The economy is primarily a system of production of goods and services. This production is classified into three different sectors for a clear understanding of the structure of the economy and for effective design and implementation of development strategies.
The first sector is called Primary Sector and it is related to extraction of raw materials. Natural resources are transformed into primary products in this sector, which are further used by other sectors. This sector includes Agriculture, Fishing, Forestry, Mining and Quarrying.
The second sector is called Secondary Sector and is mainly concerned with manufacturing. This sector uses the products of primary sector(raw materials) and adds value to it by modifying it and transforms them into goods.
‘Tertiary Sector’ is the third one which is related to the provision of services to customers and businesses. Hence, it is also called service sector.
As per the ‘Three sector hypothesis’ in economic theory, the main focus in an economy shifts from Primary sector, through the secondary sector and finally to Tertiary sector. Development is identified as the structural change in the economy from primary to later ones. It is supposed to lead to increased quality of life, reduction of poverty and unemployment, improvement of education, etc.
Though there is a gradual change in the structure of the economy during development, all the sectors also grow in quantity. In an underdeveloped economy primary sector will be responsible for most of the production, say 80% for an example. While development is happening the share shrinks to maybe 60% of GDP. But during the same period, the size of the economy will also increase from 10 crore rupees to 15 crore rupees. So, what was 80% translates to 8 crores in the initial times while 60% of 15 crores becomes 9 crores. You can see that there is a growth in the size of all sectors in spite of the change in structure and reduced share of some sectors.
In India, we classify industries into, four different types. Capital Goods Industry, Basic Goods Industry, Intermediate Goods Industry and Consumer Goods Industry. Capital Goods Industry includes the industries that manufacture plants and machines used to produce other goods. Basic Goods industries are those core industries which may not be directly contributing much value to the economy, but are unavoidable for the growth of the economy. This includes Petroleum, Coal, Gas, Cement, Fertilizer etc. Sometimes a product from one industry may be a raw material for another industry. Such Industries which produce goods which connect two sectors are called Intermediate Goods Industry. For example, steel can be an intermediary good which is used to make heavy machinery in a capital goods industry or in making a household instrument in consumer goods industry. Consumer Goods Industry includes all the goods which are used by general public in common.
Consumer goods are again divided into durable goods and non-durable goods. Non-Durable goods are those perishable goods which we consume immediately after purchasing. It includes all the consumables which we use up in short time period like Food Items, Toiletries etc. Durable goods are those goods which can be used repeatedly for a longer period of time. The Electronic instruments, utensils etc are classified as durables. They are also called white goods as they were initially made up of steel or aluminium which is white in colour. For statistical purposes, the difference between these two types of goods is taken as a minimum shelf life of 3 years.
The debate among policy makers who try to induce development was that whether the development should be balanced or unbalanced. In a balanced growth strategy, the government gives equal importance to all sectors of the economy and tries to develop them equally. But in the case of an unbalanced growth strategy, the government focuses only one of the sectors and wait for others to develop on its own.
Those who support unbalanced strategy argues that the sectors in the economy are interlinked and expansion in one sector will force the growth in other sectors. For example, if government actively develops sugar industry, the demand for sugar cane will go up. The demand causes the increase in price and attracts more farmers to grow sugar cane. This is how due to the backwards linkage of sugar industry sugarcane agriculture develops. similarly, if there is surplus sugar and price of sugar come down the industries like sweets manufacturing, using sugar as a raw material will increase their production. Seeing their success more such industries will come up. Due to the forward linkage, more sectors develop. If the backwards and forward linkages of an industry are not capable of pulling up the related industries, the growth will not be sustainable and will be of short duration only.
Economic constraints of the economy also is a reason for unbalanced growth strategy. As the government doesn’t have enough money to invest in all sectors, it carefully chooses and invests in those sectors which have more linkages and can make whole of the economy move.