NOTES FOR THE TEACHERCHAPTER 2: SECTORS OF THE INDIAN ECONOMYAn economy is best understood when westudy its components or sectors. Sectoralclassification can be done on the basis ofseveral criteria. In this chapter, threetypes of classifications are discussed:primary/secondary/tertiary; organised/unorganised; and public/private. You cancreate a discussion about these types bytaking examples familiar to the studentsand relate them to their daily life. It isimportant to emphasise the changingroles of sectors. This can be highlightedfurther by drawing attention of thestudents to the rapid growth of servicesector. While elaborating the ideasprovided in the chapter, the students mayneed to be familiarised with a fewfundamental concepts such as GrossDomestic Product, Employment etc. Sincethe students may find this difficult tounderstand, it is necessary to explain tothem through examples. Several activitiesand exercises are suggested in the chapterto help the students understand how aperson’s activity could be placed —whether in the primary, secondary ortertiary, organised or unorganised, andpublic or private sector. You mayencourage the students to talk to variousworking people around them (such asshop owners, casual workers, vegetablevendors, workshop mechanics, domesticworkers etc.) to know more about how theylive and work. Based on such information,the students can be encouraged todevelop their own classification ofeconomic activities.Another important issue to behighlighted is about the problems causedby the changes in the roles of sectors.The chapter has taken the example ofunemployment and what the governmentcan do to solve it. The declining importanceof agriculture and growing importance of18industry and services should be relatedto the experience of the children by takingmore examples that they may observe intheir day-to-day life. Information derivedfrom the media could be used for thispurpose. You may encourage the studentsto bring important cuttings and storiesfrom newspapers, which could beprominently displayed in storyboards, andencourage the class to discuss theseissues. While discussing the unorganisedsector, the key issue of protecting theworkers engaged in the sector should behighlighted. You may also encourage thestudents to visit persons and enterprisesin the unorganised sector and get a firsthand experience from real life situation.Sources for InformationThe GDP data used in this chapterpertaining to Gross Domestic Product atFactor Cost by Industry of Origin at2011–12 prices is taken from Real TimeHandbook of Statistics on Indian Economy.It is a valuable source of GDP and otherinformation relating to the Indian economy.For evaluation purposes, particularly todevelop the analytical ability of learners,teachers can refer to this report throughthe Internet to get data for different years.Due to change in methodology, latest datais not used in the chapter.The employment figures are basedon data taken from the five-yearly surveyson employment and unemploymentconducted by the National Sample SurveyOrganisation (NSSO) now known asNational Statistical Office (NSO). NSO isan organisation under the Ministry ofStatistics and Programme Implementation,Government of India. The website you canlog onto is: http:/ Employmentdata is also available from other sourcessuch as Census of India.OPMENTANDING E CONOMIC D EVELEVELOPMENTNDERSTANDINGU NDERST2022-23

CHAPTER 2SECTORSOF THE INDIAN ECONOMYSECTORS OF ECONOMIC ACTIVITIESLet us look at these pictures. You will find that people areengaged in various economic activities. Some of these areactivities producing goods. Some others are producingservices. These activities are happening around us everyminute even as we speak. How do we understand theseactivities? One way of doing this is to group them (classifythem) using some important criterion. These groups are alsocalled sectors.2022-23

