ECONOMICS

CHAPTER 2
• SECTORS OF INDIAN ECONOMY
• In our day to day life ,we perform various types of activities.
Some of the activities are performed to earn income and
some of the activities are performed as a part of our duty
and for our own amusement. Depending on the purpose,
we can divide the activities into two types-
• Eonomic activities and (ii) Non-economic activities
• Economic activities: The activities which are performed to
earn and income is called economic activities.
• Non- economic activities: The activities for which we do
not get any income, but we perform the activities as a part
of our duty or for our own amusement. For example, the
services of the house wife, a teacher teaching his own
children, a player playing for his own amusement etc.
• All the economic activities that we perform are
classified into three sectors- (on the basis of nature of
economic activities)
• Primary sector (ii) Secondary Sector and (iii)
Tertiary Sector

• Primary Sector : When we produce a good by exploiting

natural resources, it is an activity of the primary sector.
This sector is also called agriculture and related sector.
Examples of primary sector activities are- cultivation of
crops, mining, , Pisciculture, horticulture etc.
• Secondary Sector: The secondary sector covers
activities in which natural products are changed into
other forms through ways of manufacturing that we
associate with industrial activity. For example, spinning
yarn from cotton fibre, making sugar from sugarcane
etc.
• Tertiary sector: The tertiary sector activities
help in the development of primary and
secondary sectors. These activities are an aid
or a support for the production process. For
example, transport, storage, communication,
banking etc.
• What is the need of classifying the activities into three
sectors?
• Classification of economic activities into primary, secondary
and tertiary sector is useful as there are varieties of economic
activities which are performed by the humans. In order to
understand the nature of these activities and the role
performed by the people in fulfilling these activities, we need
to classify these into the three sectors. Further, the
classification also helps us in ascertaining the contribution of
each sector to the Indian economy. Based on these, the
government may also initiate reforms in a sector, which
according to it has not developed up to its full potential.

• All the three sectors produce a very large number of goods

and services. The contribution of each sectors towards the
economy of a country is calculated.
• Gross Domestic Product(GDP) : It is the value
of all final goods and services produced by the
three sectors during a particular year within
the geographical boundary of a country. When
we add the earnings from abroad with GDP,
we get GNP(Gross National Product).
• The Central Statistical Office (CSO) is
responsible for compiling data for calculating
GDP.
• It uses two methods- (i) GDP at factor cost, it
looks at economic activity.
• (ii) Expenditure – based method.
• Historical change in sectors:
• At the initial stages of development, primary
sector was the most important sector of economic
activity. As the agricultural sector began to
prosper, many other activities were taken up by
people. Over a long time, and especially because
new methods of manufacturing were introduced,
factories came up and started expanding. 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. The importance
of sectors changed from primary to secondary.
• In 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. Most
of the working people are also employed in
the service sector. So, now a days, the tertiary
sector is the most important sector in the
economy and it’s contribution is also the
maximum towards National Income.
• Why is the importance of Tertiary sector rising so fast?
• The main reasons for the rising importance of the
tertiary sector are-
• In any country the basic services such as hospitals,
educational institutions, post and telegraph services,
police stations, courts, defence, transport, banks etc are
taken up by the government. All these services employ
a large number of people and all these people come in
the service sector.
• The development of agriculture and industry leads to
the development in the tertiary sector by demanding
many services such as transport, trade, storage and the
like.
• As income levels rise, certain sections of
people start demanding many more services
such as eating out, tourism, shopping, private
hospitals, private schools etc. All these
services also come in the tertiary sector.
• Over the past decades, certain new services
have become essential such as those based on
information and communication technology.
All those services also come in tertiary sector.
• Where are most of the people employed in
India ?
• Though the contribution of the tertiary
sector is the maximum towards national
income, till today in India the maximum
people are employed in the primary
sector. How can it happen? Maximum people ,
but contribution is the least. Definitely there
would be some problems in the primary
sector. What are these problems?
• There are two main problems in the primary
sector-
• Disguised unemployment and
• Under employment
• Disguised unemployment : It is a situation in
which people seems to be employed, but if we
remove some of them the total production
remains unchanged. In agricultural sector, there
are many people who are disguised.
• Under employment: In case of under
employment, people work below their capacity.
• How to create more employment opportunities for the
unemployed people?
• People those who are not practically doing any work,
we will have to create some employment opportunities
for them. The following steps can be taken for this
purpose-
In rural areas:-

