Sectors of the Indian Economy
Measuring production: GDP
Explain how GDP is counted and how sectors change in importance.
How do we add up production? We cannot add cars, computers, nails and furniture. So economists add up their values in money. If 10,000 kg of wheat sells at Rs 20 a kg, its value is Rs 2,00,000. Sell 5000 coconuts for Rs 15 apiece and their value is Rs 75,000. The values of goods and services in each sector are worked out and added together.
Count only final goods. Follow wheat on its journey:
- A farmer sells wheat to a flour mill at Rs 20 a kg.
- The mill sells the flour to a biscuit company at Rs 25 a kg.
- The company makes four packets of biscuits and sells them to consumers for Rs 80 (Rs 20 a packet).
The biscuits are the final good: they reach the consumer. The wheat and flour are intermediate goods: they are used up making the final good. The Rs 80 already includes the value of the flour and wheat. If we also added the wheat and flour separately, we would count the same thing several times.
GDP: the size of the economy. A sector's production for a year is the value of the final goods and services it made that year. Add the three sectors together and you get the Gross Domestic Product (GDP): the worth of every final good and service made inside a country in one year. GDP tells us the size of the economy. In India, a central government ministry, helped by the states and union territories, collects the data and estimates GDP.
GVA. Recently India began reporting each sector's contribution as Gross Value Added (GVA) in place of GDP, to match global practice. GVA measures what each sector adds once taxes and subsidies are adjusted for. The exact difference from GDP comes in higher classes.
How sectors shift as countries develop. In many of today's developed countries:
- At first, the primary sector was most important. As farming improved and produced more food, some people could become craftspeople, traders, transporters and soldiers.
- Over more than a hundred years, new manufacturing methods brought factories. People left farms for factories, and the secondary sector became the most important in production and jobs.
- Over the last 100 years, the shift has moved on again, to the tertiary sector. Services are now the biggest in production, and most people work in them.
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