Meaning and Scope of the Tertiary (Services) Sector

Every economy is conventionally divided into three broad sectors on the basis of the kind of activity carried out: the primary sector (agriculture, fishing, forestry, mining — activities that draw directly on natural resources), the secondary sector (manufacturing and construction — activities that transform raw material into a finished product), and the tertiary sector, also called the services sector. The tertiary sector does not produce a physical good at all; instead it produces a service — an intangible activity that supports, links, or facilitates production and consumption elsewhere in the economy.

Trade, transport, storage, communication, banking, insurance, real estate, tourism, hospitality, professional and business services (legal, accounting, consultancy), education, health care, information technology, and public administration are all part of the tertiary sector. What unites this very diverse list is that none of these activities results in a tangible product changing hands — a bank does not manufacture money, a teacher does not manufacture knowledge as a physical object, a transporter does not manufacture the goods it carries. The 'output' is the service itself, consumed more or less at the moment it is rendered.

For AP Intermediate Second Year Commerce students preparing for the BIEAP Economics examination, this chapter is important because the services sector is today the single largest and fastest-growing part of the Indian economy, and understanding its structure is essential to understanding modern economic growth. It is worth noting here that the Andhra Pradesh Intermediate Economics syllabus, framed by the Board of Intermediate Education, Andhra Pradesh (BIEAP), draws on the same core principles of sectoral classification of national income that are taught under the NCERT/CBSE curriculum elsewhere in the country — only the treatment, examples and question pattern here are the Board's own.

The tertiary sector is sometimes further split into two parts for analytical convenience: basic/infrastructure services (transport, communication, banking, insurance — services that support production in the primary and secondary sectors) and non-basic/consumer services (retail trade, tourism, personal and household services — services consumed more directly by households).