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Sectors of Indian economy.

CLASSIFICATION OF INDIAN ECONOMY

SECTORS OF INDIAN ECONOMY

Economic activity is divided into three sectors:

  • Primary: The industries engaged in the production in sectors of Indian economy or extraction of natural resources such as crops, oil, and ores are part of the primary sector of  Indian economy.. This includes agriculture, forestry, fishing, and mining. (A farmer and a coal mine worker would be workers in the primary sector.)

The industries engaged in the production or extraction of natural resources such as crops, oil, and ores are part of the primary sector of Indian economy.

  • Secondary: The secondary sector of the Indian economy  involves the transformation of raw or intermediate materials into final goods, e.g. manufacturing steel into cars, or textiles into clothing. (A welder and a dressmaker would be workers in the secondary sector of Indian economy.)

Sectors of Indian economy generally takes the output of the primary sector of Indian economy and manufactures finished goods or intermediate goods. Many of these industries sector of Indian economy consume large quantities of energy and require factories and machinery to convert the raw materials into goods and products. They also produce waste materials and gases that may cause environmental problems or pollution. The secondary sector of Indian economy supports both the primary sector of Indian economy and the tertiary sector of Indian economy.

     Largest countries by industrial output in nominal GDP, according to IMF and CIA World Fact Book, 2015

Economy

(1) China

(2) United States

(3) Japan

(4) Germany

(5) United Kingdom

(6) India

Countries by industrial output
in 2015 (billions in USD)
4922
3752
1164
1016
588
559

 

  • Tertiary: The tertiary sector of the Indian economy involves the supply of services to consumers and businesses, such as babysitting, cinema, and banking. (A shopkeeper and an accountant would be workers in the tertiary sector sector of Indian economy.)

GOODS AND SERVICES

  1. Goods refer to tangible consumable products, articles, and commodities and have physical characteristics, i.e. shape, appearance, size, weight, etc. Some items are made for one-time use by the consumer, while some can be repeatedly used.
  2. Goods are products that are traded in the market. There is a time gap in the production, distribution, and consumption of goods. When the buyer purchases goods and pays the price, the ownership is passed from the seller to the buyer.
  3. Products are manufactured in batches, which produce identical units. In this way, a particular product offered by the company will have the same specifications and characteristics all over the market. Examples include books, pens, bottles, bags, etc.
  4. Services lack physical identity and are thus intangible in nature. Services are produced and consumed at the same time. Services are considered sold at the time of their consumption. Services cannot be owned but can only be utilized.
  5. For example, if one buys a ticket for watching a movie at the multiplex, it does not mean that one has purchased the multiplex, but one has only paid the price of availing services. Examples include retail, banking, insurance, transport, communication, courier delivery, etc.

Index of Industrial Production and Core Sector

The index of industrial production (IIP) is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period. It is compiled and published monthly by the Central Statistical Organisation (CSO). The current base year for IIP is 2011-12 with a value of 100.

Eight core industries comprise nearly 38% of the weight of items included in the IIP

  1. Electricity generation (weight: 10.32%)
  2. Steel production (weight: 6.68%)
  3. Petroleum refinery production (weight: 5.94%)
  4. Crude oil production (weight: 5.22%)
  5. Coal production (weight: 4.38%)
  6. Cement production (weight: 2.41%)
  7. Natural gas production (weight: 1.71%)
  8. Fertilizer production (weight: 1.25%)

What Are Core Industries?

Core industries are the backbone of the overall economy. Their output is used by various other industries. Thus, the core industries determine the state of overall industrial development of sectors of Indian economy.

 

COMPARISON OF INDIAN ECONOMY WITH ECONOMIES OF THE WORLD

No,           Country/Economy    Nominal GDP      Primary         Secondary         Tertiary

World                                          75.6 trillion             5.9%               30.5%               63.6%

1. United States 17.9 1% 19% 80%
2. China 11 9% 41% 50%
3. Japan 4.7 1% 28% 71%
4. Germany 3.5 1% 28% 71%
5. United Kingdom 2.7 1% 21% 78%
6. France 2.5 2% 18% 80%
7. India 2.25 14% 27% 59%

 

Nominal GDP sector composition, 2016 Oh percentage and in dollars)
On the basis of the above table, we can conclude the following:

  • Comparison of US and Indian GDP: In 2016, India’s GDP was $2.25 trillion and the US GDP was $17.9 trillion. Thus, US GDP was approximately eight times that of India’s GDP.
  • Relative contribution of various sectors of Indian economy: The relative contributions of the primary, secondary, and tertiary sectors of Indian economy. India’s GDP are 14%, 27%, and 59%, respectively. On the other hand, the relative contributions of the primary, secondary, and tertiary sectors of Indian economy in the US GDP are 1%, 19%, and 80%, respectively. The relative contribution of the secondary and tertiary sectors of Indian economy increases as the economy continues to transit from a developing to a developed sector of Indian economy. This is because when the level of development increases, the consumption of agricultural commodities can increase only to an extent. However, people consume more and more manufactured goods and services.
  • Comparison of actual size of particular sector: The US GDP is eight times compared to India’s GDP. The relative contributions of the services sector in the United States and India are 80% and 59%, respectively. Thus, the ratio of the actual size of the services sector of Indian economy and the United States is 59 and 640 (80 x 8).
  • Workforce distribution in various sectors of Indian economy: Distribution of workers by different industrial categories (in India).
Industrial Category

 

Percentage (%)

 

Total workers 100.0
Agriculture and allied activities 56
Mining and quarrying 1
Primary sector (Agriculture and allied activities and mining and quarrying) 57 (subtotal)
Manufacturing 14
Electricity, gas, and water supply 03
Construction 3.5
Secondary sector (manufacturing, electricity, gas and water

supply, and construction)

18 (subtotal)

18 (subtotal)
Wholesale, retail trade and repair work, hotels and restaurants 10.0
Transport, storage, and communications 4.0
Financial intermediation, business consultancy 2.0
Other services 9.0
Services sector 25 (subtotal)

 

As Indian economy will continue to grow, more and more workforce will shift from primary activities to secondary and tertiary activities. For instance, typical labour participation in a developed country is 10% in the primary sector of Indian economy, 20% in the secondary sector, and 70% in the tertiary sector. More machinery is deployed in the primary sector of Indian economy, which reduces the number of workers needed. As a result, the demand for machinery production in the secondary sector of Indian economy increases. Further, the primary and secondary sectors of Indian economy are increasingly dominated by automation and the demand for workforce reduces in these sectors of Indian economy. It is replaced by the growing demands of the tertiary sector.

  • Per capita income and labour productivity: In India, the relative contributions of the primary, secondary, and tertiary sectors in the GDP are 14%, 27%, and 59%, respectively. On the other hand, the percentages of workforce employed in these sectors are 57%, 18%, and 25%, respectively. Thus, it can be concluded that workforce productivity is highest in the tertiary sector and lowest in the primary sector. This is due to the fact that delivery of services demands higher skills. More population shifting to secondary and tertiary activities signifies rise in the overall labour productivity and consequently rise in the per capita income. The populations of the United States and India are 32 crore and 132 crore (in 2016), respectively. On the other hand, the US GDP is eight times the size of India’s GDP. Thus, the per capita income in the United States is 33 (132/32 x 8) times that of India.

Read more:https://www.brainyias.com/sectors-of-indian-economy/

Indian Economy

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