Economics Chapter 2 Sectors of the Indian Economy – Notes & Study Material

Important Terms

Disguised Unemployment: When more people are working than its requirement then it is called disguised unemployment. So, even if we remove a few people from the job, the process of production will not be affected, it is also called underemployment.

Final Product: The goods which are ready for consumption are called final product, for example, bread which is ready for consumption.

Intermediate: All goods which are used as raw material for further production of goods, or for resale in the same year are known as intermediate goods. For example, flour which will be used for production of the bread, so flour is an intermediate product.

Job Card : The job card is the legal document that entitles a person to ask for work under the Act and to get work within 15 days of the demand for work, failing which an unemployment allowance would be payable.

​MGNREGA: Mahatma Gandhi National Rural Employment Guarantee Act, 2005. It will provide 100 days assured employment to all needy and unemployed workers. If they are unable to provide employment then they would provide unemployment allowances.

Organised Sector: People have assured work and terms of employment are regular. Rules and regulations given in various laws are registered by the government.

Primary Sector: It includes all those economic activities which are connected with the extraction and production of natural resources, e.g., agriculture, fishing, mining, etc.

​Secondary Sector: It includes all those economic activities which are related to the manufacturing process, e.g., mining of iron ore is a primary activity but the manufacturing of steel is a secondary activity.

Tertiary Sector: All service providers which help in the development of primary and secondary sectors come under the category of the tertiary sector. For example, doctors, teachers, lawyers, etc.

GDP (Gross Domestic Product): It is the value of only final goods and services produced within the domestic territory of a country.

Unemployment: When the person is willing to work at the prevailing wage rate, but he/she is not getting a job it is called unemployment.

Seasonal Unemployment: The unemployment which takes place due to the variation in the season is called seasonal unemployment. It is mostly seen in the agricultural sector.​

​Unorganized sector: It consists of small and scattered units which are not in the control of the government. It has low salary and unsecured jobs.

Underemployment or disguised unemployment means more people engaged in a job than needed.

Important Notes

The three sectors of the economy different from each other are :

(a) Primary Sector

Activities undertaken by using natural resources, e.g., forestry, agriculture, fishing, etc.

(b) ​​Secondary Sector 

Activities include various manufacturing activities and add utility to primary sector, e.g., Cotton cloths, iron ore, steel, etc.

(c) Tertiary Sector

Includes all such activities which support primary and secondary sector by providing services, e.g., banking, communication, transportation, etc.

The tertiary sector is becoming very important in India due to several reasons:

(1) In any country, several basic services like transport, bank, insurance, educational institutions, etc., are required and the government has to take responsibility for the provision of these services.

(2) ​The development of agriculture and industry led to the development of services, such as transport, trade, storage, etc.

(3) ​As income levels rise in big cities, certain sections of people start demanding many more services like eating out, tourism, shopping, private hospitals, etc. ​

(4) Over the past decade or so, certain new services such as those based on information and communication technology have become important and essential.

​(5) ​Greater the development of the primary and secondary sectors, more would be the demand for such services.

All the three sectors of the economy are highly interdependent on each other. Example: Transportation.

(i) Primary sector produces natural goods and forms the base for all other products. It became a finished product with the help of transportation.

(ii) Secondary sector is the manufacturing unit associated with industrial activity. With the help of transportation sell these products in the market.

(iii) Goods that are produced in these two sectors need to transported by trucks or trains and then sold in wholesale and retail shops.

Service Sector

Service sector in India employs many different kinds of people like highly skilled and educated workers on one side, and a very large number of workers engaged in services such as small shopkeepers, repair persons, transport persons, etc., on the other side.

Organised Sector

Organised sector covers those enterprises that are registered with the government and have to follow its rules and regulations. Therefore, people have job security.

​Unorganised Sector

​Unorganised sector covers small and scattered units which are largely outside the control of the government. Employment is not secure in the unorganised sector.

Primary sector continues to be the largest employer because :

​(i)​ Enough jobs have not been created in the secondary and tertiary sector.

​(ii) ​In the tertiary sector, though the production has risen almost 11 times, but employment has grown only 3 times. ​

(iii) ​Even though industrial output went up by eight times during the period, employment in the industry sector went up by only 2.5 times.

Difference between the Private and Public Sector

Public sector	Private sector
The government owns most of the assets and provides all the services.	Ownership of assets and delivery of services are in the hands of private individuals or companies.
The purpose of the public sector is not to earn profits. Government raises money through taxes to meet expenses on the services rendered by it.	Activities in the private sector are guided by the motive to earn a profit. To obtain such services, we have to pay money to these individuals and companies.
Railways and post office are examples of the public sector.	Tata Iron and Steel Company (TISCO) or Reliance Industries Ltd.(RIL) are examples of private sector.

Contribution of Public Sector to Economic Development:

​(i) In the public sector, the government owns most of the assets and provides all the services.

​(ii) ​The purpose of the public sector is not just to earn profits, but also to provide facilities to the public in different ways.