at differentWe begin by lookingities.kind of economic activThere are many activities that areundertaken by directly usingnatural resources. Take, forPrimaryexample, the cultivation of cotton. It(Agriculture)takes place within a crop season. ForSectorthe growth of the cotton plant, wedepend mainly, but not entirely,on natural factors like rainfall,sunshine and climate. The productof this activity, cotton, is a naturalproduct. Similarly, in the case of anactivity like dairy, we are dependenton the biological process ofthe animals and availabilityTertiary(Service) of fodder etc. The producthere, milk, also is a naturalSectorproduct. Similarly, mineralsand ores are also naturalproducts. When we producea good by exploiting naturalproducesresources, it is an activity ofnaturalthe primary sector. Whygoodsprimary? This is because itforms the base for allother products that wesubsequently make. Sincemost of the naturalhelps to develop products we get are fromSecondary other sectorsagriculture, dairy, fishing,(Industrial)forestry, this sector is alsoSectorcalled agriculture and relatedsector.producesmanufacturedgoods20The secondary sector coversactivities in which natural productsare changed into other forms throughways of manufacturing that weassociate with industrial activity. It isthe next step after primary. Theproduct is not produced by naturebut has to be made and thereforesome process of manufacturing isessential. This could be in a factory, aworkshop or at home. For example,using cotton fibre from the plant, wespin yarn and weave cloth. Usingsugarcane as a raw material, we makesugar or gur. We convert earth intobricks and use bricks to make housesand buildings. Since this sectorgradually became associated with thedifferent kinds of industries that cameup, it is also called as industrial sector.After primary and secondary, thereis a third category of activities that fallsunder tertiary sector and is differentfrom the above two. These areactivities that help in the developmentof the primary and secondary sectors.These activities, by themselves, do notproduce a good but they are an aidor a support for the productionprocess. For example, goods that areproduced in the primary or secondarysector would need to be transportedby trucks or trains and then sold inwholesale and retail shops. At times,it may be necessary to store these ingodowns. We also may need to talk toothers over telephone or send letters(communication) or borrow moneyfrom banks (banking) to helpproduction and trade. Transport,storage, communication, banking,trade are some examples of tertiaryactivities. Since these activitiesgenerate services rather than goods,the tertiary sector is also called theservice sector.Service sector also includes someessential services that may not directlyhelp in the production of goods. Forexample, we require teachers, doctors,and those who provide personalservices such as washermen, barbers,cobblers, lawyers, and people to doadministrative and accounting works.In recent times, certain new servicesbased on information technology suchas internet cafe, ATM booths, callcentres, software companies etc havebecome important.OPMENTANDING E CONOMIC D EVELEVELOPMENTNDERSTANDINGU NDERST2022-23

t categories,ped into three differenougrear,ghouth,ples.Economic activitiest us look at some examLe.ntdeeneprdteinare highlyTABLE 2.1 EXAMPLES OF ECONOMIC ACTIVITIESEXAMPLEImagine what would happen if farmersrefuse to sell sugarcane to a particularsugar mill. The mill will have to shutdown.WHAT DOES THIS SHOW?This is an example of the secondary orindustrial sector being dependent onthe primary.Imagine what would happen to cottoncultivation if companies decide not tobuy from the Indian market and importall cotton they need from othercountries. Indian cotton cultivation willbecome less profitable and the farmersmay even go bankrupt, if they cannotquickly switch to other crops. Cottonprices will fall.Farmers buy many goods such astractors, pumpsets, electricity,pesticides and fertilisers. Imagine whatwould happen if the price of fertilisersor pumpsets go up. Cost of cultivationof the farmers will rise and their profitswill be reduced.People working in industrial and servicesectors need food. Imagine what wouldhappen if there is a strike bytransporters and lorries refuse to takevegetables, milk, etc. from rural areas.Food will become scarce in urban areaswhereas farmers will be unable to selltheir products.LET’S WORK THESE OUT1. Complete the above table to show how sectors are dependent on each other.2. Explain the difference between primary, secondary and tertiary sectors usingexamples other than those mentioned in the text.3. Classify the following list of occupations under primary, secondary and tertiary sectors: Workers in match factory Tailor Moneylender Basket weaver Gardener Flower cultivator Potter Milk vendor Bee-keeper Fishermen Astronaut Priest Call centre employee Courier4. Students in a school are often classified into primary and secondary or junior andsenior. What is the criterion that is used? Do you think this is a useful classification?Discuss.S ECTORS2022-23OF THEI NDIAN E CONOMY21

