Chapter-2 SECTORS OF INDIAN ECONOMY

Economic Activities: Those activities which generates some income are known as economic activities.

* Sectors of Economic Activities:

Sectors Of Indian Economy,

On the basis of nature of On the basic of On the basic of

economic activities employment condition Ownership
Primery sector Organised sector Public sector
Secondry sector Unorganised sector Private sector
Tertiary sector
Joint sector

1. Primary Sector: (Agricultural Sector) produce goods by extraction and collection of natural resources, it is
known as the primary sector. E.g., Farming, forestry, hunting, fishing and mining.
2. Secondary Sector: (Manufacturing Sector) Natural products are change into other form through
manufacturing. Eg. Factories comes under this sector.
3. Tertiary Sector: (Service Sector) -Essential for the development of primary and secondery sector. Eg – Jobs
comes under this sector.

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. The sum of production in the three sectors gives the Gross Domestic Product (GDP) of a
country. GDP is the value of all final goods and services produced within a country during a particular year. It shows
how big the economy is. In India, the task of measuring GDP is undertaken by a central government ministry.

Draw Graph from book

Historical changes in the sector:

1. Primary Sector: -
 Changing nature of farming
 Excess of production
 Emergence of new service
2. Secondary sector: -
 Migration of people from primary sector to secondary sector.
 As the production of goods increased, the employment also increased.
3. Tertiary Sector: -
 In the past 100 years there has been another shift from secondary to tertiary sector in the developed
countries.
 The service has become the most important, in terms of total production.
 Most of the working people also employed in the service sector. - These are observed in the
developed countries.

Rising Importance of Tertiary Sector:

 Development in agriculture and industries also leads to development in services.

 Basic services increased like hospitals, education, police, courts, municipalities, banks, transport etc.
 As the economic condition of the people has increased, this gave rise to some other services for comfort and
personal well-being such as dining out, tourism.
 IT and communication have become essential.
 Where are Most People Employed?
Primary Sector Secondary Sector Tertiary Sector

More than half of the workers in India are working in the These sectors employ less than half the people as compared
primary sector, mainly in agriculture. to the primary sector.

It contributes to only a quarter of the GDP. These sectors produce four-fifths of the product.

How to Create More Employment?

Employment can be given to people by identifying, promoting and locating industries and services in semi-rural
areas. Every state or region has the potential for increasing the income and employment for people in that area. It
can be done by tourism, or regional craft industry, or new services like IT. A study conducted by the Planning
Commission (known as NITI Aayog) estimates that nearly 20 lakh jobs can be created in the education sector alone.

The central government in India made a law implementing the Right to Work in about 625 districts of India, which is
called the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005. Under MGNREGA 2005,
all those who are able to and are in need of work in rural areas are guaranteed 100 days of employment in a year by
the government. If the government fails in its duty to provide employment, it will give unemployment allowances to
the people.

Division of Sectors as Organised and Unorganised

Organised Sector Unorganised Sector

It is a sector where the employment terms are fixed and regular, and The unorganised sector is characterised by
the employees get assured work. small and scattered units, which are largely
outside the control of the government.

They are registered by the government and have to follow its rules and There are rules and regulations but these
regulations, which are given in various laws such as the Factories Act, are not followed since they are not
Minimum Wages Act, Payment of Gratuity Act, Shops and registered with the government.
Establishments Act, etc.

The job is regular and has fixed working hours. If people work more, Jobs are low-paid and often not regular.
they get paid for the overtime by the employer.

Workers enjoy the security of employment. Employment is not secure. People can be
asked to leave without any reason.

People working in the organised sector get several other benefits from There is no provision for overtime, paid
the employers, such as paid leave, payment during holidays, provident leave, holidays, leave due to sickness, etc.
fund, gratuity, etc.

People get medical benefits. The factory manager has to ensure There are no such facilities in the
facilities like drinking water and a safe working environment. When unorganised sector.
they retire, these workers get pensions as well.

Examples of the organised sectors are Government employees, Examples of the unorganised sectors are
registered industrial workers, Anganwadi workers, village health Shopkeeping, Farming, Domestic works,
workers, etc. Labouring, Rickshaw pulling, etc.

How to Protect Workers in Unorganised Sector?

There is a need for protection and support of the workers in the unorganised sector. Here are a few points which will
help in doing so.