(iii)​ There are several things needed by society as a whole, some of these need spending large sums of money which is beyond the capacity of the private sector and so they are provided by public sector.

​(iv)​ The government supports and encourages industrial activities providing affordable electricity. In the same way, to promote agricultural activities, government purchases their products on MSP and provide a subsidy for the poor on these products.

All the three sectors are highly interdependent on each other :

​(i)​ When we use natural resources, it is an activity of the primary sector. In the transportation sector, iron is the main raw material and the primary sector is concerned with the extraction of natural resources like iron.  The extraction is supported by the financing and information and technological institutions. ​

(ii)​ The natural resources are changed into other forms through the process of manufacturing, i.e., manufacturing sector uses natural products as its raw materials. It is through the secondary sector that the natural resource, i.e. iron is changed into other forms through manufacturing. Manufacturing needs the support of the service sector in the form of engineers, electricians, etc. to change iron into iron sheets and then in vehicles.

​(iii)​ All services, that enable us to pursue primary and secondary activities are listed as tertiary activities. Once manufactured, the vehicles are sold in the market by various agencies. These vehicles help all the sectors to carry out their processes.

Income and employment increase if farmers are provided with loan, irrigation and transportation facilities because

(i) Loan provided can be used to construct a well or to buy a better quality of seeds and pesticides.

​(ii) Irrigation will help to have a second crop after the first one, even in the absence of monsoon.

​(iii)​ Transportation facility will facilitate taking their produce to the market to sell.​

The activities of the tertiary sector are different as these are the activities that help in the development of the primary and secondary sectors. These activities, by themselves, do not produce any good but they provide an aid or support for the production process.

For example : goods that are produced in the primary or secondary sector would need to be transported by trucks or trains and then sold in wholesale and retail shops. We also may need to talk to others over the telephone or send letters (communication) or borrow money from banks (banking) to enhance production and trade. Transport, storage, communication, banking and trade are some examples of tertiary activities. Since these activities generate services rather than goods, the tertiary sector is also called the service sector.​

The historical changes that have taken place in the sectors of the economy in the developed countries are :

(i) In the initial stages of development, the primary sector was the most important sector of economic activity. As the methods of farming changed and agriculture sector began to prosper, people began to take up other activities.

​(ii)​ New methods of manufacturing were introduced, factories came up and started expanding.

​(iii) ​The secondary sector gradually became the most important sector in total production and employment. ​

(iv)​ With the development of sectors like transport and administration, the service sector kept on growing. In the past 100 years, there has been a shift from the secondary to the tertiary sector in developed countries.

​(v)​ The service sector has become the most important in terms of total production and employment. This is the general pattern observed in developed countries.

Provisions of NREGA 2005:

​(i)​ 100 days assured employment every year to each rural household.

​(ii)​ One-third of the proposed jobs to be reserved for women.

​(iii) ​If an applicant is not employed within 15 days, he/she is entitled to daily unemployment allowance.

​(iv) ​The governments have to establish Central Employment Guarantee Funds and State Employment Guarantee Funds for the implementation of the scheme.

​(v)​ The scheme is to be extended to 600 districts.

The ways by which more employment can be created in a country like India are :

​(i) ​If more dams are built and canal water is provided to all the small farmers, a lot of employment can be generated in the agricultural sector.

​(ii)​ Providing cheap credit facilities and crop insurance can result in more employment.

​(iii)​ More money should be spent on transport and storage, because then more people can be employed.

​(iv)​ The government/banks can provide a loan at cheap rates to improve irrigational facilities.

​(v)​ Technical training, vocational guidance to unemployed youth for self-employment.

GDP is the sum of the money value of final goods and services produced in each sector during a particular year within domestic territory of a country.

Only final goods and services are counted in GDP because :

​(i)​ The value of final goods already includes the value of all intermediate goods.

(ii) ​To count the value of the flour and wheat separately is therefore not correct because then we would be counting the value of the same things a number of times. ​

The sum of production in the three sectors gives us the GDP (primary + secondary + tertiary). The money values of goods and services should be added rather than adding up the actual numbers. The value of final goods alone should be added as the value of intermediate goods is already included in the value of final goods. This mammoth task of measuring GDP is undertaken by the Central Government Ministry.

Objectives of implementing NREGA 2005

​(i)​ This scheme targets the Scheduled Castes, Scheduled Tribes and the poor women, who suffer from poverty. To give employment opportunities to the people who live in rural areas.

​(ii) ​To raise the standard of living of the people. ​

(iii)​ To implement the right to work. ​

(iv)​ Under this scheme, the Gram Panchayat after proper verification will register households, and issue job cards to registered households.

Disguised Unemployment

Disguised unemployment: Disguised unemployment is a situation where the number of workers engaged in a job is much more than required.

For example, where the need is for 4 labourers and 7 labourers are working, it means 3 labourers are suffering from disguised unemployment or under-employment. In such a case, the production will not be affected even if the three extra labourers do not work.

