Sectoral Classification: Primary, Secondary and Tertiary Sectors

Economic activity in any economy can be classified into three broad sectors based on the nature of the activity involved. This classification is one of the most widely used tools for describing the structure of an economy.

Primary sector. This sector covers activities that directly draw on natural resources — agriculture, animal husbandry, forestry, fishing, and mining and quarrying. It is often called the "agriculture and allied activities" sector, since agriculture dominates it in most developing economies.

Secondary sector. This sector covers activities that transform raw materials produced by the primary sector into finished or semi-finished goods — manufacturing industry, construction, and public utilities like electricity, gas and water supply that involve processing or generation. It is often simply called "industry."

Tertiary sector. This sector covers activities that do not produce a physical good but provide a service that supports the other two sectors and consumers directly — trade, transport, communication, banking, insurance, education, health, public administration and a wide range of other services. It is often called the "services" sector, and in most growing economies it is the sector that expands fastest as income rises.

How India's sectoral composition has changed. A well-established structural feature of the Indian economy is that the share of agriculture (the primary sector) in the country's total output has declined steadily over the decades since independence, while the shares of industry and, especially, services have risen — services today account for the largest share of India's national output. This is a normal pattern of structural transformation seen across growing economies worldwide, not something unique to India. What makes the Indian case distinctive, and is examined in the next section, is that this decline in agriculture's output share has not been matched by an equally large decline in agriculture's employment share — a large proportion of India's workforce still depends on agriculture for its livelihood even though agriculture now generates a much smaller proportion of national income. This chapter deliberately describes this shift qualitatively and directionally; the exact sector-wise percentage shares for any given year are published periodically by the government's own National Accounts Statistics and should be looked up from that current official source rather than treated as a fixed number to memorise from a textbook. …