Components/Structure of GDP, Economic Activity, Role / Importance / Contribution of Sector.
Key Points:
1. Meaning of Structure of GDP.
2. Meaning of Personal Consumption.
3. Meaning of Business Investment.
4. Meaning of Government Expenditure.
5. Role of Primary, Secondary and Tertiary sectors
(Industries) in GDP.
6. Meaning of Primary Activities.
7. Meaning of Secondary Activities.
8. Meaning of Tertiary Activities.
9. Role of Primary Sector in GDP of India.
10. Role / Importance / Contribution of Primary Sector.
11. Role / Importance / Contribution of Secondary Sector
in GDP.
12. Role / Importance / Contribution of Tertiary sector in
GDP.
1.Components of GDP / Structure of GDP:
GDP is the total economic output of a country for a
given period usually one year. It denotes what is being spent in the economy of
that country.
Components = Personal consumption
+ Business Investment
+ Government Expenditure
+ Net Export (Goods and Services)
Sum of all the items is known as "Components of GDP",
So, GDP = Personal Consumption + Investment in Business
+ Expenditure made by the Government + Net Exports.
Net exports = Imports – Exports.
2.Personal Consumption = Expenses on durable goods
(Vehicles, furniture etc.)
+ Expenses on Non-durable
goods
(Clothes, Shoes, Food,
fuels etc.)
+ Expenses on Securities
(Insurance, Banking, Education, Healthcare
etc.)
3. Government Expenditure -
Expenditure incurred by Central Govt., State Govt., Local Authorities, Village
Panchayats.
4. Net Exports (Goods and
Services):
It is well known that
Imports and Exports are opposite activities which cause effects on GDP. Exports
are added to GDP and Imports are subtracted from GDP.
5. Business Investment:
It is meant by the purchases
which the companies make to produce or manufacture consumer goods. Here is an
exception that every purchase is not counted. If a purchase only replaces an
existing item, it is not added to GDP, that’s why not counted. To get counted
every purchase must create new consumer goods.
Business investment is
divided into two parts (i) Fixed investment, (ii) Change in private inventory.
(i) Fixed Investment:
Fixed Investment means
non - consumer investment which mainly includes business equipment. It also
includes the residential construction.
(ii) Non - consumer Investment:
Non - consumer Investment
means investment in commercial construction which is a small part.
(II) Change in Private Inventory:
Change in Private
Inventory means how much consumer add to the Inventories of the goods they plan
to sell.
(i) Increase in Inventory:
An increase in inventory
means the consumer receive order for goods they do not have in stock. (An
increase in private inventories contributes to GDP.). The companies order more
to have enough products in stock so that the potential consumers do not get
disappointed and the change of their turn away is reduced.
(ii) Decrease in Inventory:
A decrease in inventory means
that the companies are seeing demand slack off. As inventories build, companies
cut back on production. If it continues long enough, then layoffs are next.
So, the change in private
inventory is an important leading indicator.
Role of Primary, Secondary and Tertiary sectors (Industries) in GDP:
A sector is an area of
the economy where businesses share the same or similar business activity,
products or service. Sector means large group of companies with similar
business activities.
The three sectors
represent different businesses and also the goods they obtained and sale in an
economy.
Every human activity
which generates income is known as "Economic Activity". These
economic activities are divided into Primary, Secondary and Tertiary
activities.
(i) Primary Activities:
These depends on
environment i.e. natural resources of earth like land, water, vegetation,
building materials and Minerals. It also known as fishing, Forestry,
agricultural, mining etc.
These workers are known
as "red - collar workers".
(ii) Secondary Activities:
These activities add
value to natural resources by changing raw material into valuable products.
These activities are related to manufacturing, processing and infrastructure
(Construction) Industries.
These workers are known
as "blue - collar workers".
(iii) Tertiary Activities:
These activities include
both production and exchange. Production includes the provision of services
which are consumed and exchanged includes trade, transport and communication
facilities. Which are used to overcome distance. These workers are known as "white - collar workers".
The economy of a country
is a combination of various types of industries. These Industries may be of
three types i.e. Primary, Secondary and tertiary.
"Industry" means group of companies
with similar business activities. E.g. Cloth manufacturing, Hotel, Tourism,
Steel, Pharma, Automobile etc.
(I) Primary Sector (Extraction Sector):
It may be divided into
two parts -
(i) Genetic Industry - Growing
of vegetables, fruits, fisheries, livestock etc.
(ii) Extractive Industry -
Extractive industry obtained raw materials from nature. Mining, Petroleum.
Example of Primary Sector
- Agriculture, fishery, forestry, mining animal husbandry.
(II) Secondary Sector:
It includes construction
and manufacturing industries. It uses the products of primary sector as raw
material and manufacture different products for tertiary industry.
There are two parts - (i)
Light Industry, (ii) Heavy Industry.
For example - Automotive,
Food processing, Textile, Construction, Chemical, Aerospace, Energy etc.
