Q.Explain the composition of India's tertiary sector and discuss its contribution to national income and employment.

India's tertiary sector is very broad in composition and contributes a disproportionately larger share of national income than of employment.

Composition. India's National Accounts group the tertiary sector into several broad sub-sectors: (i) trade, hotels and restaurants; (ii) transport, storage and communication, which today includes the fast-growing telecommunications and IT-enabled component; (iii) financial services — banking, insurance, mutual funds and capital markets; (iv) real estate, ownership of dwellings and professional services such as legal, accounting and consultancy work; (v) public administration and defence; and (vi) other services, including education, health and personal/community services. This is a genuinely wide category, unified only by the fact that none of it produces a tangible good.

Contribution to national income. Since the 1991 economic reforms, the tertiary sector has grown faster than either the primary or secondary sector, driven especially by financial services, telecommunications and, from the late 1990s, information technology and IT-enabled services. As a result, services now account for the largest share of India's Gross Value Added among the three sectors — commonly cited at a little over half of total GVA in recent years (an approximate figure that moves somewhat year to year with statistical revision) — ahead of industry and well ahead of agriculture. This reflects a structural transformation of the economy in which growth has increasingly been 'services-led'.

Contribution to employment. The picture on employment is different. Data from the Periodic Labour Force Survey generally shows the services sector employing roughly a third of India's total workforce, a share well below its GVA share. Agriculture, by contrast, continues to employ a much larger share of workers — often well above 40 per cent — despite contributing under a fifth of GVA. This gap between income share and employment share reflects differences in output per worker: services (and industry) tend to have higher productivity per worker than agriculture, on average, which is one reason government policy generally seeks to encourage a gradual shift of the workforce out of low-productivity agricultural work and into higher-productivity industrial and service employment — provided skill development keeps pace, since many higher-value service jobs require specialised training that a large part of the workforce does not yet have.

Andhra Pradesh context. As is often noted in AP Board Class 12 Commerce Economics discussions of this topic, the state's own economy shows a broadly similar pattern — a rising services share of state income, alongside continued heavy reliance on agriculture for employment in many districts — underlining that the national trend described above is also visible at the state level.