COMPARING THE THREE SECTORSThe various production activities in the primary, secondaryand tertiary sectors produce a very large number of goodsand services. Also, the three sectors have a large number ofpeople working in them to produce these goods and services.The next step, therefore, is to see how much goods and servicesare produced and how many people work in each sector. Inan economy there could be one or more sectors which aredominant in terms of total production and employment, whileother sectors are relatively small in size.How do we count the various goods andservices and know the total production ineach sector?.BUT I SHOULD BE PAID THEFULL VALUE OF THE WHEATTHAT I PRODUCE !22With so many thousands of goods and services produced,you might think this is an impossible task! Not only wouldthe task be enormous, you might also wonder how we canadd up cars and computers and nails and furniture. It won’tmake sense!!!You are right in thinking so. To get around this problem,economists suggest that the values of goods and servicesshould be used rather than adding up the actual numbers.For example, if 10,000 kgs of wheat is sold at Rs 20 per kg,the value of wheat will be Rs 2,00,000. The value of 5000coconuts at Rs 15 per coconut will be Rs 75,000. Similarly,the value of goods and services in the three sectors arecalculated, and then added up.Remember, there is one precaution one has to take. Notevery good (or service) that is produced and sold needs to becounted. It makes sense only to include the final goods andservices. Take, for instance, a farmer who sells wheat to aflour mill for Rs 20 per kg. The mill grinds the wheat and sellsthe flour to a biscuit company for Rs 25 per kg. The biscuitcompany uses the flour and things such as sugar and oil tomake four packets of biscuits. It sells biscuits in the market tothe consumers for Rs 80 (Rs 20 per packet). Biscuits are thefinal goods, i.e., goods that reach the consumers.Why are only ‘final goods and services’ counted? Incontrast to final goods, goods such as wheat and the wheatflour in this example are intermediate goods. Intermediategoods are used up in producing final goods and services.The value of final goods already includes the value of allthe intermediate goods that are used in making the finalgood. Hence, the value of Rs 80 for the biscuits (final good)already includes the value of flour (Rs 25). Similarly, thevalue of all other intermediate goods would have beenincluded. To count the value of the flour and wheatOPMENTANDING E CONOMIC D EVELEVELOPMENTNDERSTANDINGU NDERST2022-23

separately is therefore not correctbecause then we would be countingthe value of the same things a numberof times. First as wheat, then as flourand finally as biscuits.The value of final goods andservices produced in each sectorduring a particular year providesthe total production of the sectorfor that year. And the sum ofproduction in the three sectors giveswhat is called the Gross DomesticProduct (GDP) of a country. It is thevalue of all final goods and servicesproduced within a country during aparticular year. GDP shows how bigthe economy is.In India, the mammoth task ofmeasuring GDP is undertaken by acentral government ministry. ThisMinistry, with the help of variousgovernment departments of all theIndian states and union territories,collects information relating to totalvolume of goods and services and theirprices and then estimates the GDP.Historical Change in SectorsGenerally, it has been noted from thehistories of many, now developed,countries that at initial stages ofdevelopment, primary sector was themost important sector of economicactivity.As the methods of farmingchanged and agriculture sector beganto prosper, it produced much morefood than before. Many people couldnow take up other activities. Therewere increasing number of craftpersons and traders. Buying andselling activities increased many times.Besides, there were also transporters,administrators, army etc. However, atthis stage, most of the goods producedwere natural products from theprimary sector and most people werealso employed in this sector.Over a long time (more thanhundred years), and especiallybecausenewmethodsofmanufacturing were introduced,factories came up and startedexpanding. Those people who hadearlier worked on farms now beganto work in factories in large numbers.They were forced to do so as you readin history chapters. People began touse many more goods that wereproduced in factories at cheap rates.Secondary sector gradually becamethe most important in total productionand employment. Hence, over time, ashift had taken place. This means thatthe importance of the sectors hadchanged.In the past 100 years, there hasbeen a further shift from secondary totertiary sector in developed countries.The service sector has become the mostimportant in terms of total production.Most of the working people are alsoemployed in the service sector. This isthe general pattern observed indeveloped countries.What is the total production andemployment in the three sectors inIndia? Over the years have there beenchanges similar to the patternobserved for the developed countries?We shall see in the next section.LET’S WORK THESE OUT1. What does the history of developed countries indicateabout the shifts that have taken place between sectors?2. Correct and arrange the important aspects for calculatingGDP from this Jumble.To count goods and services we add the numbers thatare produced. We count all those that were produced inthe last five years. Since we shouldn’t leave out anythingwe add up all these goods and services.3. Discuss with your teacher how you could calculate thetotal value of a good or service by using the method ofvalue added at each stage.S ECTORS2022-23OF THEI NDIAN E CONOMY23