1. The government can fix the minimum wage rate and working hours.

2. The government can provide cheap loans to self-employed people.

3. Government can provide cheap and affordable basic services like education, health, food to these workers.

4. The government can frame new laws which can provide provisions for overtime, paid leave, leave due to
sickness, etc.

Sectors in Term of Ownership: Public and Private Sectors

Public Sector Private Sector

In the public sector, the government owns In the private sector, ownership of assets and delivery
most of the assets and provides all the of services is in the hands of private individuals or
services. companies.
Railways or post office is an example of Companies like Tata Iron and Steel Company Limited
the public sector. (TISCO) or Reliance Industries Limited (RIL) are privately
owned companies.
The purpose of the public sector is not Activities in the private sector are guided by the motive
just to earn profits. Its main aim is public to earn profits.
welfare.
Responsibilities of Government

There are a large number of activities which are the primary responsibility of the government. Here, we have listed a
few of them:

1. Government raises money through taxes and other ways to meet expenses on the services rendered by it.

2. Governments have to undertake heavy spending such as the construction of roads, bridges, railways,
harbours, generating electricity, providing irrigation through dams, etc. Also, it has to ensure that these
facilities are available for everyone.

3. There are some activities which the government has to support to encourage the private sector to continue
their production or business.

4. The government in India buys wheat and rice from farmers at a ‘fair price’ and sells them at a lower price to
consumers through ration shops. In this way, it supports both farmers and consumers.

5. Running proper schools and providing quality education, health and education facilities for all are some of
the duties of the government.

6. The government also needs to pay attention to aspects of human development such as the availability of safe
drinking water, housing facilities for the poor, food and nutrition, and taking care of the poorest and most
ignored regions of the country.

