Sectors of Indian economy

What is economy ?

Economy is a framework in which economic activities take place and therefore gives income in return .

we divide them into sectors .

CLASSIFICATION OF SECTORS

A. ON THE BASIS OF NATURE OF ACTIVITIES BEING PERFORMED

1. primary sector2. secondary sector3. tertiary sector

B. ON THE BASIS OF WORKING CONDITIONS OF THE WORKER1. organized sector2. unorganized sector

C. ON THE BASIS OF OWNERSHIP1. public sector2. private sector

A. ON THE BASIS OF NATURE OF ACTIVITIES BEING PERFORMED

1. PRIMARY SECTOR• It is the sector of an economy making direct use

of natural resources.

• It is called primary sector because it forms all the base for all other products that we subsequently (afterwards) make.

• This includes agriculture, forestry and fishing, mining & quarrying. In the primary sector, they may consume the natural resourses and their reproduction may take many years.

2. SECONDARY SECTOR

• Also called industrial sector (this sector is associated with different kinds of industries) includes those economic sectors that create a finished, tangible product i.e. production of goods and construction.

• It is the next step after primary where the product is not produced by nature but has to be made.

• The industrial sector generally takes the output of the primary sector and manufactures finished goods.

• Many of these industries consume large quantities of energy and require factories and machinery to convert the raw materials into goods and products.

3. TERTIARY SECTOR

• Also known as the service sector or the service industry as it involves providing intangible goods).

• It helps to develop the primary and secondary sectors. These activities do not produce good but they are in aid and support to the production process.

• For example :

– transportation –produced goods need to move by truck or rail etc from factory to consumers.

– Storage: to store them at one place. – Communication :talking to clients/people on phone.– Banking : borrowing money from the banks.

B. ON THE BASIS OF WORKING CONDITIONS OF THE WORKER

Organized sector Unorganized sectors

The organized sectors cover those enterprises where the term of employment is regular .

The unorganized sectors is characterized by small and scattered units which are largely outside the control of government

They are registered by government , they follow rules and regulations and various laws such as , the factories act , minimum wages act , payment of gratuity , shops and establishments act .

Unorganized sector does not follow any rules and regulation pass by the government .

Workers in the organized sector are paid according to prescribed scale . They also get payment in time on regular basis ,

Most of the jobs are low paid and often not regular .

They get annual increment and other allowances such as provident fund , payment during holidays , paid leave , gratuity , medical benefits , safe working conditions

There is no provision of over time , paid leave , holidays , leave due to sickness etc.

They can form trade unions They cannot form trade unions

Workers under unorganized sector need protection

• They are paid low salaries , therefore they are not able to fulfill even there basic needs .

• They are exploited .• Employment is there but not on regular basis they can

be thrown out any time without any reason . • Other than salary which is very low they don’t get any

other benefits . • These workers also face social discrimination . • protection and support to the unorganized sector is

both necessary for economic and social development .

C. ON THE BASIS OF OWNERSHIP

PUBLIC SECTOR PRIVATE SECTOR

It is owned by state or central government .

It is owned by private individuals .

They work with the main motive of providing service to the public

They work for profit earning .

It is guided by social objectives like development of backward regions , creation of employment , and equitable distribution of wealth .

In this sector social objectives are not important it is subjected to strict financial control of the government .

For example , railways , air india , LIC , RBI , FCI .

Foe example , reliance industries limited , tata iron and steel company limited .

1. PUBLIC SECTOR• organized by govt.

• provide facilities to the workers like-fixed employment,fixed working hours.

• Main aim is to provide public welfare.

• More relaxed atmosphere.

Example- Indian railway ,hospitals, libraries, park etc.

2. PRIVATE SECTOR

• organized by private individuals.

• More opportunities for promotion as the company grows.

• No fixed employment and no fixed working hours.

• More efficiency than public.

• Main aim is to make profit for themselves.

EVOLUTION OF AN ECONOMY FROM PRIMARY SECTOR BASED TO TERTIARY SECTOR BASED

• During early civilization all economic activity was in primary sector.

• When the food production became surplus people’s need for other products increased. This led to the development of secondary sector. The growth of secondary sector spread its influence during industrial revolution in nineteenth century.

• After growth of economic activity a support system was the need to facilitate the industrial activity. Certain sectors like transport and finance play an important role in supporting the industrial activity. Moreover, more shops were needed to provide goods in people’s neighbourhood.

• Ultimately, other services like tuition, administrative support developed.

ECONOMIC ACTIVITIES ARE HIGHLY INTERDEPENDENT ON EACH OTHER

• To understand this interdependency, let us take an example of a cold drink. A cold drink contains water, sugar and artificial flavour.

• Suppose if there is no sugarcane production then procuring sugar will become difficult and costly for the cold drink manufacturer.

• Now to transport sugarcane to sugar mills and sugar to the cold drink plant needs the services of a transporter.

• A person or group of persons is required to maintain and monitor all these movements of goods from farm to factory to shop in different locations. That is where role of administrative staffs comes.

• He also needs fertilizers and seeds which is processed in some factory and which will be delivered to his doorstep by some means of transportation.

• To top it all at every step of these activities we require the proper monetary and banking system.

COMPARING THE THREE SECTORS

• We count only final goods and services and not the intermediate goods as the value of final gods already includes the value of all intermediate goods .

• 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 .