PRIMARY, SECONDARY AND TERTIARYSECTORS IN INDIAGraph 1 shows theproduction of goods andservices in the three sectors.This is shown for two years,1973-74 and 2013-14. Wehave used the data for thesetwo years because the dataare comparable andauthentic. You can see howthe total production hasgrown over the forty years.Graph 1 : GDP by Primary, Secondary andTertiary SectorsLET’S WORK THESEOUTAnswer the following questions bylooking at the graph:1. Which was the largest producingsector in 1973-74?2. Which is the largest producingsector in 2013-14?3 . Can you say which sector hasgrown the most over forty years?4. What was the GDP of India in2013-14?rison betweenWhat does the compa4 show?1973-74 and 2013-1n we drawWhat conclusions ca?from the comparisont.Let’s find ouRising Importance of theTertiary Sector in ProductionOver the forty years between 1973-74and 2013-14, while production in allthe three sectors has increased, it hasincreased the most in the tertiary sector.As a result, in the year 2013-14, thetertiary sector has emerged as thelargest producing sector in Indiareplacing the primary sector.24Why is the tertiary sector becomingso important in India? There could beseveral reasons.First, in any country severalservices such as hospitals,educational institutions, post andtelegraph services, police stations,courts, village administrative offices,municipal corporations, defence,transport, banks, insurancecompanies, etc. are required. Thesecan be considered as basic services.In a developing country thegovernment has to take responsibilityfor the provision of these services.Second, the development ofagriculture and industry leads to thedevelopment of services such asOPMENTANDING E CONOMIC D EVELEVELOPMENTNDERSTANDINGU NDERST2022-23

transport, trade, storage and the like,as we have already seen. Greater thedevelopment of the primary andsecondary sectors, more would be thedemand for such services.Graph 2 : Share of Sectors in GDP (%)Third, as income levels rise, certainsections of people start demandingmany more services like eating out,tourism, shopping, private hospitals,private schools, professional trainingetc. You can see this change quitesharply in cities, especially in big cities.Fourth, over the past decade or so,certain new services such asthose based on information andcommunication technology havebecome important and essential. Theproduction of these services has beenrising rapidly. In Chapter 4, we shallsee examples of these new servicesand the reasons for their expansion.However, you must remember thatnot all of the service sector is growingequally well. Service sector in Indiaemploys many different kinds ofpeople. At one end there are a limitednumber of services that employ highlyskilled and educated workers. At theother end, there are a very largenumber of workers engaged inservices such as small shopkeepers,repair persons, transport persons,etc. These people barely manage toearn a living and yet they performthese services because no alternativeopportunities for work are availableto them. Hence, only a part of thissector is growing in importance. Youshall read more about this in the nextsection.Where are most of the peopleemployed?Graph 2 presents percentage share ofthe three sectors in GDP. Now you candirectly see the changing importanceof the sectors over the forty years.A remarkable fact about India isthat while there has been a changein the share of the three sectors inGDP, a similar shift has not takenplace in employment. Graph 3shows the share of employment inthe three sectors in 1977-78 and2017-18. T h e p r i m a r y s e c t o rcontinues to be the largestemployer even now.Graph 3 : Share of Sectors in Employment (%)Why didn’t a similar shift out ofprimary sector happen in case ofemployment? It is because notenough jobs were created in thesecondary and tertiary sectors. EvenS ECTORS2022-23OF THEI NDIAN E CONOMY25