(i)​ In rural India, agricultural field is suffering from disguised unemployment. All family members work on the agricultural field but all the work can be done only by one or two persons alone. Rest are just engaged. More than half of the workers in the country are working in primary sector mainly in agricultural activities producing only a quarter of GDP

​(ii) ​In urban areas, workers like painters, plumbers, repair persons, cart drivers do not find work every day or for the whole day.

Measures that can be adopted to remove disguised unemployment in the agriculture sector are :

(i) ​Loans should be provided to the small farmers by the government or banks to buy seeds or develop irrigation facilities, etc. to enable them to grow 2-3 crops in a year.

​(ii)​ Transportation and storage facilities should be improved to provide employment opportunities. New dams and canals should be constructed to generate employment.

​(iii)​ More irrigational facilities can be provided to grow two or three crops in a year.

​(iv)​ By establishing processing units of agriculture production, more employment opportunities can be created.

(v)​ Technical and vocational training can reduce the unemployment of farmers. ​

We can create more employment in secondary and tertiary sectors in rural India by

(i) We can create more jobs in the secondary sector by promoting industries such as dal mills. ​

(ii)​ By promoting cottage and handicraft industries to employ the villagers. By establishing processing of vegetables and fruits units.

​(iii)​ Government can invest in cold storages.

(iv)​ Services like transportation and communication must be promoted to generate employment.

​(v)​ Construction of multi-purpose projects can create more employment.

The various ways in which government can create employment opportunities for the people of India are :

(i) The government can spend some money or banks can provide loans to construct wells, etc., which will reduce the dependency of farmers on rains, and they will be able to grow two crops a year.

​(ii)​ Construction of dams and canals can lead to lot of generation of employment in agricultural sector itself.

​(iii)​ If government invests money on transportation and storage of crops or makes better rural roads, it can provide productive employment not just to farmers but also to others who are in services like transport or trade. ​

(iv) ​If local banks give credits at reasonable rates to the small and marginal-farmers, they will be able to buy necessary inputs for their crops in time.

(v)​ Another way to solve this problem is to identify, promote and locate industries and services in the semi-rural areas where a large number of people may be employed.

(vi) ​To improve health standards, we need health centres, hospitals and for that doctors, nurses, workers.

​(vii)​ Similarly to provide education to all children, we would need lot of schools which can also generate employment. ​

(viii) ​Tourism : Every state or region has the potential for increasing the income and employment for people in that area.  This can also be done by promoting tourism or regional craft industry. ​

(ix)​ New services like IT are also creating jobs.

On the basis of the nature of economic activities, there are two types of sectors: ​

(a) Organized Sector

Workers in the organized sector enjoy the security of employment. They are expected to work only for a fixed number of hours.

Advantages of organised sector :

​(i)​ People enjoy security of employment.

​(ii)​ Work for fixed hours. ​

(iii)​ It they work more, they get overtime allowances.

​(iv)​ Paid leaves, payment during holidays, medical benefits, safe working environment and pension after retirement.

(b) ​Unorganized Sector

The unorganized sector is characterised by small and scattered units which are largely outside the control of the government. Jobs here are low-paid and often not regular.

In the urban areas, unorganized sector comprises mainly of workers in the small-scale industry, casual workers in construction, trade and transport, etc. The jobs are not secure, workers are not paid a fair wage and earnings are low and are exploited. Thus, there is a need to protect and support the workers.

In the unorganized sector, mostly landless agricultural labourers, small and marginal farmers, and artisans are included. These workers can be protected in the following ways:

​(i)​ Farmers need to be supported through the adequate facility for timely delivery of seeds, agricultural inputs, credit, storage and marketing outlets. ​

​(ii) ​In urban areas, casual workers need government support for procuring raw material.

​(iii)​ Small scale industries also need support for procuring raw material and marketing of the goods.​1

On the basis of ownership, economic activities can be classified into two sectors : ​

(a) ​Public Sector ​

In the public sector, the government owns most of the assets and provides all the services, e.g. Railways or post office.

(b) Private Sector

In the private sector, ownership of assets and delivery of services is in the hands of private individuals or companies, e.g., Tata Iron and Steel Company Limited (TISCO) or Reliance Industries Limited (RIL).

Unorganized Sector

Unorganized sector is a sector which has small and scattered units largely outside the control of the government.

Workers are exploited in the unorganized sector because

​(i) ​There are no rules and regulations followed. ​

(ii)​ Jobs are low paid and often not regular.

​(iii)​ No provision of overtime is there and no paid holidays or leave is given.

​(iv)​ Employment is not secure. People can be asked to leave without reason.

​(v)​ Some kind of work is seasonal in nature and temporary workers are employed. They become unemployed after the season is over.

​(vi)​ No other facilities like provident fund, Gratuity or sick leave are given.

​(vii)​ Working conditions are often poor. No allowances are given. ​

(viii) ​No medical benefit is given.

Class 10 Economics – Notes & Study Material

Chapter 1 Development Chapter 2 Sectors of the Indian Economy Chapter 3 Money and Credit Chapter 4 Globalisation and The Indian Economy Chapter 5 Consumer Rights