stabilise prices & support vulnerable groups (e.g. Food Corporation of India buying grains at MSP, then selling through PDS).
– Provides merit goods: health, education, nutrition, safe water, housing.
• PRIVATE = Individuals/companies own assets & run for profit (e.g. TISCO, Reliance Industries, Jet Airways).
– Consumers pay market price for services.
• Government may subsidise inputs (e.g. electricity) so that small industries remain viable.

Government's Role & Public Spending

• Addresses market failure where collective needs are unmet (defence, public health, infrastructure).
• Focus on human development indicators: literacy, infant mortality, malnutrition.
• Ensures balanced regional development by investing in backward areas.

Key Data & Statistics (all at 2011-12 constant prices unless noted)

• GVA 2017-18: Primary ≈Rs 1.8 \times 10^{12} crore; Secondary ≈Rs 2.4 \times 10^{12} crore; Tertiary ≈Rs 6.1 \times 10^{12} crore.
• GDP India 2017-18: ask students to read Graph 1 (approx Rs 1.2 \times 10^{7} crore).
• Employment growth 1977-78 ➜ 2017-18:
– Industrial output ↑ >9× ; industrial employment ↑ ≈3×.
– Service output ↑ 14× ; service employment ↑ ≈5×.
• Ahmedabad study (1997-98): 15 lakh total workers, 11 lakh in unorganised; city income Rs 60,000 million; organised sector produced Rs 32,000 million.

Key Terms & Definitions

• Final Goods, Intermediate Goods.
• GDP, GVA.
• Disguised / Hidden Unemployment.
• Organised vs Unorganised Sector.
• Public vs Private Sector.
• Right to Work – constitutional principle operationalised via MGNREGA 2005.

Important Questions & Exercises (Prototype)

• Distinguish between primary, secondary & tertiary sectors with fresh examples.
• Explain why only final goods are added to GDP.
• Fill data table: share of workforce in primary sector declined from 78\% (1977-78) to 44\% (2017-18) etc.
• Provide three measures to create jobs in your district under MGNREGA.
• Identify whether the following are organised/unorganised: government school teacher (organised), rickshaw puller (unorganised)…
• Calculate sectoral GDP shares for 2000 & 2013 using given GVA figures and draw bar diagram.