though industrial output or theproduction of goods went up bymore than nine times during theperiod, employment in the industrywent up by around three times. Thesame applies to the tertiary sectoras well. While production in theservice sector rose by 14 times,employment in the service sectorrose around five times.As a result, more than half of theworkers in the country are workingin the primary sector, mainly inagriculture, producing only aboutone sixth of the GDP. In contrast tothis, the secondary and tertiarysectors produce the rest of theproduce whereas they employ lessabout half the people. Does this meanthat the workers in agricultureare not producing as much asthey could?What it means is that thereare more people in agriculture thanis necessary. So, even if you movea few people out, production willnot be affected. In other words,workers in the agricultural sector areunderemployed.For instance, take the case of asmall farmer, Laxmi, owning abouttwo hectares of unirrigated landdependent only on rain andgrowing crops, like jowar and arhar.All five members of her family workin the plot throughout the year.Why? They have nowhere else to gofor work. You will see that everyoneis working, none remains idle, butin actual fact, their labour effortgets divided. Each one is doingsome work but no one is fullyemployed. This is the situation ofunderemployment, where peopleare apparently working but allof them are made to work lessthan their potential. This kind of26underemployment is hidden incontrast to someone who does nothave a job and is clearly visible asunemployed. Hence, it is alsocalled disguised unemployment.Now, supposing a landlord,Sukhram, comes and hires one ortwo members of the family to workon his land. Laxmi’s family is nowable to earn some extra incomethrough wages. Since you do notneed five people to look after thatsmall plot, two people moving outdoes not affect production on theirfarm. In the above example, twopeople may move to work in afactory. Once again the earnings ofthe family would increase and theywould also continue to produce asmuch from their land.There are lakhs of farmers likeLaxmi in India. This means that evenif we remove a lot of people fromagricultural sector and provide themwith proper work elsewhere,agricultural production will notsuffer. The incomes of the people whotake up other work would increasethe total family income.This underemployment can alsohappen in other sectors. Forexample there are thousands ofcasual workers in the servicesector in urban areas who searchfor daily employment. They areemployed as painters, plumbers,repair persons and others doingodd jobs. Many of them don’t findwork everyday. Similarly, we seeother people of the service sectoron the street pushing a cart orselling something where they mayspend the whole day but earnvery little. They are doing thiswork because they do not havebetter opportunities.OPMENTANDING E CONOMIC D EVELEVELOPMENTNDERSTANDINGU NDERST2022-23

LET’S WORK THESE OUT1. Complete the table using the data given in Graphs 2 and 3 and answer the questionthat follows. Ignore if data are not available for some years.TABLE 2.2 SHARE OF PRIMARY SECTOR INGDP AND EMPLOYMENT1973-741977-782013-142017-18Share in GDPShare in employmentWhat are the changes that you observe in the primary sector over a span of fortyyears?2. Choose the correct answer:Underemployment occurs when people(i) do not want to work(ii) are working in a lazy manner(iii) are working less than what they are capable of doing(iv) are not paid for their work3. Compare and contrast the changes in India with the pattern that was observed fordeveloped countries. What kind of changes between sectors were desired but didnot happen in India?4. Why should we be worried about underemployment?How to Create MoreEmployment?From the above discussion, we can seethat there continues to be considerableunderemployment in agriculture.There are also people who are notemployed at all. In what ways can oneincrease employment for people? Letus look at some of them.Take the case of Laxmi with hertwo-hectare plot of unirrigated land.The government can spend somemoney or banks can provide a loan,to construct a well for her family toirrigate the land. Laxmi will then beable to irrigate her land and take asecond crop, wheat, during the rabiseason. Let us suppose that onehectare of wheat can provideemployment to two people for 50 days(including sowing, watering, fertiliserS ECTORS2022-23OF THEI NDIAN E CONOMY27

Gur Making inHaryanaapplication and harvesting). So, twomore members of the family can beemployed in her own field. Nowsuppose a new dam is constructedand canals are dug to irrigate manysuch farms. This could lead to a lot ofemployment generation within theagricultural sector itself reducing theproblem of underemployment.interest. If the local bank gives hercredit at a reasonable rate of interest,she will be able to buy all these in timeand cultivate her land. This means thatalong with water, we also need toprovide cheap agricultural credit to thefarmers for farming to improve. We willlook at some of these needs in Chapter3, Money and Credit.Now, suppose Laxmi and otherfarmers produce much more thanbefore. They would also need to sell someof this. For this they may be required totransport their products to a nearbytown. If the government invests somemoney in transportation and storage ofcrops, or makes better rural roads sothat mini-trucks reach everywhereseveral farmers like Laxmi, who nowhave access to water, can continue togrow and sell these crops. This activitycan provide productive employment tonot just farmers but also others such asthose in services like transport or trade.Another way by which we cantackle this problem is to identify,promote and locate industries andservices in semi-rural areas where alarge number of people may beemployed. For instance, supposemany farmers decide to grow arharand chickpea (pulse crops). Settingup a dal mill to procure and processthese and sell in the cities is one suchexample. Opening a cold storage couldgive an opportunity for farmers tostore their products like potatoes andonions and sell them when the priceis good. In villages near forest areas,we can start honey collection centreswhere farmers can come and sell wildhoney. It is also possible to set upindustries that process vegetables andagricultural produce like potato,sweet potato, rice, wheat, tomato,fruits, which can be sold in outsidemarkets. This will provideemployment in industries located insemi-rural areas and not necessarilyin large urban centres.Laxmi’s need is not confined towater alone. To cultivate the land, shealso needs seeds, fertilisers,agricultural equipment and pumpsetsto draw water. Being a poor farmer,she cannot afford many of these. So,she will have to borrow money frommoneylenders and pay a high rate ofWhat groups of people doyou think are unemployedor underemployed inyourar ea ? Ca n yo u th ink ofsome measures thatcouldbe taken up for them?Do you know that in India about60 per cent of the population belongsto the age group 5-29 years? Out ofthis, only about 51 per cent areattending educational institutions.The rest and particularly those agedless than 18 years may be at home or2022-23

