Chapter 11 - Core Concepts

Prelims Syllabus

Sectors of Economy

Introduction to the Chapter

Low Importance - in Last 5 to 6 Years Prelims Only One questions has been asked from this Chapter
PYQP - wrt Trends

Inference
1. General Trend is asked
2. Not on Facts and Figures
3. Don’t have to remember all the Trends, Only Some Specific Ones
Categorisation based on Economic Activities
- Primary Sector
  1. Red Collared Workers
  2. Sector - Livelihood from Natural Environment
  3. Hunting and Gathering
  4. Agriculture and Allied Activities
    1. Live Stock
    2. Apiculture
    3. Pisciculture
    4. Sericulture
  5. Mining and Quarrying
    1. Mining - Mineral Resources from beneath the Ground
      
      Ex Coal Mining
    2. Quarrying - don’t Dig deeper, from Earths Surface
      
      Ex Sand Quarrying, Granite Quarrying
- Secondary Sector
  1. People here are called as Blue Collared Workers
  2. Manufacturing is Secondary sector
  3. Processing of Raw Material
  4. Construction Sector
    
    because primarily materials used are raw materials
- Tertiary Sector / Service Sector
  - People
    
    People here are called White Collared Workers
  - Provides Services
    1. Hotel & Rest
    2. Financial Sector
    3. IT Sector
    4. Real Estate Sector
      1. Buying and Selling of Property - Tertiary
      2. Construction of Property - Secondary Sector
    5. Professional Services
  - Distribution of Goods
    1. Trade - Import and Export
    2. Retail and Whole Sale
    3. Transportation
  - Example
    1. Construction of Road - Secondary Sector
    2. Transportation on the Road - Tertiary Sector
- Quaternary Sector
  1. Research & Development
  2. Knowledge based Economy
  3. Requires higher skill set in comparison to tertiary sector
  4. in India Quat Sector is not developed
  5. ES
    1. India - 0.7% of National Income on R&D
    2. China - 1.4%
    3. USA - 2.1%
    4. Israel - 4.2%
- Differentiate Between Quaternary and Tertiary Sector
  1. After PHD
  2. Teaching - Tertiary
  3. in Research - Quaternary
- Quinary Sector
  1. Also called as Gold Called Workers
  2. Highest Decision Makers in both Govt and Private Sector
  3. Home Makers
- Mind Maps
Categorisation in India
- Raw Data
  - Agriculture
    - AFoFi - Agriculture Forestry Fishing
    - General Question is in form of Trends
      1. Agriculture Contribution from 2011-12 to 2019-20
      2. It has remained constant
      3. 2020-21 - Share Increased
        
        Year of Covid
        
        Decline in Manufacturing and Services, they both are Contact Intensive
      4. Hence Relatively Agri Contribution has increased
    - Sub Sector Highest Contribution - Crops
  - Industry
    - Sub Sector
      1. Mining & Quarrying
      2. Manufacturing
      3. Construction
      4. Electricity - EG WU - एग वू
        
        Gas
        
        Water Supply
        
        Other Utility Services
    - Trends
      1. Share of Industry has Decreased
      2. Contribution of Manufacturing Sector to
        
        GDP 17%
        
        Employment 12%
        
        Remains Stagnant
  - Services
    1. Share of Service Sector has Increased
- Trend To Remember
- Only Remember the Highest and Lowest in Sub Sector
- Contribution in Employment & GDP
  - Over All Trend
    
