Basic Economic Ideas and the Sectors of the Economy
Basic Economic Ideas and the Sectors of the Economy
Economics gives about 4 of the Part-III Social Science questions, and this topic supplies the vocabulary for all of them. Sectors, national income terms and planning are asked directly, and the definitions are short enough to be learnt exactly rather than approximately.
The Three Sectors
| Sector | Also called | Activity |
|---|---|---|
| Primary | Agriculture and allied | Farming, fishing, forestry, mining |
| Secondary | Industrial | Manufacturing, construction |
| Tertiary | Service | Transport, banking, trade, education, health |
The pattern to know is that a developing economy shifts from primary towards secondary and tertiary as it grows. In India the tertiary sector contributes the largest share of national income, while the primary sector still employs the largest share of workers. That mismatch between output and employment is the most examined idea in the topic.
✗ Agriculture contributes the largest share of India's national income | ✓ It employs the most people, but services contribute the largest share of output
A second division cuts across these. The organised sector has registration, fixed hours and social security; the unorganised sector has none of these and employs the great majority of Indian workers. A third division separates public from private ownership.
National Income Terms
| Term | Meaning |
|---|---|
| GDP | Value of all final goods and services produced within the country in a year |
| GNP | GDP plus net factor income earned from abroad |
| NNP | GNP minus depreciation |
| Per capita income | National income divided by population |
Only final goods are counted, otherwise the same value would be added twice — once as raw material and again as the finished product. This is called avoiding double counting and it is the reasoning most often asked about GDP.
Planning
- The Planning Commission was set up in 1950 and Five Year Plans ran from 1951.
- The First Plan, 1951 to 1956, focused on agriculture after the disruption of Partition.
- The Second Plan, 1956 to 1961, followed the Mahalanobis model and focused on heavy industry.
- NITI Aayog replaced the Planning Commission on 1 January 2015, ending the Five Year Plan system.
The pairing of First Plan with agriculture and Second Plan with heavy industry and Mahalanobis is asked almost every year, and the 2015 change to NITI Aayog is the recent fact that older books miss.
तृतीयक क्षेत्र का योगदान सबसे बड़ा, पर रोज़गार सबसे ज़्यादा प्राथमिक क्षेत्र में है।
TRE pointer: The trap is the output against employment question: services lead in output, agriculture in employment. Learn GDP as final goods produced within the country and be able to say why intermediate goods are excluded. Fix the two plan pairings and NITI Aayog from 1 January 2015 — the last is recent enough that many candidates still answer Planning Commission.
60-Second Recap
- Primary is agriculture and mining, secondary industry, tertiary services.
- Services contribute the largest share of India's output; agriculture employs the most.
- The organised sector has registration and social security; the unorganised has neither.
- GDP counts final goods and services produced within the country, avoiding double counting.
- The First Plan focused on agriculture, the Second on heavy industry under Mahalanobis.
- NITI Aayog replaced the Planning Commission on 1 January 2015.
Frequently Asked Questions
Why do only final goods count in GDP?
Because counting intermediate goods as well would add the same value twice, once as an input and again inside the finished product. This error is called double counting, and excluding intermediate goods is how national income accounting avoids overstating output.
Which sector is largest in India, and by what measure?
It depends on the measure. The tertiary or service sector contributes the largest share of national income, while the primary sector still employs the largest share of workers. The paper often sets the question so that only one measure is named, so read it carefully.
What replaced the Planning Commission?
NITI Aayog, the National Institution for Transforming India, which began functioning on 1 January 2015. It is an advisory body rather than a resource-allocating one, and its creation ended the system of Five Year Plans that had run since 1951.
What is the difference between the organised and unorganised sectors?
Organised sector units are registered, follow rules on wages and working hours, and give benefits such as provident fund and paid leave. Unorganised sector work has no such registration or security, and it accounts for the great majority of Indian workers.