Ans. (i) Diversification of agriculture: More than 60

per cent of our workers are employed in agriculture. But
‘our farmers are producing only limited crops. There is
need to diversify agriculture. Farmers should be
encouraged to adopt pisciculture, horticulture, animal
rearing, etc., along with cultivation of crops.
• (ii) Cheap credit : Most of the farmers depend on
informal sources of credit, i.e., moneylenders, relatives,
traders, etc., who charge a very high rate of interest.
Government should encourage the commercial banks to
provide loans to the farmers at cheaper rates.

• Provision of basic facilities : Our rural areas lack the basic

facilities like roads, transportation, banking, warehouses,
markets, etc. The government should invest some
money in these sectors so that the Indian villages can be
linked to other markets. This activity can provide
productive . employment to not just farmers, but also to
others such as those in services like transport or trade
• (iv) Promotion of local industries and other
activities : Another way to tackle this problem
is to identify, promote and locate industries,
especially the cottage and small- scale
industries in semi-rural areas, where a large
number of people may be employed. It also
includes setting up a flour or rice mill to
procure and process these and sell in the
cities. In villages, near forest areas, honey
collection centres can be started where
farmers can come and sell wild hone
• In Urban areas:-
• To increase employment in urban areas, we will need to carry out
the following tasks

(i) Invest in basic industries which provide mass employment.

(ii) Improve local and inter-city transportation so that more people can
be employed to work in the transportation industry.

(iii) Increasing vocational education courses, so that people educated

for a vocation get jobs easily.

Give incentives for industry in urban areas to increase their capacity.

Except these measures, to create more employment opportunities in

rural areas, the government introduced MNREGA in 2005.
NATIONAL RURAL EMPLOYMENT GUARANTEE
SCHEME
The National Rural Employment Guarantee Act was notified by

The Government of India on September, 2005 and was made effective

w.e.f. 2nd February 2006. In the first phase, the National Rural Employment

Guarantee scheme (NREGS) was introduced in District Chamba and Sirmour on 2nd February, 2006.

In second phase NREGS was started in District Kangra and Mandi w.e.f. 1-4-2007.

In the third phase all the remaining 8 districts of the State have been covered under

the scheme w.e.f. 1.4.2008.

• 1. SALIENT FEATURE

• The salient feature of the scheme is to provide for the enhancement of

livelihood security of the households in rural areas of the State by
providing 100 days of guaranteed wage employment in every financial
year to every household whose adult members volunteer to do
unskilled manual work.
• PERMISSIBLE WORKS
• As per schedule 1 of the Act the focus of the scheme is on the
• following works in their order of priority:-
• (i) Water Conservation and Water Harvesting works;
• (ii) Drought proofing works (including afforestation and tree
• plantation)
• (iii) Irrigation canals including micro and minor irrigation
• works;
• (iv) Provision of irrigation facility, horticulture plantation
• and land development facilities on land owned by the
households belonging
• to the Scheduled Caste and Scheduled Tribes or to below
poverty
• line families or to Marginal Farmers or Small Farmers to
• beneficiaries of land reforms or to the beneficiaries under the
Indira Awas
• Yojana of the Government of India;
• (v) Renovation of traditional water bodies including de-silting
• of tanks ;
• (vi) Land developments works;
• (vii) Flood control and protection works including drainage in
• water logged areas;
• (viii) Rural connectivity to provide all-weather
access; and
• (ix) Any other work which may be notified by
the Government of
• India in consultation with the State
Government.
• The Government of India has been requested
to allow engaging
• "Crop protectors" as one of the Permissible
works under NREGA for
• Himachal Pradesh.
• Divisions of sectors on the basis of facilities available:

• On the basis of facilities available, sectors are divided into-

• (i) Organised and (ii) Unorganised sector

• Key Differences Between Organised and Unorganised

Sector
• The difference between organised and unorganised sector
can be drawn clearly on the following grounds:
• Organised Sector is a sector where the employment terms
are fixed and regular, and the employees get assured
work. Unorganised sector is one where the employment
terms are not fixed and regular, as well as the enterprises,
are not registered with the government.
• A number of acts apply to an organised sector like
Factories Act, Bonus Act, PF Act, Minimum Wages Act, etc.
whereas unorganised sector is not governed by any such
act.
• The government rules are strictly followed in the organised
sector, which is not in the case of unorganised sector.
• In organised sector, the employees draw regular monthly
salaries. On the other hand, in the unorganised sector, the
workers are paid on a daily basis.
• Job security exists in the organised sector, but not in the
unorganised sector.
• The organised sector, provide additional remuneration to
employees for overtime. Conversely, there is no such
provision for overtime in case of the unorganised sector.
• In organised sector, the salaries of employees are
as per government norms. In contrast to an
unorganised sector where wages are below, what
is prescribed by the government.
• In organised sectors, workers get a hike on salary,
once in a while. As opposed to an Unorganised
sector where the salaries or workers are rarely
hiked.
• Employees get add-on benefits like medical
facilities, pension, leave travel compensation, etc.
in the organised sector, which is not provided to
the employees working in unorganised sector.
• How to protect workers in unorganized
sector?
• (i) Government can fix the minimum wages
rate and working hours.
(ii) Government can provide cheap loans to
the self employed people.
(iii) Government can provide cheap and
affordable basic services like education,
health, food to these workers.
(iv) Government can frame new laws which
can provide provision for overtime, paid leave,
leave due to sickness, etc
• Creation of more employment opportunities
in organised sector.
: Reservation of jobs.
: Unemployed allowances.
: Implementation of rules for the protection of
labourers.
: Providing cheap and affordable credit.
• Labourers in construction work are employed on a
daily basis. They have no job security. Their wages
differ from time to time. So govt. has set up
minimum wages act. this protects them from
economic exploitation.
• Miners working in private companies have no job
security. Their safety is secondary to companies'
profits. Govt. has laid down strict rules to protect
them.
• Most companies in unorganised sector do not
provide health facilities to their employees. Most of
them are involved in dangerous factory production.
Here govt. takes steps to protect such workers.
• Landless agricultural labourers, small and
marginal farmers , artisans etc. need to be
supported through adequate facility for timely
delivery of seeds, agricultural inputs, credit ,
storage and marketing facilities
• Workers in small scale industries,
construction work, trade, transport, vendors
etc. should be provided support for procuring
raw material and their marketing.
• Workers from SC, ST and OBC have to be
provided with regular and fair paid work
• Divisions of sectors on the basis of
ownership:
• (i) Public sector and (ii) Private sector
• In public sector ,resources of the country are
owned by the government. On the other
hand, in private sector, resources are owned
by the private individuals. The main aim of the
public sector is the welfare of the people, on
the other hand, the main aim of the private
sector is the maximization of profit.
• Though both public and private both the
sectors provide various goods and services to
the people in a country like India where the
country follows the mixed economic principle,
some of the services must be always in the
hands of the government. The reasons are-
1.Greater equality –the government
redistribute income and wealth to improve
equality of opportunity and equality of
outcome.
2.Some of the services need spending large
sum of money, which is beyond the capacity of
the private sector. So, governments have to
undertake such heavy spending and ensure
that these facilities are available for everyone.
3. There are some activities, which the
government has to support. For example
producing and supplying electricity to the
small-scale units at rates which these
industries can afford. Government has to bear
part of the cost.
• 4. The government needs to support both the
farmers and consumers. The government
supports the farmers by buying the surplus food
crops from the farmers at a ‘fair price’. The
government also support the consumers by
selling those food crops to the consumers at a
lower price through ration shops.
• 5. To provide some of the services is the prime
responsibility of the government. For example,
providing health and education facilities for all. So,
the government must provide these services as a
part of its prime responsibility.
• 6. 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.
• Some other Needs
: Overcome market failure
– Markets fail to take into account externalities and
are likely to under-produce public/merit goods. For
example, governments can subsidised or provide
goods with positive externalities.

• Macroeconomic intervention. – intervention to

overcome prolonged recessions and reduce
unemployment.

• Disaster relief – only government can solve major

health crisis such as pandemics.