    Industry Sector
    
    Contribution Constant
    
    Employing Constant
    
    Service Sector
    
    Contribution is High
    
    Employing Less
    
    Agri Sector
    
    Contribution is Less
    
    Employ Less
  Agriculture Sector
  - Disguised Unemployment
    1. Person is working - Contribution is Zero
    2. Even if he is taken out, the Productivity will not be hampered
    3. Example of Agriculture Land in India
  - Why such levels of Disguised Unemployment ?
    1. No Educational Qualification
    2. No Proper Skill Set
    3. Getting Employed in Manufacturing and Services Sector is not an option
  - Solution
    1. Skill Set for Family of Agriculture
    2. So that these people can move towards manufacturing or services
  - After Solution Situation
    1. What if Employment in Agriculture falls below the people needed
  - Two Fold Strategy
    1. Increase Skill Set
    2. Productivity of Agriculture
      1. Mechanisation
      2. High Yield Seeds
      3. Adoption of Technology
      4. Improving Agriculture Marketting
Premature Deindustrialization
- Structural Transformation
  1. Agriculture
  2. Manufacturing
  3. Services
- Introduction
  
  Examples
  1. US - Developed - Service Dominant
  2. China - Ex of Matured Industrialisation
    
    1950 - 1980 → Agriculture
    
    1980 - 2022 → Developing - Manufacturing
    
    Reason for Manufacturing Hub
    1. Lowest Labour Cost
    2. Attracts Large no of MNC to MF in China
  3. Examples : iPhone
    
    Made in China
    
    Made by USA
  4. Examples : Samsung
    
    Made in China
    
    Made by Korea
  5. One Child Policy - Less Population - Labour Cost Increase - MNC Shift to Vietnam and Bangladesh
  6. in 1970-80
    1. China After Maturing of Agriculture
    2. Shifted to Manufacturing
    3. but India Jumped from Agriculture to Services Directly → Pre Mature De Industrialisation
- Modes of Escape for Poverty
  1. Geography
    
    Tourism - Northern European Countries
  2. Geology
    
    Tapping into Natural Resources
    
    Middle East, Australia, Canada
  3. Jeans
    
    Low Cost Manufacturing
- Reasons why India missed the Bus to a Manufacturing Hub
  - Closed Economy 1947-91
    1. No Private Participation
    2. Monopoly of PSU’s
  - Land Acquisition Law
    1. By an Archaic Law of 1894
    2. In India it is Time Consuming, Cumbersome
    3. Leads to Social Conflict
  - Stringent Labour Laws - Concurrent Lists
    1. Centre 44 , State > 100
    2. IDA - Industrial Disputes Act
      
      Applies to People of > 100 Workers
      
      Owners have to take prior approval of govt to fire someone from the company
      
      Hence, 90+Contractual
  - Problem of Missing Middle
    
    Background
    1. Industries - Small Medium Large
    2. Few Large Industries
    3. Near Absence of Medium Size Industries
    4. Large Number of Small Industries
    Reasons
    1. If I become a Medium Industry, Small Size Industry Incentive will be lost
    👨‍🏫 In India Incentive to keep being Smaller is more than the Incentive to Grow Larger
  - Ease of Doing Business not present
Categorisation of Sectors as Organised & Unorganised
- Categorisation of Industry
  
  Different Sources have different criteria for deciding a sector to be Organised or Unorganised , But According to ES it is
  
  | Themes | Organised | Unorganised | | --- | --- | --- | | Defintion (Condition is of &&) | 1. Employs More than 10 or more Person 2. Comes Under Govts Regulation | 1. Employs Less than 10 Percent 2. Normally, not under Govt Regulation | | Example | 1. Patanjali | 1. Agriculture 2. Industrial Workers 3. Self Employment | | Facts | 19% in Organised Sector | 81% in Unorganised Sector |
  
  | Formal Worker | Informal Worker | Meaning | | --- | --- | --- | | Job Security | No Job Security | Permanent Employee | | Work Security | No Work Security | If Suffers an accident during course of work, he is entitled to Compensation | | Social Services | No Social Security | Example : 1.Pension or Insurance 2.Provident Fund 3. EPF |
- Informalisation of Indian Work Force
  1. Organised Workers
    1. 10 or More && Under Govt Regulation
    2. Workers
      1. Formal - 49%
      2. Informal - 51%
  2. Unorganised Sector
    1. Less than 10 Workers && Not Under Govt Regulations
    2. Workers
      1. Formal - 00.7%
      2. Informal - 99.3%
Does Unorganised Sector Contribute towards GDP

