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CompetitiveExams:ChangesinProductionStructureoftheEconomyExamrace

Asaneconomygrows,itsproductionstructurechanges.Itmovesfromagriculturetowardsmanufacturingandstructurechanges.It
movesfromagriculturetowardsmanufacturingandservices.Itisunderstandable.Youmighthavenoticedthatrelativelywelloff
familiesspendproportionatelylessonfooditemsandmoreonmanufactureditems.Youmayalsonoteinyourfamilythat,asincome
increases,expenditureonitemsotherthanfoodincreasesmorethanproportionately.But,youshouldnotethatnormallyabsolute
amountofexpendituredoesnot,broadlyspeaking,declineinfact,increasesbutlessthanproportionately.Itimpliesthatproduction
structureshouldshiftawayfromagriculture.Moreover,manyagriculturalproducts,whichusedtodirectlyreachthehouseholds,will
nowreachaftersomeprocessingandthroughlongchannelofdistribution.Bread,noodles,saucesandjuicesaregoodexamples.It
meansactivitiesofmanufacturingandtradewillincrease.So,letusseehowtheproductionstructurehaschanged.
Weknowthathundredsofthousandsofactivitiesarealwaysinoperationinanymoderneconomy.Manyactivitiesemergeandsomeof
themdiedownsomeofthemevenreemerge,maybe,inamodifiedform.But,itisdifficulttodiscussintermsofeachsingleitem.
Weoftenaggregatethemonthebasisofsimilarityofproductsornatureofactivities.
OurCentralStatisticalOrganisationusesninebroadcategories,calledsectors.Sixofthemarefurthersubdividedintwo/three/four
subcategories.Industryasasectordoesnotoccurinitindustryisaccommodatedinmining(andquarrying),manufacturingand
electricityIntotal,thereare18categories,sectorsandsubsectors,inwhichtotaleconomicactivityofthecountryispresentedinthe
NationalAccountsStatistics.
Thereare,however,twothreefoldclassificationsinwhicheconomistsdiscusschangesinproductionstructure.Oneisagriculture,
manufacturing/industry,andservicesandtheotherisprimary,secondaryandtertiary.Besidescultivationofcrops,agricultureincludes
livestockandanimalhusbandry.Butforestryandloggingandfishingareclubbedwithagriculturetomakeabroadsectorofagriculture,
forestryandfishingIfweaddthesectorofminingandquarryingtothissector,wecancallitprimarysectorastheseactivitiesare
associatedwithnature.
Themanufacturingsectorisfurthersubdividedintoregisteredandunregisteredmanufacturing,dependinguponwhether
manufacturingunitsareregisteredunderFactoriesAct1948.Industrymayincludemanufacturingandminingandquarrying.Onthe
otherhand,ifweclubthesectorsofelectricity,gasandwatersupplyandconstructionwithmanufacturing,wecancallitsecondary
sector.
Thisisjustamatterofconvention.Theremaybedifferencesbetweencountriesandwithinacountrychangesinclassificationmayoccur
overtime.Wedidnothaveexactlythesameclassificationalways.Whilenewproductsgainentrywitheachmajorrevisionofnational
accounts,someswappingofactivitiesispossible.Forexample,earlierLPGgaswasincludedinthesectorofelectricity,gasandwater
supply,nowitispartofmanufacturing.Whileweshallhighlightsomesalientfeaturesofproductionstructureorcompositionofoutput,
itwouldbeinterestingforyoutodoyourownexercisesanddevelopyourownviewsoncontributionsofdifferentsectors.

