Meaning of the Tertiary Sector

Economists commonly divide every economy into three broad sectors based on the nature of the activity carried out. The primary sector draws output directly from nature — agriculture, animal husbandry, fishing, forestry and mining. The secondary sector transforms the raw materials that the primary sector yields into finished or semi-finished goods through manufacturing and construction. The tertiary sector, which is the subject of this chapter and is also called the services sector, is different from both: it does not extract a resource or physically produce a good at all. Instead, it produces an intangible output — a service — that supports, facilitates or completes the economic activity of the other two sectors, or directly satisfies a consumer's need.

A student working through TS Inter II year Economics will notice that this three-sector framework, often associated with the economist Colin Clark's observation on how economies evolve, is the natural starting point for understanding why the tertiary sector has become so central to a modern economy such as India's. As incomes rise and an economy develops, resources and workers tend to move first from agriculture into industry, and then, at a later stage, from industry into services — this pattern of structural change is precisely why India's own tertiary sector has grown into the largest single contributor to national income.

Services carry a few features that mark them off clearly from goods. A service is generally intangible — it cannot be seen, touched or stored the way a bag of rice or a bar of steel can. Production and consumption of a service often happen simultaneously — a haircut, a bus journey or a bank transaction is 'consumed' at the very moment it is 'produced'. A service also frequently plays an auxiliary role: transport moves the primary sector's crops and the secondary sector's manufactured goods to market; banking finances a factory's working capital; insurance protects a farmer's crop or a firm's cargo against risk. Understanding this distinction is essential before we look at what the tertiary sector actually comprises, how large it has grown in the Telangana Intermediate commerce and economics syllabus, and why.