Sector - An area of the economy in which businesses share the same or a related product or service is called sector.

Sectors of Indian Economy:

• Every individual is doing some activities around us.
• Some of them help individual to earn money such activities are called economic activities.
• A group of these activities based on some criteria are called sectors.
• Sectorisation is necessary to study and analyse economic activities.

Sectors on the basis of Nature of Activity:

• Primary Sector (Agriculture and related sector)
• Secondary Sector ( Industrial Sector )
• Tertiary Sector

Primary Sector - When we produce a good by extraction and collection of natural resources, it is known as the primary sector. Ex. Farming, forestry, hunting, fishing and mining.

• Activities that are undertaken by directly using natural resources.

• When the economic activity depends mainly on exploitation of natural resources then that activity comes under the primary sector.
• Agriculture and agriculture related activities are the primary sectors of economy.
• This sector forms the base of all other products which we subsequently make.
• Hence, this sector is called primary sector and related sector.

Secondary Sector - A sector that covers activities in which natural products are changed into other forms through ways of manufacturing that we associate with industrial activity is called Secondary Sector.

• It is the next step after primary.
• Some manufacturing processes are required here.
• The secondary sector covers activities in which natural products are changed other forms through ways of manufacturing that we associate with industrial activity. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential.
• For example, using cotton fiber from the plant, we spin yarn and weave cloth.
• Using sugarcane as raw material, we make sugar or gur.
• We convert earth into bricks and use bricks to make houses and buildings.
• Since this sector is gradually associated with the different kinds of industries, it is also called as industrial sector.

Tertiary Sector - A sector that involves activities that help in the development of the primary and secondary sectors is called tertiary sector. 

• These are the activities that help in the development of the primary & secondary sector.
• These activities by themselves do not produce goods but they are an aid and support to the production process.
• Example: Transportation-Goods that are produced in the primary sector need to be transported by trucks or trains and then sold in the wholesale and retail shops.
• When the activity involves providing intangible goods like services then this is part of the tertiary sector.
• Financial services, management consultancy, telephony and IT are good examples of services sector.
• Since these activities generate services rather than goods, the tertiary sector is also called the service sector.
• Service sector also includes some essential services that may not directly help in the production of goods.
• For example, we require teachers, doctors, and those who provide personal services such as washer men, barbers, cobblers, lawyers, and people to do administrative and accounting works.
• In recent times, certain new services based on information technology such as internet cafe, ATM booths, call centres, software companies etc have become important.

Comparing the three sectors:

• The various production activities in the primary, secondary and tertiary sectors produce a very large number of goods and services.
• Also, the three sectors have a large number of people working in them to produce these goods and services.
• We must know, how much goods and services are produced and how many people work in each sector.

How do we count the various goods and services and know the total production in each sector?

• The value of goods and services in the three sectors are calculated, and then added up.
• Remember, there is one precaution one has to take.
• Not every good (or service) that is produced and sold needs to be counted.
• It makes sense only to include the final goods and services.
• Take, for instance, a farmer who sells wheat to a flour mill for Rs 8 per kg.
• The mill grinds the wheat and sells the flour to a biscuit company for Rs 10 per kg.
• The biscuit company uses the flour and things such as sugar and oil to make four packets of biscuits.
• It sells biscuits in the market to the consumers for Rs 60 (Rs 15 per packet).
• Biscuits are the final goods, i.e., goods that reach the consumers.

Why are only 'final goods and services' counted?

• In contrast to final goods, goods such as wheat and the wheat flour in this example are intermediate goods.
• Intermediate goods are used up in producing final goods and services.
• The value of final goods already includes the value of all the intermediate goods that are used in making the final good.
• Hence, the value of Rs 60 for the biscuits (final good) already includes the value of flour (Rs 10).
• Similarly, 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.
• And the sum of production in the three sectors gives what is called the Gross Domestic Product (GDP) of a country.
• It is the value of all final goods and services produced within a country during a particular year.
• In India, the mammoth task of measuring 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.

Historical change in sectors:

• At 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.
• Many people could now take up other activities.
• There was increasing number of craft persons, traders, transporters, administrators, army etc.
• However, at this stage, most of the goods produced were natural products from the primary sector and most people were also employed in this sector.
• Over a long time (more than hundred years), and especially because new methods of manufacturing were introduced, factories came up and started expanding.
• Those people who had earlier worked on farms now began to work in factories in large numbers.
• People began to use many more goods that were produced in factories at cheap rates.
• Secondary sector gradually became the most important in total production and employment.
• Hence, over time, a shift had taken place.
• This means that the importance of the sectors had changed.
• In the past 100 years, there has been a further shift from secondary to tertiary sector in developed countries.
• The service sector has become the most important in terms of total production.
• Most of the working people are also employed in the service sector.
• This is the general pattern observed in developed countries.