AbsoluteContributionofDifferentSectors
Itiseasytoseethatagricultureproductionhasbeencontinuouslyonincreaseandhasincreasedaboutfourfold.SinceourTabledoes
notincludealltheyears,wedonotfindanydropinagriculturalproduction.Therearemanyperiodswhenagriculturalproduction
actuallyfell.Wheneverwenoticeafallinthegrossdomesticproduct,amajorreasonislikelytobeafallinagriculturalproductionasits
contributiontoGDPhadbeensubstantial.Weweremostseverelyhitinagricultureintheconsecutiveyearsof196566and1966
67.Theseyears,however,gaveusgreenrevolution.Wearenowquitecomfortablewiththeoverallperformanceofagriculture.Yet,we
hadhadtwothreeyearsofsetbackineachofthedecade.Weshouldrememberthatagriculturegivesusfood,milkandmeatandgives
toindustrytherawmaterialneededparticularlyforconsumergoodsindustries.Comparedtoagriculture,othersectorsincludedin
primarysectorsaresmallthecontributionofprimarysectorisfoundtohaverisenonlyfourtimes.
ManufacturingwhichcontributedaboutRs.12,500crorein195051,contributedtothetuneofRs.2,00,000crorein19992000,
almostsixteenfoldincreaseovertheperiod.Annualconstructionactivityalsorosetentimes.Constructiondoesnotmeanonlyhouses
butalsoroadsandrailwaylines,dams,andcanals,bridgesandflyovers,etc.Andalsohuts.Electricity,gasandwatersupplywerein
nascentstageintheweehoursofIndependence,contributinglessthanRs.500croreat199394prices.Itscontributionrose60
timesin50years.Overallcontributionofthesecondarysectorrosefifteenfold.
Tradealongwithhotelandrestaurantbusinessrosefourteenfoldovertheperiodwhiletransportalongwithstorageandcommunication
roseeighteenfold.Financialandbusinessservicesincludinginsuranceandrealestatealsorosefifteentimeswhilecommunity,social
andpersonalservices,includingpublicadministrationanddefenceroseonlyelevenfold.Thus,inthesecondhalfofthetwentieth
centurywhilethecontributionofprimarysectortoGDProsetofourfoldthatofsecondaryandtertiarysectorsrosebyfifteenfoldeach.

RelativeContributionofDifferentSectors
Relativecontributionofasectordependsonitsownperformanceaswellasthatofothersectors.Asaresult,despitepositive
contribution,asectormayloserelativeposition.Thus,whileagriculturecontributed50percenttothemakingofGDPin195051,it
contributeslessthan25percentatthecloseofthecenturydespitefourfoldincreaseinitsoutput.Thecontributionofprimarysector
camedownfromcloseto60percenttolessthan30percentovertheperiod.
TheshareofmanufacturinginGDPhasgraduallyrisenfrom9percentto17percentovertheperiod.Theshareofelectricity,gasand
watersupply,whichwashardlyonethirdofonepercentrosetocloseto2.5percent.Theactivityofconstruction,despitegoodrisein
absoluteterms,isconsideredtobeslackeningduringthefirsttwentyyears,whilethesharerosefrom4percentto6percent,during
thelastthirtyyearsitfellbackto5percent.Secondarysectorasawholeraiseditscontributionfromabout14percenttomorethan
24percent.ThesecondarysectoriscloselycontestingtheprimarysectorasfarasitscontributiontotheGDPisconcerned.Letuslook
atthetertiarysector.Theshareofcontributionofactivitiesoftrade,hotelandrestaurantbusinessrosefrom89percentto1415
percentwhilethatoftransport,storageandcommunicationrosefrom3.3percentto7.3percentoverhalfthecentury.The
contributionoffinancialandbusinessservicesincreasedfrom6.7percentto12.7percentwhilethatofcommunityandpersonal
servicesincreasedfrom9.4to13.4percent.Itmaybenotedthat,amongthesectorswithintertiarysector,in195051,the
contributionofcommunityandsocialservicesdominatedthescenebutitgraduallygavewaytotradebutintheninetiessectorof
financialandbusinessservicesemergedasclosecontestant.However,itmaybepointedoutthatpublicadministrationanddefence,
whichcontributedtothetuneof3percentin195051,arenowcontributingmorethan6percent.Withinthebroadcategoryof
communityandsocialservices,theshareofpublicadministrationanddefencehasrisenfromtoovertheperiod

