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Sectors/structure of the economy

Sectors of The Economy 

Economic activities have two parts — market activities and non-market activities. Market activities involve remuneration to anyone who performs i.e., activity performed for pay or profit. These include production of goods or services including government service. Non-market activities are the production for self-consumption. These can be consumption and processing of primary product and own account production of fixed assets. Women are not paid for their service delivered in the family. The household work done by women is not recognised in the National Income.  

Primary sector 

  • When we produce a good by exploiting natural resources, it is an activity of the primary sector. This is because it forms the base for all other products that we subsequently make.  
  • Since most of the natural products we get are from agriculture, dairy, fishing, forestry, this sector is also called agriculture and related sector. 

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.  
  • Since this sector gradually became associated with the different kinds of industries that came up, it is also called as industrial sector. 

Tertiary sector 

  • These are activities that help in the development of the primary and secondary sectors. These activities, by themselves, do not produce a good but they are an aid or a support for the production process.  
  • Since these activities generate services rather than goods, the tertiary sector is also called the service sector. 
  • Service sector also includes some essential services that may not directly help in the production of goods. For example, we require teachers, doctors etc. 

Comparing The Three Sectors 

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. And the sum of production in the three sectors gives what is called the Gross Domestic Product (GDP) of a country. It is the value of all final goods and services produced within a country during a particular year. GDP shows how big the economy is. 

Historical Change in Sectors 

  • Generally, it has been noted from the histories of many, now developed, countries that at initial stages of development, primary sector was the most important sector of economic activity. 
  • As the methods of farming changed and agriculture sector began to prosper, it produced much more food than before. Many people could now take up other activities. Buying and selling activities increased many times.  
  • Over a long time (more than hundred years), and especially because new methods of manufacturing were introduced, factories came up and started expanding. Those people who had earlier worked on farms now began to work in factories in large numbers. 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. 
  • In the past 100 years, there has been a further shift from secondary to tertiary sector in developed countries. 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. This is the general pattern observed in developed countries. 

Primary, Secondary And Tertiary Sectors In India 

While production in all the three sectors has increased, it has increased the most in the tertiary sector. As a result, the tertiary sector has emerged as the largest producing sector in India replacing the primary sector. But by 1990 the share of the service sector was 40.59 per cent, more than that of agriculture or industry, like what we find in developed nations. This phenomenon of growing share of the service sector was accelerated in the post 1991 period  

Why is the tertiary sector becoming so important in India? There could be several reasons. 

  • First, demand for basic services is high, thanks to huge population. 
  • Second, the development of agriculture and industry. 
  • Third, as income levels rise, certain sections of people start demanding many more services  
  • Fourth, over the past decade or so, certain new services such as those based on information and communication technology have become important and essential.  

However, all of the service sector is not growing equally well. Service sector in India employs many different kinds of people. At one end there are a limited number of services that employ highly skilled and educated workers. At the other end, there are a very large number of workers engaged in services such as small shopkeepers, repair persons, transport persons, etc. These people barely manage to earn a living and yet they perform these services because no alternative opportunities for work are available to them. Hence, only a part of this sector is growing in importance.  

Where are most of the people employed? 

A remarkable fact about India is that while there has been a change in the share of the three sectors in GDP, a similar shift has not taken place in employment. The primary sector continues to be the largest employer. It is because not enough jobs were created in the secondary and tertiary sectors. Even though industrial output or the production of goods went up. The same applies to tertiary sector as well.  

As a result, more than half of the workers in the country are working in the primary sector, mainly in agriculture, producing only a quarter of the GDP. What it means is that there are more people in agriculture than is necessary. So, even if you move a few people out, production will not be affected. In other words, workers in agricultural sector are underemployed. 

Disguised unemployment: everyone is working, none remains idle, but in actual fact their labour effort gets divided. Each one is doing some work but no one is fully employed. This is the situation of underemployment, where people are apparently working but all of them are made to work less than their potential. This kind of underemployment is hidden in contrast to someone who does not have a job and is clearly visible as unemployed.  

DIVISION OF SECTORS AS ORGANISED AND UNORGANISED 

Organised sector: enterprises or places of work where  

  • the terms of employment are regular  
  • people have assured work 
  • registered by the government and have to follow its rules and regulations which are given in various laws such as the Factories Act, Minimum Wages Act, Payment of Gratuity Act, Shops and Establishments Act etc. 
  • Offers jobs that are most sought after 
  • Employment opportunities here are expanding at a very slow pace 

Unorganised sector: 

  • small and scattered units  
  • Largely outside the control of the government.  
  • There are rules and regulations but these are not followed.  
  • Jobs here are low-paid and often not regular.  
  • There is no provision for overtime, paid leave, holidays, leave due to sickness etc.  
  • Employment is not secure.  
  • A lot also depends on the whims of the employer.  