(III) Tertiary Sector:
Primary and Secondary
sectors are related to Production and Manufacturing and tertiary is service -
based sector. It is provides support and help for development of primary and secondary
sectors. This sector covers Banking, Insurance, Healthcare, Transportation,
Communication etc. This sector works closely with final consumers / customers.
For example -
Professional services, (Auditor, Lawyer, Engineer) Telecommunication, Hospitality,
Public Health, Financial services, Legal services, Tourism, Restaurant etc.
6. Role of Primary Sector in GDP of India:
When any goods is
produced by using natural resources, it is an activity of primary sector and it
comes the base of all the products to get produced subsequently. Most of the
natural resources are obtained through agriculture, dairy, fishing, forestry
etc. it is also known as Agriculture and related sector.
The contribution of
agriculture in Indian GDP was 16.36% in 2016, 16.56% in 2017, 15.97% in 2018,
16.68% in 2019, and 18.32% in 2020.
7. Role / Importance / Contribution of Primary Sector:
(i) Contribution to National
Income - Agriculture contribute more than half of the National income during
1947. But it decreased in current years. According to NSO, agriculture and
allied sector contributed about 18.32% in 2019 - 20.
(ii) Employment for large
population - Agriculture is the backbone of the economy. Agriculture is the
primary occupation of the majority population. Approximately, 70% population depend
on agriculture and allied activities. In 2019, this sector employed about 43 %
of the population of India.
(iii) Supply of food to peoples
- Food is the basic requirement for survival of humans. Food demand of the
India is very high and increasing year after year due to increasing population.
In 2019-20, the food grains production was approximately 296 million tons.
(iv) Provides raw material as
base - Agriculture provides raw material for industries such as sugar, jute,
cotton, textiles etc. Paper industry need grass, bamboo and after plant
materials. Paper production is impossible without agriculture. It also includes
food processing industry which has a variety of packaged foods.
According to John Muhaise
- Bikalemesa - You cannot have a happy, healthy and peaceful continent without
food.
According to Arthur Keith
- The discovery of agriculture was the first big step towards a civilized life.
In the long run suitable
sustainable growth and development of economy, it becomes important that the
Indian economy, needs its primary sector to be reformed and modernised.
Modernisation of agriculture will lead to increase in more yield of Crop per
unit area and increase its share in GDP.
8. Role / Importance / Contribution of Secondary Sector in GDP:
Secondary sector is also
known as production and manufacturing sector. It's main function is to prepare
the raw materials which are received from primary sector for use in goods and
services.
Contribution -
(i) This sector contributes
20% of total GDP.
(ii) Employments are
generated.
(iii) It contains textile, food
processing and Metal Industries etc.
(iv) Final goods for
consumption which are used in households are the products of this sector.
(v) It contributes to
progress in the country especially the creation of wealth.
The manufacturing
industries like Automobile, Electrical, Chemical, Energy, Construction, Food,
Glass, Textile and consumer goods industry are the main part of this sector.
The secondary sector creates an important parts of GDP, it creates goods and it
is the driving force of economic growth. Its development can be attributed to
demand for more goods and food, which leads to industrialization.
When an economy, after
the primary sector, moves towards the secondary sector, the new technology of farming
and Agriculture, the industrialization become the dominant because the goods
can be changed into articles and commodities as per our need. The growth of
secondary sector is slow but there is a lot of scope for the growth of
secondary Sector.
Secondary sector is a key
sector in increasing productivity and generating employment. After Independence
and due to socialization of democracy, share of agriculture (Primary Sector) in
GDP is decreasing and the share of industries (Secondary Sector) is increasing.
Growth of opportunities
in employment in the secondary sector has been very high. It is the highest of
three sectors. Indian economy is a very favourable market for the activities of
secondary sector. India is the world's one of the largest producer of textiles,
automobile, telecommunication, Steel, tourism, medical, energy etc. This sector
adds value to the products and services.
9. Role / Importance / Contribution of Tertiary sector in GDP:
Tertiary sector provides
direct service so it can be called as Service Sector also. Major tertiary
sectors are -
(i) Transportation Services -
Roadways, waterways, airways, railways etc.
(ii) Hospitality Services -
restaurants, hotels, Resorts etc.
(iii) Financial Services -
banks, insurance, companies etc.
For past sometimes, the
economics are shifting from manufacturing sector to service sector due to
following reason / objectives -
Modern and innovative
technologies are contributing at a large for development of service sector
which has increased productivity of labour.
This sectors creates
movement of all the types of goods and services.
Increase in productivity
of labour has turned into higher salaries and it has increased their purchasing
power.
This sector has increased
the standard of living.
Tertiary sector is a boon
for Indian GDP and economy because it is generating millions of employment and
ultimately rising the economic growth of India. The Governments are also making
their policies by keeping in view the opportunities in this sector because
major portion of the employment is shifting from primary and secondary Sector
towards Tertiary sector.
Service sector
contributes more than 50% to GDP of India. Due to covid-19 pandemic, the GDP
declined from 55 % in 2019-20 to 53% in 2021-22. The present share of tertiary
sector (2021-22) in GDP of India is 53.89 % while primary sector 20.10 percent
secondary sector 25.92%.