GrowthofDifferentSectors
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wecanalsoderiveatablegivingustherateofgrowthofdifferentsectors.Wehavecomputedonlycompoundannualgrowthrates
(Table3.7).Weshouldtaketheserateswithapinchofsaltastheycruciallydependuponinitialandfinalfigures.Roughlyspeaking,
agriculturalsituationduringsixtiesandseventiescanbesaidtobebadastheratesofgrowthfellbelowthatofpopulation.Foodgrains
dominateinouragricultureandwecannotaffordtoimportit.Evenifweimportsomeagriculturalproduce,beingalargecountry,we
oughttoproduceenoughfoodgrainsourselves.Duringthenineties,thegrowthoffoodgrainsproductionissomewhatslackening.So
longasitdoesnotcreatebottleneckforrawmaterialforindustryandsupplyoffoodgrainsdoesnotfallshortofdomesticdemand,we
canaffordalittlelowergrowthrateinfuture.Therateofgrowthofprimarysectorhasalwaysbeenlowerthanthatofsecondaryand
tertiarysectors,whichisamajorreasonfordeclineinitsshare.
Manufacturingsectoractivitygrewattwicetherateofagriculture.Theseventieswerebadforallsectors.Electricity,gasandwater
supplyaccordedaverylowrateofgrowthof4percentperannumduringtheseventies.Sowasthecasewithconstruction.Secondary
sectorasawholedidprettywellduringtheeighties,betterthanduringthenineties.
Theninetiesbelongtothetertiarysector,whichgrewattherateof7.8percentperannum.Allservicesectorsaregrowingfasterinthe
ninetiesthantheydidintheeightieswhereinperformancewasbetterthanthatintheseventiesintermsofgrowth.Thereare,onecan
see,acoupleofexceptionstothisobservation.
Theoverallmovementseemstobeawayfromprimary/agriculturalcomplextosecondaryandtertiarysectors.Thedropintheshareof
agricultureissharedbetweensecondaryandtertiarysectorsandastimepassestheshareoftertiarysectorsisincreasingfasterthan
theshareofsecondarysectors.

ChangesbyOtherSegregationsofProduction
Threeimportantdivisionsofactivitiesareoftendiscussedbyscholarssofarasproductionstructureisconcerned.Oneisthedivision
regardinglocationofactivities,locationbeingdividedbetweenruralandurbanareas.Thesecondisonthebasisofownershipof
productionestablishments,divisionbeingmadebetweenpublicandprivate.Thethirdoneisaboutorganisedandunorganisedsectors.

DivisionbetweenRuralandUrbanAreas
Agricultureistheindustryofthecountrysideandmanufacturingistheindustryofthetown,saidAdamSmith,fatherofEconomics.As
ahabitationdiversifiesitseconomicactivities,itchangesitsstatusfromruraltourbanatsomepointmeetingcertaindefinitionalmarks.
InIndia,inlastfiftyyears,thenumberoftownshasincreasedfrom2800to3600andpopulationlivinginthemhasincreasedfroma
littleover6croreto26crore.Theproportionofpopulationlivinginurbanhabitationisnowwellover25percent,whichin195051
usedtobearound16percent.Ontheotherhand,thenumberofvillagesisnowaboutsixlakhandavillagemayhavemorethanone
hamlet.Thenumberofruralhabitationsisover10lakh.Notonlyagriculturalandpastoralactivitiesarecarriedoutinruralhabitations,
manufacturing(handicrafts),trade(retail),transportation(bullockcartsandtractors)arealsopartofruralactivitiesandruralfolk
benefitfromthem.
Wedonothaveregularannualseriesofproductionoutputoftheactivitiesaccordingtoruralurbandivision.TheCSOhasmade
availablesuchadivisionfortheyears197071,198081and199394butonlyatcurrentpricesandfornetdomesticproduct.
Withthehelpofthesefigures,wegathersomebroadideaabouttheshiftinactivities.Fromtheperusalofthesestatistics,onewould
noticethatin197071only62.5percentnetdomesticproductwasgeneratedintheruralareawheremorethan80percent
populationresided(andworked)whileintheurbanareapopulationresiding(andworking)wasless,20percent,thenetdomestic
productgeneratedwas37.5percent.
Thus,percapitanetdomesticproductintheurbanareawas2.45timesthatintheruralarea.Whenwelookatthedatafor199394,
wegatherthatwhilepopulationproportioninruralareahasreducedbyabout6.7percentpoints,itscontributiontonetdomestic
producthasreducedby8.6percentpointsbutjustthereversecouldbesaidtobethecasewiththeurbanarea.Butthelossof6.7
pointsin80.2pointsisnotthesameasgainof6.7pointsin19.8points.Therefore,netaccretionstothetwoareasonpercapitabasis
showthatpercapitanetdomesticproductintheurbanareais2.39timesthatintheruralarea.Thoughthisratioisnotdeteriorating
overtime,itishighenoughtomakepeoplemovetourbanareasevenifunemploymentrateissomewhathigherinurbanareas.
DivisionbetweenPublicSectorandPrivateSector
Eversincetherehasbeenthestate,therehasbeenpublicsector.Butthepresenceofpublicsectorinproduction,beyondpublic
administrationandcontrol,wasverylittlebeforeIndependence.Ithasbeenincreasingovertimeaswepursuedapolicyofstate
interventioninvarioussectorsforvarietyofreasons.Thereisnotonebroadsectorofeconomicactivitieswherepublicsectoris
altogetherabsent.Wehavefirmdataoncontributionofpublicsectorindifferentproductionsectorssince196061.Acursorylook
suggeststhattheimportanceofpublicsectorhadbeenonincreasewiththepassageoftimeinpracticallyallsectors.Theshareof
publicsector,whichwasbarely9percentevenin196061,hasincreasedcloseto27percentthoughoflatethespeedofrisehas
slackened.
Publicadministrationispurelyapublicsectoractivityandinfishing,ithasjustshownitspresence.Inagricultureitspresencehas
increasedbutitpredominantlyseemstobeirrigationasthisactivityisaccountedforwithinthesectorofagriculture.Itscontributionin
forestryandloggingsectorisdrasticallyreducing.Mostoftheminingactivityisunderpublicsectoranditisnowaround80percent.
Eveninthesectorofmanufacturingitssharehasgraduallyincreasedfromaround7percentin196061toaround20percentin
199899.Theshareinconstructionactivityhasincreasedfromlessthan5percentin196061toalmost16percentin199899.
Itisintradethatpublicsectorhaswithdrawnsince198081whenitparticipatedtoanextentof8.5percent.Itsroleintransport
hasalsoplummetedtosomeextentyetitplaysagreatrole.TherailwaysarecompletelywiththeGovernmentofIndia.Inroad
transport,statecorporationsplayasignificantroleatleastinpassengertransport.Infinancialsectortoo,thepresenceofpublicsector
rosesignificantlyitrosefrom6.5percentin196061to17percentthanksduetonationalisationof14majorbanks.Afurtherdose
ofnationalisationin197576ledtoitsfurtherriseto27percentby198081.Even6.5percentin196061shouldoweagreat
dealtothenationalisationofImperialBankastheStateBankofIndia.