Rising Importance of the Tertiary Sector in Production:

• Graph 1 shows the production of goods and services in the three sectors.
• This is shown for two years, 1973-74 and 2013-14.
• We have used the data for these two years because the data are comparable and authentic.
• You can see how the total production has grown over the forty years.
• Over the forty years between 1973-74 and 2013-14, while production in all the three sectors has increased, it has increased the most in the tertiary sector.
• As a result, in the year 2013-14, the tertiary sector has emerged as the largest producing sector in India replacing the primary sector.

Why is the tertiary sector becoming so important in India? There could be several reasons.

• First, in any country several services, considered as basic services such as hospitals, educational institutions, post and telegraph services, police stations, etc. are required.
• In a developing country the government has to take responsibility for the provision of these services.
• Second, the development of agriculture and industry leads to the development of services such as transport, trade, storage and the like, as we have already seen Greater the development of the primary and secondary sectors, more would be the demand for such services.
• Third, as income levels rise, certain sections of people start demanding many more services like eating out, tourism, shopping, private hospitals, private schools, professional training etc.
• Fourth, over the past decade or so, 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.
• Not all of the service sector is growing equally well.
• There are a limited number of services that employ highly skilled and educated workers.
• At the other end, there are a very large number of workers engaged in services such as small shopkeepers, repair persons, transport persons, etc.
• These people barely manage to earn a living and yet they perform these services because no alternative opportunities for work are available to them.
• Hence, only a part of this sector is growing in importance.

Where are most of the people employed?

 

• Graph 2 presents percentage share of the three sectors in GDP.
• Now you can directly see the changing importance of the sectors over the forty years.
• A remarkable fact about India is that while there has been a change in the share of the three sectors in GDP, a similar shift has not taken place in employment.

 

• Graph 3 shows the share of employment in the three sectors in 1972-73 and 2011-12.
• The primary sector continues to be the largest employer even now.

Why didn't a similar shift out of primary 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 more than nine times during the period, employment in the industry went up by around three times.
• The same applies to the tertiary sector as well.
• While production in the service sector rose by 14 times, employment in the service sector rose around five times.

• 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.
• What it means is that there are more people in agriculture than is necessary.
• So, even if you move a few people out, production will not be affected.
• In other words, workers in agricultural sector are under-employed.
• A situation of underemployment, where people are apparently working but all of them are made to work less than their potential.
• This kind of underemployment is hidden in contrast to someone who does not have a job and is clearly visible as unemployed.
• Hence, it is also called disguised unemployment.
• This underemployment can also happen in other sectors.
• For example there are thousands of casual workers in the service sector in urban areas who search for daily employment.
• They are employed as painters, plumbers, repair persons and others doing odd jobs.
• Many of them don't find work every day.
• Even if they find work, they earn very little.
• They are doing this work because they do not have better opportunities.

How to create more employment?

First,

• The government can spend some money or banks can provide a loan, to construct a well to irrigate the land thus farmers will be able to irrigate their land and take a second crop, wheat, during the Rabi season.
• Extra work means more members of the family can be employed in their own field.
• If a new dam is constructed and canals are dug to irrigate many such farms.
• This could lead to a lot of employment generation within the agricultural sector itself reducing the problem of underemployment

Second,

• If the government invests some money in transportation and storage of crops, or makes better rural roads so that mini-trucks reach everywhere, several farmers can continue to grow and sell these crops.
• This activity can provide productive employment to not just farmers but also others such as those in services like transport or trade.

Third,

• If the local bank gives provides credit at a reasonable rate of interest, farmers would be able to buy seeds, fertilisers, agricultural equipments and pump sets to draw water etc in time and cultivate their land.
• This means we also need to provide cheap agricultural credit to the farmers for farming to improve.

Fourth,

• Identify, promote and locate industries and services in semi-rural areas where a large number of people may be employed.
• For instance, setting up a dal mill, opening a cold storage starting honey collection centres where farmers can come and sell wild honey.
• It is also possible to set up industries that process vegetables and agricultural produce.
• This will provide employment in industries located in semi-rural areas and not necessarily in large urban centres.