many of them may be working aschild labourers. If these children areto attend schools, we will require morebuildings, more teachers and otherstaff. A study conducted by theerstwhile Planning Commission (nowknown as NITI Aayog) estimates thatnearly 20 lakh jobs can be created inthe education sector alone. Similarly,if we are to improve the healthsituation, we need many more doctors,nurses, health workers etc. to workin rural areas. These are some waysby which jobs would be created andwe would also be able to address theimportant aspects of developmenttalked about in Chapter 1.Every state or region has potentialfor increasing the income andemployment for people in that area.It could be tourism, or regional craftindustry, or new services like IT. Someof these would require properplanning and support from thegovernment. For example, the samestudy by the Planning Commissionsays that if tourism as a sector isimproved, every year we can giveadditional employment to more than35 lakh people.We must realise that some of thesuggestions discussed above wouldtake a long time to implement. For theshort-term, we need some quickmeasures. Recognising this, thecentral government in India made alaw implementing the Right to Workin about 625 districts of India. It iscalled Mahatma Gandhi NationalRural Employment Guarantee Act2005 (MGNREGA 2005). UnderMGNREGA 2005, all those who areable to, and are in need of, work inrural areas are guaranteed 100 daysof employment in a year by thegovernment. If the government fails inits duty to provide employment, it willgive unemployment allowances to thepeople. The types of work that wouldin future help to increase theproduction from land will be givenpreference under the Act.LET’S WORK THESE OUT1. Why do you think MGNREGA 2005 is referred to as ‘ Right to work’ ?2. Imagine that you are the village head. In that capacity suggest some activities thatyou think should be taken up under this Act that would also increase the income ofpeople? Discuss.3. How would income and employment increase if farmers were provided with irrigationand marketing facilities?4. In what ways can employment be increased in urban areas?S ECTORS2022-23OF THEI NDIAN E CONOMY29

DIVISION OF SECTORS AS ORGANISED ANDUNORGANISEDLet us examine another way of classifying activities in the economy. This looksat the way people are employed. What are their conditions of work? Are thereany rules and regulations that are followed as regards their employment?Ka n tands her office fromKanta works in an office. She attes her salary regularly9.30 a.m. to 5.30 p.m. She getition to the salary,at the end of every month. In addas per the rules laidshe also gets provident fundalso gets medical anddown by the government. Shes not go to office onother allowances. Kanta doey. When she joinedSundays. This is a paid holidatment letter statingwork, she was given an appoinwork.all the terms and conditions ofKamalKamal is Kanta’s neighbour.He is ada ily wa ge lab our er in anea rbygrocery shop. He goes to theshop at7:30 in the morning and workstill 8:00p.m. in the evening. He getsno otherallowances apart from his wages. Heis not paid for the days he does notwork. He has therefore no leaveor paidholidays. Nor was he given anyformallet ter say ing tha t he has bee nemployed in the shop. He can beaskedto leave anytime by his employer.differences inDo you see thes of w or kth e co n d it io nand Kamal?between KantaKanta works in the organisedsector. Organised sector covers thoseenterprises or places of work wherethe terms of employment are regularand therefore, people have assuredwork. They are registered by thegovernment and have to follow itsrules and regulations which aregiven in various laws such as theFactories Act, Minimum Wages Act,Payment of Gratuity Act, Shops andEstablishments Act etc. It is called30organised because it has some formalprocesses and procedures. Some ofthese people may not be emp

sssectorsectorsectorsectors ofofof thethethe i i indianndianndian .