DivisionbetweenOrganisedandUnorganisedSectors
Organisedsectorincludesallpublicsectorestablishmentsandprivatesectorestablishmentsregisteredunderoneortheotheract,such
asCompanyAct,FactoryAct,SocietiesActorCooperativeAct,etc.Theyaresupposedtomaintainaccounts.Netdomesticproductwas
founddividedbetweenorganisedsectorandunorganisedsectorin25:75ratioin196061.Withpassageoftime,theproportionof
organisedsectorwentonincreasing,withsomefluctuation,andreachedaround30percentby198081.Sincethen,itssharehas
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beenrisinganditisexpectedtobearound40percentbythecloseofthecentury.Withinorganizedsector,manufacturingaccountsfor
40percentandcommunityandpersonalservices,30percentwhiletradeandfinancemayaccountfor25percent.

IndustrialStructureofEmployment
Allablebodiedpersonsshouldwork.Childrenshouldnotbeallowedtowork.Old,sickandinfirmshouldnotbepermittedtowork.Even
ifproductionisalmostmechanised,thereisamanbehindthemachine.Peoplewhoareemployedandpeoplewhoemployaswellas
peoplewhoareselfemployedarealltreatedasworkers.Theirnumericalstrengthisknownasworkforce.Peoplewhoarewillingtowork
attheprevailingwageratebutarenotemployed,aretreatedasunemployed.Despitethegeneralfeelingthatalargenumberofpeople
areunemployed,thepercentageofpeoplewhoareunemployedisnotverylarge(However,inthecompositionoftheunemployed,a
largenumbercomesfromtheeducatedlot).Thereasonisthatpoorpeoplecannotaffordtobeunemployed.
Theyworkonsomebodyelse'sfarm,shoporfactoryorengagethemselvesinsomeortheotheractivityontheirownaccount.We
should,however,rememberthatstatisticsusedbyusdonotincludepeopleengagedinactivitiescarriedoutinhomesandhearthsby
themembersofthefamily/household.Theproportionofpeopleworkingintotalpopulationinourcountryisaround40percent.This
proportionishigherinthecaseofmalemembersandthoselivinginvillages.Thereisavarietyofwaysinwhichemploymentdatais
presented.Oneclassificationissectoral(orindustrial)andtheotherisoccupational.Theyaremadeforeachofbasicfourcategories,viz.
ruralmale,ruralfemale,urbanmaleandurbanfemale.EmploymentdataisavailablefromthecensusaswellastheNSS.Thecensus
datafor2001isnotyetavailableinasmuchdetailasweneedtheminthischapter.WeoptfortheNSSdata.However,comparable
NSSdataisavailablefrom197273onlyatanintervaloffiveyears.

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