We directly measure production of Goods and Services from Organised Sector

And then Make Inference for Unorganised Sector because the Calculation is very tough

During De Monetisation Unorganised Sector got more affected
Mind Map

Circular Flow of National Income

Introduction
1. There are 4 Sectors in an Economy
  1. Household
  2. Private
  3. Government
  4. External Sector
2. There is always free flow of Goods and Services between these Sectors
3. Factors of Production - Land Labour Capital Entrepreneurship
4. Factor Payments - Rent Wages Interest Profit
5. Concept of
  1. Real Flow
  2. Money Flow
  3. Leakages
  4. Injections
Models
- Two Sector Model - Household and Firms
  
  Place where actual production takes place is called as Real Sector
  
  Whereas, Place of Money Flow is called Money Sector
  
  Savings are Leakages as Money is going out of Flow.
  
  Here Injection is in the form of Investment
- Three Sector Model - Household, Firms & Govt
- Four Sector Model - Household, Firms, Govt, External Sector
- Cases of Leakages & Injections
  
  Leakages > Injections → GDP Decreases
  
  Injections > Leakages → GDP Increases
Practise Questions

Contraction is Negative GDP Growth Rate

GDP - Gross Domestic Product

Introduction to GDP
1. Indian Resident : Min 182 Days in a Year acc to IT Act
2. Services → Only Marketable Included in GDP
  
  Marketable : It is paid
  
  Non Marketable : It is unpaid ; Painter Painting his home ; I cook for myself
3. Goods → Both Included in GDP
  
  Marketable : For Selling in Market
  
  Non Marketable : For Self Consumption
Basics to Understand GDP

Difference Between Factor Payments and Transfer Payments

Factor Payment : Wages, Interest, Profit & Rent Received due to Land, Labour, Capital & Entrepreneurship

Transfer Payment : Payments without providing Factors of Production like Old Age Income, Grants etc

Transfer Payment is not included as including them would lead to Double Accounting

Types of Pensions

Old Age Pensions to Poor People → Transfer Payment

Pensions to Govt Officials → Factor Payment → Included in GDP

In General Pension is considered to be Old Age Pension which is Transfer Payment
Practise Question

Foreign Remittance is not considered directly but by means of Private Final Consumption Expenditure

Real GDP is calculated at Base Year Price. Real GDP is called as Inflation adjusted GDP

Nominal GDP is the current year's GDP

Whenever we say that Indian GDP is Increasing or Decreasing, we talk about Producer Goods
Producer Goods (Raw Material + Capital Goods) && Final Good
Concept of Factor Cost, Basic Price, Market Price

💵 GDP + Tax - Subsidy
Net Indirect Taxes = Tax - Subsidies
1. GDP at
  1. GDP at Factor Cost - Rs 1000
  2. GDP at Basic Price - 1050
  3. GDP at Market Price - 1075
2. Sector Wise GDP is calculated by Summation of GVA at Basic Price of difference Sectors
  
  Hence, GDP = GVA at Base Price + Net Indirect Tax
  
  GDP = GVA at Base Price + Product Taxes - Product Subsidies
  
  Here, Taxes >>> Subsidies
  
  Hence, GDP >>>> GVA
  
  Scenario 1
  1. Decline in Product Taxes : Difference between GDP & GVA will decrease
  2. Increase in Product Taxes : Difference between GDP & GVA will Increase
Practise Question
Calculation of GDP by Expenditure Method

GDP by Expenditure = PFCE + GFCE + GCF + (X_M)
- PFCE
  
  Trading : Not Included ; Giving Service or Paying Rent : Included ;
- GFCE
- GCF (Investment or Gross Investment)
  
  GCF = GFCF + Change in INventory + Valuables
- Net Exports
Trends in Gross Domestic Saving
GDP v/s GNP
Practise MCQ
Change in GDP Calculation Methodology
Practise MCQ