It is also common to find many organised sector enterprises in the unorganised sector. They adopt such strategies to evade taxes and refuse to follow laws that protect labourers. As a result, a large number of workers are forced to enter the unorganised sector jobs, which pay a very low salary.  

How to Protect Workers in the Unorganised Sector? 

Since the 1990s, it is also common to see a large number of workers losing their jobs in the organised sector. These workers are forced to take up jobs in the unorganised sector with low earnings. Hence, besides the need for more work, there is also a need for protection and support of the workers in the unorganised sector.  

In the rural areas, the unorganised sector mostly comprises of landless agricultural labourers, small and marginal farmers, sharecroppers and artisans. Nearly 80 per cent of rural households in India are in small and marginal farmer category. These farmers need to be supported through adequate facility for timely delivery of seeds, agricultural inputs, credit, storage facilities and marketing outlets. 

In the urban areas, unorganised sector comprises mainly of workers in small-scale industry, casual workers in construction, trade and transport etc., Small-scale industry also needs government’s support for procuring raw material and marketing of output.  

We also find that majority of workers from scheduled castes, tribes and backward communities find themselves in the unorganised sector. Besides getting the irregular and low paid work, these workers also face social discrimination. Protection and support to the unorganised sector workers is thus necessary for both economic and social development. 

Sectors In Terms Of Ownership: Public And Private Sectors 

Ownership: In the public sector, the government owns most of the assets and provides all the services. In the private sector, ownership of assets and delivery of services is in the hands of private individuals or companies. 

Motive: Activities in the private sector are guided by the motive to earn profits. The purpose of the public sector is not just to earn profits.  

Governments raise money through taxes and other ways to meet expenses on the services rendered by it. Modern day governments spend on a whole range of activities.  

There are several things needed by the society as a whole but which the private sector will not provide at a reasonable cost. Some of these need spending large sums of money, which is beyond the capacity of the private sector.  

Also, collecting money from thousands of people who use these facilities is not easy. Even if they do provide these things they would charge a high rate for their use. Examples are construction of roads, bridges, railways, harbours, generating electricity, providing irrigation through dams etc. Thus, governments have to undertake such heavy spending and ensure that these facilities are available for everyone. 

There are some activities, which the government has to support. The private sector may not continue their production or business unless government encourages it. For example, selling electricity at the cost of generation may push up the costs of production of industries. Many units, especially small-scale units, might have to shut down. Government here steps in by producing and supplying electricity at rates which these industries can afford. Government has to bear part of the cost. 

Similarly, the government in India buys wheat and rice from farmers at a ‘fair price’. This it stores in its godowns and sells at a lower price to consumers through ration shops. In this way, the government supports both farmers and consumers. 

There are a large number of activities which are the primary responsibility of the government. The government must spend on these. Providing health and education facilities for all is one example. 


Macroeconomics  

Macroeconomics deals with the aggregate economic variables of an economy. It also takes into account various interlinkages which may exist between the different sectors of an economy. This is what distinguishes it from microeconomics; which mostly examines the functioning of the particular sectors of the economy, assuming that the rest of the economy remains the same.  

Macroeconomics emerged as a separate subject in the 1930s due to Keynes. The Great Depression, which dealt a blow to the economies of developed countries, had provided Keynes with the inspiration for his writings. Macroeconomics sees an economy as a combination of four sectors, namely households, firms, government and external sector. 

The basic questions of the study of macroeconomics are the broad economic questions that concern all citizens – prices, employment, growth rates etc,. 

The aggregate output level, price level, or employment level, in the different production units of an economy, bear close relationship to each other. 

In microeconomics, individual ‘economic agents’ and the nature of the motivations that drive them become important. Microeconomics is a study of individual markets of demand and supply and the ‘players’, or the decisionmakers, are also individuals (buyers or sellers, even companies) who are seen  as trying to maximise their profits (as producers or sellers) and their personal satisfaction or welfare levels (as consumers).  

Even a large company is ‘micro’ in the sense that it had to act in the interest of its own shareholders which is not necessarily the interest of the country as a whole.  

Economic Agents 

By economic units or economic agents, we mean those individuals or institutions which take economic decisions. They can be consumers who decide what and how much to consume. They may be producers of goods and services who decide what and how much to produce. They may be entities like the government, corporation, banks which also take different economic decisions like how much to spend, what interest rate to charge on the credits, how much to tax, etc. 

  • Macroeconomics tries to address situations facing the economy as a whole. 
  • Macroeconomics has deep roots in microeconomics because it has to study the aggregate effects of the forces of demand and supply in the markets. 

Who are the macroeconomic decision makers (or ‘players’)? 

Macroeconomic policies are pursued by the State itself or statutory bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and similar institutions.  

what do the macroeconomic decision-makers try to do?  

They often have to go beyond economic objectives and try to direct the deployment of economic resources for such public needs such as price control, employment generation etc. Such activities are not aimed at serving individual self-interests. They are pursued for the welfare of the country and its people as a whole. 

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