Comparisons of the three sectors according to their contribution to

GDP and employment

Post-independence i.e. in the year 1950-51, primary sector was the largest contributor to
GDP. Its contribution was 53.7 per cent to the total GDP. This was followed by the
tertiary sector which contributed approximately 29.5 per cent. The least was contributed
by the secondary sector that is 14.4 per cent.
This situation reversed after the country went to liberalization i.e. in the year 2000-01,
where the tertiary sector became the largest contributor to GDP. It contributed 57.3 per
cent to the total GDP which is almost double than in the year 1950-51. This was followed
by the secondary sector which occupied the second position by contributing 26 per cent
and the primary sector contributed the least i.e. 16.7 per cent.
One of the main reasons behind this decline in the contribution of the agricultural sector
was is that in 1950-51 the Indian economy was not that much developed. We basically
used to produce primary products and agriculture and mining used to dominate the GDP.
But in the year 2000-2001, the situation has reversed wherein now we are looking for
finished goods. IT, Education, Healthcare play a dominant role and hence the
contribution of service sector dominates the GDP.
This decline is a result of several factors like governmental intervention in labour, land,
and credit markets; lack of Infrastructure; small size of land holdings; poorly maintained
or non-existent land records; inadequate use of modern technology; illiteracy; inadequate
finance and marketing services for farm produce; inadequate irrigation facilities; more
importance given to non-agricultural sectors by government etc.
The economic survey of 2010-11 says that though the overall GDP has grown up by an
average of 8.2 per cent during 2004-05 to 2010-11, agricultural GDP has increased by
only 3.46 per cent during the same period.
The role of agriculture still remains critical as it accounts for about 58% of employment
in the country. This creates an employment imbalance wherein a larger sector of the
economy contributes minimal towards GDP and a smaller sector of the economy
contributes a larger portion towards GDP. It has also led to an income imbalance.
In 1951, primary sector was the largest contributor towards employment, employing 73
per cent of the total population, followed by the tertiary sector and the least was
contributed by the secondary sector.
But since 2000-01, the situation has changed. Primary sector remains the largest
contributor, the tertiary sector came to the second position and the secondary sector
contributed the least.
Though primary sector contributed the most, it still suffered the brunt of unemployment
in the form of disguised unemployment. Even if these people were removed from their
part of work, the production would have no effect.
On the other hand though tertiary sector contributed the most towards GDP, the
employment provided by this sector was too low. The reason for this is that, in the service
sector only skilled employees for example people engaged in IT sector,
telecommunication who earn high income contribute to the GDP. But the count of these
high earners remains very less.
Reasons for most of the people being unemployed:
The graph shows the share of GDP and employment in the three sectors in 1951 and 2000. The
primary sector continues to be the largest employer even in the year 2000. Not enough jobs were
created in the secondary and tertiary sectors. Even though the industrial output or the production
of goods went up by eight times during the period, employment in the industry went up by only
2.5 times. The same applies to tertiary sector as well. While production in the service sector rose
by 11 times, employment in the service sector rose less than the times.
As a result more than half of the workers in the country are working in the primary sector mainly
in agriculture, producing only a quarter of the GDP. In contrast to this the secondary and tertiary
sectors produce three-fourth of the produce whereas they employ less than half of the people.
To bridge this gap, the shift from agriculture sector to the manufacturing sector must be
encouraged. Indias manufacturing sector has stagnated at about 16 per cent of GDP, with Indias
share in global manufacturing at only 1.8 per cent. This is in stark contrast to the experience of
other Asian nations at similar stages of economic development, particularly China where
manufacturing constitutes 34 per cent of GDP and 13.7 per cent of world manufacturing up
from 2.9 per cent in 1991.
Inspite of the boom in the services sector, 75% of India's working population is educated only to
middle school or below. This staggering figure of approximately 600 million people is not even
equipped to benefit from the opportunities in the flourishing knowledge sector. It is only the
labor intensive manufacturing sector that has the capability to generate employment in adequate
numbers to absorb the larger labor pool.
Manufacturing has large stakes involved, not just because the sector employs 30 per cent of the
non-agricultural workforce in India, but also because of its contribution to the overall economy
or GDP. Even though agriculture supports 54% of the working population, it contributes only
16% of the country's gross domestic product. This mismatch between distribution of workforce
and value added in agriculture is one of the main reasons for the large number of poor. Against
this background, only a sharp increase in the Indian manufacturing sector workforce will
increase overall income levels of the country.

The economic benefits of playing the manufacturing card are quite clear - if India is to sustain
overall GDP growth of 8% per annum, it is essential that both manufacturing and services grow
at more than 11% even when agriculture growth picks up from its current 2.3%. The country has
been happily importing large volumes of manufactured goods as its economy has grown, which
has pleased citizens no doubt; but has not been able to develop a large, competitive
manufacturing base to dampen the need for imports and to export.
There are two broad failures in Indias development since the 1990s which is why Indias
manufacturing sector has lagged while high-end information services have grown.
1. The first is the failure to develop power and transportation infrastructure commensurate
with the needs of the economy. IT industries are far less dependent on this infrastructure
for their operations than are manufacturing units.
2. The second is the absence of an industrial policy.
The National Manufacturing Policy which was introduced in 2011 is a departure from the policy
neglect of earlier years. It must address the challenges of rapid job creation and expansion of
domestic production. These are to create 100 million additional jobs in manufacturing by 2025
by accelerating the growth of manufacturing to exceed the overall growth of the economy by an
additional 2 per cent to 4 per cent annually. Thereby the share of manufacturing in the overall
growth of the economy will also increase from 16 per cent, where it has been stagnant, to 25 per
cent.
Quicker and more widespread solutions have to be implemented for stimulating manufacturing
growth across the country to avoid an impending crisis of unemployment.
Here are four quick steps:
1. Improve the business regulatory environment, principally in the States.
2. Focus on the quality of clusters in which MSMEs the backbone of the manufacturing
industry operate as they are difficult to service individually and do not have sufficient clout in
policy circles.
3. Improve the development and utilisation of Indias demographic assets. Human beings must
be treated as the core asset of our manufacturing enterprises and not as a problem to be avoided.
No doubt we need a change in our labor laws. What the changes should be must be determined
by a consultative process amongst the stakeholders. Moreover without a consensus it will be
politically impossible to change the laws.
4. Create the right set of policies to improve technology and increase value addition within the
country, thus enabling reduction of imports and increase in exports and employment.
Thus by developing the manufacturing sector, the burden on the agriculture for GDP and
employment while reduce substantially. Semi-skilled labors which constitute a large
portion in the agriculture will also acquire employment in this sector, which will enhance
his income which will in turn raise the standard of living of the people in the country.