Chapter-3 Money and credit

Money: -
🔹 Money is something that can act as a medium of exchange in transaction. In day-to-day transactions, goods are
being bought & sold with the use of money.
❇️Money as a Medium of Exchange: -
🔹 Money is used for several transactions. It is considered as a means of exchange, as it acts as intermediate in the
exchange process.
🔹 In the early times, people used to exchange one commodity for another, depending on their requirement
under the Barter System. However, exchanging goods in the barter system required a double coincidence of wants.
❇️Double Coincidence of wants: -
🔹 When in the exchange, both parties agree to sell and buy each other commodities. It is called double coincidence
of wants. In the barter system double coincidence of wants is an essential feature.
❇️Barter System: -
🔹 When goods are directly exchanged for goods and there is no use of money. It is called barter system.
❇️Limitations of barter system: -
 The condition of double coincidence must be fulfilled for barter.
 Difficulty in accumulating wealth or value.
 Difficult to exchange indivisible goods.
 Difficult to store things for future use (for a long time).
❇️Forms of Money :-
 Ancient period: - Grain and cattle were used as money.
 Mediaeval period: - Metallic coins of gold, silver, copper and lead were used as money.
 Modern period: - Paper currency and coins are used as money.
❇️Modern Forms of Money: -
 Net banking Mobile banking
 Paper Notes
 Debit Cards
 Credit Cards
 Cheque
 UPI
❇️Currency: -
Before the introduction of coins, a variety of objects were used as money.
For example, since the very early ages, Indians used grains and cattle as money.
Modern forms of money include currency – paper notes and coins.
❇️Currency in India: -
🔹 In India, the Reserve Bank of India issues currency notes on behalf of the Central Government.
❇️Reserve bank of India: -
🔹 R.B.I is the central bank of India which controls the monetary policy of the country.
🔹 R.B.I supervises the activities of formal sector and keep the track of their activities.
❇️Functions of Reserve Bank of India: -
Issue the currency on behalf of Government of India.
Issues guidelines regarding working culture of Bank and SHG.
Give directions regarding terms and interest on credits.
To provide feedback regarding monetary policies to government of India.
RBI holds a part of the cash reserve of the bank.
❇️Deposits with Banks: -
🔹 The other forms in which people hold money is deposits with Banks. People deposit their extra money in banks by
opening a bank account.
🔹 Banks also provide interest to the people on their deposits. People also have the provision to withdraw their
money when they need it.
🔹 Since this money is withdrawn on demand, hence these deposits are also called demand deposits.
❇️Cheque Facility: -
🔹 Cheque is basically a paper instructing the bank to pay a specific amount from the person’s account to that person
in whose name the cheque has been issued.
🔹 Payments can be made with the use of cheque instead of cash.
❇️Modern Banking System: -
🔹 The modern forms of money i.e. currency and deposits are closely linked to the working of the modern banking
system.
❇️Loan Activities of Banks: -
Banks accept deposits of the people and pay a low interest rate on these deposits.
They keep only a small portion of deposits (in India, it is 15%) as cash. This is kept for those depositors who wish to
withdraw money from their accounts.
Rest of the deposits are given as loans by the banks. When banks give loans, they charge higher rate of interest from
the people who have taken loans.
This becomes the income of the banks.
In this way, banks act as mediator between those who have surplus funds (the depositors) and those who are in need
of funds (the borrowers).
❇️Credit: -
🔹 Credit also called loan is an agreement in which the lender supplies to borrower money, goods or services, with the
promise of future payment.
❇️Two Different Credit Situations: -
🔶 Credit as an asset: -
🔹 During the festival season, a shoe manufacturer Salim has received an order of making shoes in bulk, within one
month’s time. To complete this production, he hires extra workers and has to purchase the raw materials.
🔹 He asks the supplier to supply leather now and, promise to pay him later. Then he takes some advance payment
from trader.
🔹 By the end, of the month, he is able to deliver the order, make a good profit and repay the money he had
borrowed.
🔶 Credit as a debt trap: -
🔹 A farmer swapna picks up loan from a money lender to meet the expenses of cultivation.
🔹 But unfortunately the crop was hit by the pests and there was crop failure. So, she is unable to repay the loan and
debt grows larger with Interest.
❇️Different situation of loan for both Salim and Swapna: -
🔹 Loans played a positive role for Salim. He also made profit and also repaid the loan.
🔹 loan had a negative role for Swapna. She was unable to repay the loan and earn profit. She got caught in the debt
trap, she had to sell the land.
❇️How do farmers gets into debts trap?
Failure of the crop makes loan repayment impossible.
Downfall of crop prices also makes loan repayment impossible.
Higher interest makes life difficult. Credit in such a condition pushes the borrowers into a situation from which
recovery is painful and they get into the debt trap.
❇️Terms of Credit :-
🔹 Terms of credit is a set of conditions under which a loan is given. It may include the mode of payment, interest rate,
duration of credit and other conditions.
Every loan agreement specifies an interest rate which the borrower must pay to the lender along with repayment of
the principal.
In addition, lender may demand collateral, i.e., as assert that the borrower owns and uses this as a guarantee until
the loan is repaid.
If the borrower fails to repay the loan, the lender has the right to sell the collateral to obtain payment.
Terms of credit comprise interest rate, collateral and documentation requirement, and the mode of repayment.
❇️Collateral :-
🔹 Collateral is an asset that the borrower owns (such as land, building, vehicle, live stocks, deposits with baks) and
uses this as a guarantee to a lender until the loan is repaid.
❇️The different sources of credit are :-
 Banks
 Traders
 Cooperative societies
 Landlords
 Moneylenders
 Relatives and friends
❇️Reasons for not giving loans by the bank to some individuals or groups :-
🔹 Banks require proper and legal documentations and collateral as security against loans.
🔹 The borrowers who have not repaid previous loans, the banks might not be willing to lend them further.
🔹 Those entrepreneurs, who are going to invest in a business with high risks, the might not be willing to lend
❇️Credit sources in India :-
🔹 There are two categories of sources of credit sector
 Formal Sector Credit and
 Informal Sector Credit.
❇️Formal Sector Credit :-
🔹 Formal sector comprises banks and cooperative societies where credit is given with complete documentation.
🔶 features of Formal Sector Credit :-
 It provides loans comparatively at a lower rate.
 Collateral security is required to obtain loans.
 This sector is mainly supervised by Reserve Bank of India.
 It includes banks and cooperative societies.
❇️Informal Sector Credit :-
🔹 Informal Sector may consist of money lenders, friends, traders, landowners etc.
🔶 features of Informal Sector Credit :-
 It charges comparatively high interest rate.
 Some time collateral is not needed while obtaining loan.
 It is supervised by none of the institutions.
❇️Difference between formal and informal sources of credit :-
Formal sector Informal sector
Rate of Interest is lower. Higher rate of Interest.
Collateral is must for getting loan. Ready to give loans without any collateral too.
RBI supervises them. No organization to supervise them.
More documentation is required. It involves many
Less documentation, less formalities.
formalities.
Examples :- Moneylender, traders, friends, retailers and
Example :- Banks and co-operatives.
so on.
❇️Role of R.B.I. in Formal Sectors:-
 RBI ensures that the banks give loans not just to profit making businesses but also to small cultivators and
small-scale industries.
 Banks also have to submit the report regarding the lending, interest rate charged on loan etc. to R.B.I.
 Banks have to maintain a minimum cash balance out of the demand deposits they have with R.B.I. R.B.I.
performs this function in order to control the liquidity in market.
❇️SELF HELP GROUP (SHG) :-
🔹 It’s basic idea is to provide financial resources for the poor through organizing the rural poor especially women into
small help groups.
❇️Works of SHG :-
 It organizes the rural poor, especially women, into small Self Help Groups.
 It collects saving of the members.
 it provides loans without collateral.
 It provides timely loans at reasonable rate of interest.
 It also provides a platform to discuss various social issue.