Fifth,

• A study conducted by the Planning Commission estimates that nearly 20 lakh jobs can be created in the education sector alone.
• Similarly, if we are to improve the health situation, we need many more doctors, nurses, health workers etc. to work in rural areas.

Sixth,

• Tourism, regional craft industry, or new services like IT require proper planning and support from the government.
• Planning Commission says that if tourism as a sector is improved, every year we can give additional employment to more than 35 lakh people.
• The central government in India recently made a law implementing the Right to Work in 625 districts of India. It is called National Rural Employment Guarantee Act 2005 (NREGA 2005).
• Under MGNREGA 2005, all those who are able to, and are in need of, work are guaranteed 100 days of employment in a year by the government.
• If the government fails in its duty to provide employment, it will give unemployment allowances to the people.
• The types of work that would in future help to increase the production from land will be given preference under the Act.

Division of sectors as organised and unorganised:

Organised sectors - The sectors where all the policies and regulations formulated by the Government regarding the general condition of employment are followed are called organised sectors.

• Organised sector covers those enterprises or places of work where the terms of employment are regular and therefore, people have assured work.
• They are registered by the government and have to follow its rules and regulations which are given in various laws such as the Factories Act, Minimum Wages Act, Payment of Gratuity Act, Shops and Establishments Act etc. It is called organised because it has some formal processes and procedures.
• Some of these people may not be employed by anyone but may work on their own but they too have to register themselves with the government and follow the rules and regulations.
• Workers in the organised 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 factory manager has to ensure facilities like drinking water and a safe working environment.
• When they retire, these workers get pensions as well.

Unorganised sector - A sector which is generally not governed by the rules and regulations that are laid down by the Government regarding the condition of employment is called unorganised sector.

• The unorganised sector is characterised by small and scattered units which are largely outside the control of the government.
• There are rules and regulations but these are not followed.
• Jobs here are low-paid and often not regular.
• There is no provision for overtime, paid leave, holidays, leave due to sickness etc. Employment is not secure.
• People can be asked to leave without any reason.
• When there is less work, such as during some seasons, some people may be asked to leave.
• A lot also depends on the whims of the employer.
• This sector includes a large number of people who are employed on their own doing small jobs such as selling on the street or doing repair work.
• Similarly, farmers work on their own and hire labourers as and when they require.

How to protect workers in the unorganised sector?

• A large number of workers are forced to enter the unorganised sector jobs, which pay a very low salary.
• They are often exploited and not paid a fair wage.
• Their earnings are low and not regular.
• These jobs are not secure e and have no other benefits.
• Since the 1990s, it is also common to see a large number of workers losing their jobs in the organised sector.
• These workers are forced to take up jobs in the unorganised sector with low earnings.
• Hence, besides the need for more work, there is also a need for protection and support of the workers in the unorganised sector.
• In the rural areas, the unorganised sector mostly comprises of landless agricultural labourers, small and marginal farmers, sharecroppers and artisans (such as weavers, blacksmiths, carpenters and goldsmiths).
• Nearly 80 per cent of rural households in India are in small and marginal farmer category.
• These farmers need to be supported through adequate facility for timely delivery of seeds, agricultural inputs, credit, storage facilities and marketing outlets.
• In the urban areas, unorganised sector comprises mainly of workers in small-scale industry, casual workers in construction, trade and transport etc., and those who work as street vendors, head load workers, garment makers, rag pickers etc.
• Small-scale industry also needs government's support for procuring raw material and marketing of output.
• The casual workers in both rural and urban areas need to be protected.
• Majority of workers from scheduled castes, tribes and backward communities find themselves in the unorganised sector, getting the irregular and low paid work, these workers also face social discrimination.
• Protection and support to the unorganised sector workers is thus necessary for both economic and social development.

Sectors in terms of ownership: public and private sectors:

On the basis of who owns assets and is responsible for the delivery of services economies can be categorised into - Public and Private Sector

Public sector - An economy sector that provides a range of governmental services, including infrastructure, public transportation, public education, health care, police and military services are called public sector.

• In the public sector, the government owns most of the assets and provides all the services Railways or Post Office is an example of the public sector.
• The purpose of the public sector is not just to earn profits.
• Governments raise money through taxes and other ways to meet expenses on the services rendered by it.

 Private sectors - An economy sector which is run by individuals and companies, rather than the governmental authorities is called private sectors.

• In the private sector, ownership of assets and delivery of services is in the hands of private individuals or companies.

• Companies like Tata Iron and Steel Company Limited (TISCO) or Reliance Industries Limited (RIL) are privately owned.
• Activities in the private sector are guided by the motive to earn profits.