• The sum of production in the three sectors gives us the GDP .

• The finance ministry , with the help of various government department of all the Indian states and union territories estimates the GDP.

ROLE OF GOVERNMENT / PUBLIC SECTOR IN THE ECONOMIC DEVELOPMENT OF THE COUNTRY .

• Infrastructure : construction of roads , bridges , generating electricity , irrigation , education etc. are several things needed by society , but private sector could not invest as large amount of money is required .

• Also collecting money from thousand of people is not easy .

• Hence government has to undertake such heavy spending and ensure creation of infrastructure .

Public welfare : providing health , housing facilities , safe drinking water , food and nutrition for poor are the primary responsibilities of the government.

These activities should be taken up by the government as private sector would like to maximize there profits and has no interest in public welfare .

• Balanced regional development : to reduce and overcome regional disparities in regional industrial development . The government uses power and resources to set up industries in undeveloped and under – developed regions

PROBLEMS FACING INDIAN ECONOMY 1. Inflation• Fuelled by rising wages, property prices and food prices. inflation in India

is an increasing problem. Inflation is currently between 6-7%. 2. Poor educational standards• Although India has benefited from a high % of English speakers.

(important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate.

3. Poor Infrastructure.• Many Indians lack basic amenities lack access to running water. Indian

public services are scratching under the tension of bureaucracy and inefficiency. Over 40% of Indian fruit decays before it reach the market; this is one example of the supply constraints and inefficiency’s facing the Indian economy.

4. Balance of Payments decline (balance of payments is a system of recording all of a country's economic transactions with the rest of the world over a period of one year; "a favorable balance of payments exists when more payments are coming in than going out")

5. High levels of debt.• maintained by a property boom the amount of lending in India has grown by 30% in the past

year. However there are concerns about the risk of such loans. If they are dependent on rising property prices it could be problematic. Furthermore if inflation increases further it may force the RBI to increase interest rates. If interest rates rise substantially it will leave those indebted facing rising interest payments and potentially reducing consumer spending in the future

6. Inequality has risen rather than decreased.• It is hoped that economic growth would help drag the Indian poor above the poverty line.

However so far economic growth has been highly uneven benefiting the skilled and wealthy disproportionately. Many of India’s rural poor are yet to receive any tangible benefit from the India’s economic growth. More than 78 million homes do not have electricity. 33% (268million) of the population live on less than $1 per day. Furthermore with the spread of television in Indian villages the poor are increasingly aware of the disparity between rich and poor. (3)

7. Large Budget Deficit.• India has one of the largest budget deficits in the developing world. Excluding subsidies it

amounts to nearly 8% of GDP. Although it is fallen a little in the past year. It still allows little scope for increasing investment in public services like health and education.

8. Rigid labour Laws.• As an example Firms employing more than 100 people cannot fire workers without government

permission. The effect of this is to discourage firms from expanding to over 100 people. It also discourages foreign investment. Trades Unions have an important political power base and governments often shy away from tackling potentially politically sensitive labour laws.

Strengths of Indian Economy• After several decades of sluggish growth, the Indian economy is now amongst the fastest growing

economy in the world. Economic growth is currently 8-9%, second only to China.• Despite several problems facing the Indian economy many economists point to potential strengths

of the Indian economy which could enable it to continue to benefit from high levels of economic growth in the future.

• Demographics of India are favourable.• India still has a positive birth rate meaning that the size of the workforce will continue to grow for

the predictable future. (unlike India) A rising workforce helps to increase saving and investment. It also enables increased productivity.

• • There is much scope for increases in efficiency. • The infrastructure of India is so bad in places that even moderate improvements could lead to

significant improvements in the productive capacity of the economy.• • India is well placed to benefit from globalization and outsourcing.• A legacy of the British Empire is that India has one of the largest English speaking populations in

the world. For labour intensive industries like call centres India is an obvious target for outsourcing. This is an economic development likely to continue in the future.

• • Positive Growth Forecasts• A recent study from Goldman Sachs, forecast that India could grow at a sustainable rate of 8%

growth until 2020.However it is worth noting that this assumed Indian would make several supply side policies such as labour market deregulation and improvements in education and training.

• Services sector has been a major contributor to India’s GDP and growth.

• It is the second largest employer after agriculture. India’s trade in services have increased overtime and services accounts for the largest share in India’s foreign direct investment (FDI) inflows and outflows.

BACKWARD LINKEAGE : can be defined as "the growth of an industry leads to the growth of the industries that supply inputs to it". As in the case of cotton industry, growth of the textile industry may support the growth of the cotton industry, which will lead to higher incomes for cotton farmers and will create a greater demand for goods and services in the countryside.Direct backward linkages and indirect linkages; for example, the auto industry has a direct backward linkage to the steel industry and an indirect backward linkage to the coal and iron industries (since coal and iron are inputs to steel production)Backward linkage is a channel used between a company and its suppliers to make a flow of information, material and money by creating an economic interdependence.

FORWARD LINKEAGE :exist when the growth of an industry leads to the growth of other industries that uses its output as input. The final product of cotton goes to consumers either through retailers or through manufacturers who open up their own shops to directly sell to consumer, thereby minimizing the role of retailers in the channel process. A company can minimize cost of production and can maximize revenue when both backward and forward linkages work together in effective way. Forward linkages are a distribution chain that connects a producer with the customers.