Macro Moves

Indian Economic Sectors and the ‘Manufacturing’ Lag

Created on 14 Oct 2019

Wraps up in 4 Min

Read by 3.5k people

Updated on 28 Feb 2020

analysing growth of Indian economic sectors

Understanding the economy and economic growth is not an easy task. To compute its input and output is even tougher. Economists have broken down this entire system into simpler sectors for easier analysis.

The three sectors of the economy are commonly known as- primary, secondary and tertiary. Each sector has its own set of activities, outcomes, and challenges. The following information is about the fundamentals of macroeconomics.

The Primary Sector

It deals with producing materials in raw form. This includes mining and quarrying activities because they come out with ores. Agriculture, too, is a part of it because it produces grains and fibers in the raw form. This implies that it also includes fishing, animal husbandry, sericulture, beekeeping, and other such activities that deal with the production of raw goods.

The primary sector is fundamental to every economy. Metals come from ores, food, and clothing come from crops; even energy and chemicals are only possible because of it.

In India, the primary sector is the biggest employer due to a 60% agriculture-based workforce. However, its contribution is limited to only 15% of GDP now.

The Secondary Sector

It brings the raw produces of the primary sector in the finished form. Automobile, chemicals, construction, electronics, energy are just a few names. Every product around us is secondary sector produce.

The Indian secondary sector contributes to 30% of GDP.

The Tertiary Sector

The tertiary sector is the service sector. Health, education, application start-ups, telecom, banking, accounting, and all other intangible working sectors are part of service sectors. Most service sectors create opportunities for the manufacturing and primary sector.

The telecom industry creates demand for metal for towers and electronics industry for SIMs and Mobile Phones. This large pie of GDP contributes 55% of it.

The Quaternary and Quinary Sector

These are an extension to the tertiary sector to understand the depth of services. The quaternary sector comprises of research and development, blogging, financial planning, media & entertainment, and other pure services.

Quinary services involve services that involve control. This includes 'gold-collar' policymakers and senior-level business executives.

The Indian Story

Most countries have evolved in a certain pattern. They were in the primary sector, then started manufacturing, and now the pioneer service sector. As you can now reckon that the service sector needs a highly skilled workforce, unlike primary services. Hence, we can see that this evolution has to do with skill development, and services have the largest share in the countries. The primary sector is as much as only 4%.

The 'Missing Middle' Problem

Do we see something different in the Indian scenario? India's primary sector contributes 15%, while the world averages just 6%! Though India is a pioneer in services today, its 60% workforce lies in agriculture. What have we missed?

When India opened its gates for the world in 1991, the world was at the cusp of the third Industrial revolution- the services. India inadvertently took a jump from the primary sector to the service sector! India's manufacturing sector was left waiting for its revolution. We missed this 'middle' sector.

Its consequence is all we see now. A large population is left in the farms that were supposed to uplift their standards by working in factories. These skilled factory workers would see their next generation in high skill needing the service sector.

India faces a skill deficit due to a large unskilled population. India’s service sector growth could not reach its full potential. The world average of the service sector is beyond 60%

Can we still go ahead?

In the era of the fourth industrial revolution with AI and Machine Learning being the future, can we still pull ourselves from the 'missing middle'?

We can definitely be optimistic. India now needs to focus on manufacturing what this era needs, like microchips. This requires skilling Indian labor in that direction. Education in schools needs to meet the demands of the economy. Bangladesh and Vietnam are already doing it.

The second problem is that while the service sector needs lesser resources, manufacturing needs large plots of land and expensive machines. Licensing and red-tapism are other issues that India needs to address. It has to encourage young entrepreneurs.

Fortunately, the government has come up with 'Make in India.' It targets an annual growth rate of 12-14% in this sector. Though the targets in manufacturing are achieved in the long term, this is an excellent initiative if delivered. Skill development is another issue because the government is still focusing on skills no longer attractive in the market, especially when urban India faces large scale educated unemployment.

If the problems are resolved, we will be an example of an economic boom for the entire world, better than we already are. Just remember that we have to run like a hare with the perseverance of the tortoise. Nothing is impossible.

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Deb P Samaddar

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