Why do governments spend on Public Sector activities?

• There are several things needed by the society as a whole but which the private sector will not provide at a reasonable cost.
• Some of these need spending large sums of money, which is beyond the capacity of the private sector.
• Even if they do provide these things they would charge a high rate for their use.
• Examples are construction of roads, bridges, railways, harbours, generating electricity, providing irrigation through dams etc.
• Thus, governments have to undertake such heavy spending and ensure that these facilities are available for everyone.
• There are some activities, which the government has to support.
• For example, selling electricity at the cost of generation may push up the costs of production of goods in many industries.
• Many units, especially small scale units, might have to shut down.
• Government here steps in by producing and supplying electricity at rates which these industries can afford.
• The Government in India buys wheat and rice from farmers at a 'fair price'.
• This it stores in its godowns and sells at a lower price to consumers through ration shops.
• In this way, the government supports both farmers and consumers.
• There are a large number of activities which are the primary responsibility of the government.
• The government must spend on these.
• Providing health and education facilities for all is one example.
• Government also needs to pay attention to aspects of human development such as availability of safe drinking water, housing facilities for the poor and food and nutrition.
• It is also the duty of the government to take care of the poorest and most ignored regions of the country through increased spending in such areas.

Comparison of various terms:

Organised Sector

Unorganised Sector

They work for a fixed number of hours every day; they get a weekly off day. In case extra time for doing work is required, they are paid for it at double the normal rate. They get salary on monthly basis, usually on fixed day every month. There is not deduction for the weekly off. Absence from work can be adjusted against leave due to an employee, so that no salary deduction is there. An appointment letter is given at the time of employment, stating all the terms and conditions of work. So there is job security. The employees get benefits like provident fund, gratuity, medical benefits, etc. Eg. worker in a large factory, a clerk in office, a doctor in a hospital etc.

There are no fixed working hours. Usually they work longer than those in organised sector. Many a times weekly off may not be given due to urgent work. Overtime payment is usually not given. Salary is paid on daily wage basis. Salary is not paid for any absence from work. In many such jobs like in shops, weekly off is not given. No appointment letter is given. So they can lose their employment without being given any advance notice. So there is no job security. There is no such provision in unorganised sector for any benefit. A daily wage labourer, worker /helper in a shop, a handloom weaver, etc.

 

Primary sector	Secondary sector
It includes economic activities involving extraction and production of natural resources. It provides natural resources to the Secondary sector. Most of the activities are not dependent on Secondary sector. Greater dependence on this sector indicates an underdeveloped economy. Agriculture mining and forestry are examples.	It processes natural resources. It converts raw materials into finished or semi-finished goods. It is dependent on the Primary sector for supply of raw materials. A shift of economic activities from Primary to Secondary sectors indicates a developing economy. Manufacturing construction are examples.

 

Public sector	Private sector
The main aim of this sector is public welfare. It is controlled and managed by the government. The sector provides basic facilities like education, health, food and security to the people e.g. the Indian Railway, the Post Office and the BSNL.	The main aim of this sector is to earn maximum profit. It controlled and managed by an individual or a group of individual or a group of individuals. The sector provides consumer goods to the people e.g. the Reliance, TISCO.

 

Final goods	Intermediate goods
Used for final consumption. Ready for use by final users. Made using intermediate goods. They are finished goods. Value is calculated for GDP. E.g. biscuits are final goods.	Not used for final consumption. Not ready for use by final users. Used as raw material for production of final goods. They are semi-finished goods. Not calculated, as the value of final goods included the value of intermediate goods. E.g. flour, milk and sugar are intermediate goods used in making biscuits

Final goods - Those goods that do not require further processing is called final goods.

• A final good is an item produced for the direct use by end consumers. 
• Final goods are also referred to as consumer goods.
• Food, gasoline, clothing, and televisions are examples of final goods if used by households. 
• Final goods can either be durable or non-durable. 
• Final goods are also called consumer goods because they are consumed by the final user.

Intermediate goods – Those products which is used to produce a final good or finished product is called Intermediate goods.

• Intermediate goods also referred to as a consumer good.
• Intermediate goods are sold between industries for resale or the production of other goods.
• Intermediate goods, producer goods or semi-finished products are goods, such as partly finished goods, used as inputs in the production of other goods including final goods.
• In the production process, intermediate goods either become part of the final product, or are changed beyond recognition in the process.  
• For example, to make biscuits the initial good / raw material are wheat, from which flour is produced which is then used in the manufacture of biscuits.