9/5/2010 CLASS NOTES

CLASS : X SUBJECT : ECONOMICS

NAME : RAGHAV MANCHANDA Ms. ASHIMA SHARMA

Sectors of the Indian Economy

Economic activities are activities that result in the production of goods and services.
Sectors are group of economic activities classified on the basis of some criteria.
Three types of classification are:
1. Classification of economics activities on the basis of nature of activity
• Primary Sector
• Secondary sector
• Tertiary sector
2. Classification of economics activities on the basis of conditions of work
• Organised sector
• Unorganised sector
3. Classification of economic activities on the basis of ownership of assets
• Public sector (government’s control)
• Private sector (controlled by individual or group of individuals)
DIFFERENCES BETWEEN PRIMARY SECONDARY AND TERTIARY SECTORS
Primary Sector Secondary Sector Tertiary Sector
1. It includes those 1. It includes those 1. it includes those activities
activities which lead to the activities which result in that in the development of
production of goods by transformation of natural the primary & secondary
exploitation of natural products into other forms by sectors by supporting the
resources. manufacturing. production process.
2. It produces natural 2. It produces 2. It does not produce
products like cotton, milk, manufactured goods like goods but generates
fruits, wheat, fish, subber cloth, sugar, bricks etc. services like transportation,
etc. communication, basting etc.
3. It also called agriculture 3. It is also called the 3. It is also called the
and related sector because industrial sector as this service sector as this sector
most of the natural products sector has come to be generates services rather
obtained are from associated with different than goods.
agriculture, diary, fishing, kinds of industries.
forestry etc.
4. Examples of primary 4. Examples of secondary Examples of tertiary sector
sector activities are sector activities are activities are banking,
agriculture, fishing, mining, manufacturing and insurance, finance etc.
animal husbandry etc. construction.

Interdependence of the primary, secondary & tertiary sectors

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Why the primary sector is called so?

This is because it forms the base for all other products that we subsequently make.
Why the secondary sector is called so?
This is because it is the second step after primary. It includes activities in which natural product are
changed into other forms through manufacturing that is associated with industrial activity.
Does the tertiary sector include only these services that help in the production of goods?
No. The Tertiary sector also includes some essential services that may not help directly in the
production of goods. It includes some personal service providers like washer men, barbers,
cobblers, maids etc. & teachers, doctors etc. This sector also includes certain new services based
on information technology like cyber cafes, ATM booths, call centers, software companies.
Comparing the three sectors
Each of the three sectors (primary, secondary & tertiary) produces a large number of goods and
services. To know the total production in any one of the three sectors, we need to count the goods
and services that are produced. This counting of goods and services involves two problems:
a) There are too many goods and services produced. So, counting them could be a difficult
task.
b) We cannot add cars furniture, computers etc. together to arrive at a total figure.
The first problem makes the process of counting a bit difficult. But its not impossible to count all the
goods and services produced. The second problem can be overcome by adding the values of
goods and services produced rather than the actual numbers.
Value = price × quantity
E.g. if 10,000kgs of wheat is sold at Rs 8 per kg, then value of wheat will be Rs. 80,000

Precaution to be taken while estimating total production

Not all goods and services that are produced and sold need to be counted.
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We count only final goods and services and not intermediate goods. This is because intermediate
goods (e.g. cotton, sugar, flour etc) are used up in the production of final goods and services (e.g.
cloth, biscuits etc) Thus, the value of final goods and services already includes the value of
intermediate goods. If we include the value of intermediate goods separately, it will lead to double
counting.
Consider the example below,

a farmer sells wheat to a flour mill for Rs 8/kg. the mill grids it and sells the flour at Rs 10/kg to a
biscuit company. The biscuit company uses the flour along with sugar, oil etc. to make 4 packets of
biscuits and sells it to consumers for Rs 60 (@ Rs 15/packet)
The biscuits are the final goods here and their value (Rs 60) already includes the value of
intermediate goods like flour etc. thus if we count the value of flour again we will be counting the
value of the same thing a number of times. First as wheat then flour and finally biscuits.
Intermediate goods are those which are used up in the production process to make final goods &
services. e.g. Wheat flower is used in the production of a packet of biscuit.
Final goods & services are those which reach the consumers for final consumption or capital
formation.
Double Counting: - The counting of the value of a product more than once is called double
counting. This leads to the over estimation of the value of goods and services produced.
GDP (Gross Domestic Product)
GDP – is the market value of all final goods and services produced within a county during a year. It
shows how big the economy is.
Step involved in the estimation of GDP
1. Estimate the total production for each of the sectors of the economy: Total production
of any sector is the value of all final good & services produced in that sector during a year.
2. Find the sum of total production in each of the sector.
We add the total production of the primary, secondary and tertiary sector to arrive at GDP.

Estimation of GDP in India

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GDP in India is measured by central government ministry with the help of various government of
states and Union Territories. It collects information about the total volume (number) of goods &
services and their price and then estimates GDP.
Historical Changes in Sectors
What does the history of developed countries indicate about the shifts that have taken place
between sectors?
The history of developed countries indicates about the shifts that have taken place between
sectors as given below:
(i) In the initial stages, the primary sector was the most important sector. Most of the people were
employed in the sector i.e., agricultural sector.
(ii) With the changes in the method of farming, the production increased tremendously. Now
people could do other activities such as trading etc. they, therefore, became craft persons and
traders. Increase in production of grains and other things led to the growing need for
transportation and other facilities. But inspite of this at this stage most of the goods produced
were natural products from the primary sector and most people were also employed in this
sector.
(iii) With the passage of time, machines were invented. Factories were established to manufacture
various goods. Gradually, the industries were established and industrial sector employed more
and more people. As a result of these changes, the secondary sector became most important
in total production and employment. Thus, the importance of the sectors had changed.
(iv) In the past 100 years, there has been a further shift from secondary to tertiary sector in
developed counties. This sector is also called service sector because it provides basic services
such as teachers, doctors, lawyers, internet café, ATM booths. Tertiary sector and became
most important in terms of production. At present, it employs the maximum number of people.
So there has been a shift from primary sector to secondary sector and then to tertiary sector or
service sector in the development countries.

Rising importance of the tertiary sector in production

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The cause for tertiary sector becoming important sector in India by replacing the primary sector are
as follows:
(i) Concept of welfare state and basic services: In modern welfare state such as India, the
government is supposed to provide basic services such as hospitals, educational institutions,
defense, posts and telegraphs for welfare of the people. These functions have led to the
importance of the tertiary sector.
(ii) Development of agriculture and industry: With the introduction of new agricultural tools, the
production increased. At the same time invention of machines led to the development of
industrial sector such as transport, banking etc. Thus, development in primary and secondary
sectors led to the importance of tertiary sector.
(iii) Rise in income: As the income of the people rose, there was more need for services such as,
public schools, shops, private hospitals etc, for better facilities.
(iv) Development of information technology: The development of information and
communication technology has increased the importance of tertiary sector because now most
of the people want to avail these services such as mobile phone, internet café etc. more and
more people are entering these services.

Service sector in India employs two different kinds of people. Who are these?

Service sector in India employs two different kinds of people as mentioned below:
(i) There are highly skilled & educated workers such as teachers and doctors.
(ii) On the other hand, a large number of workers are engaged in services such as small
shopkeepers, repair persons etc. who barely manage to earn a living. They perform these
services because they do not have any other work to do. As a result of this only a portion of
service sector is growing in importance.