Economic Transformation of Real Sector in India

An economy may be divided into the real sector and the nominal sector. The real sector of the economy deals with the production side, while the nominal economy deals with the financial side. The primary and secondary sectors of an economy are examples of real economy. Primary sector is accountable for securing raw materials and agricultural goods. The secondary sector is responsible for securing and processing raw materials into material goods. These jobs are done in factories converting raw materials into manufactured products. Major industries including Textiles, Chemicals, Food Processing, Steel, Transportation Equipment, Cement, Mining, Petroleum, and Machinery are considered secondary markets.

 The tertiary sector or service sector of the economy is known as the nominal economy. Instead of securing and processing raw materials into material goods, the Tertiary sector produces services maintenance and repairs, training, or consulting. The ‘tertiary sector’ of the economy, covers a wide gamut of activities like trading, banking and finance, Information Technology (IT) and Software Services, Business Process Outsourcing (BPO), medical services, Real estate, transportation, etc. The other services include housekeeping, tours, nursing, teaching, etc.

At present primary Sector is the major source of employment and accounts for 44.6% of the workers in India. The secondary sector employs 24.7%. Together, of primary and secondary sectors the real sector provides 69.3% employment in India. The agriculture sector will contribute 18.42% of the GDP in 2022-23, while the Industry sector will contribute 28.25% of the 2022-23 GDP in India. The Share of agriculture in India’s GDP declined to 18.42 per cent last fiscal year from 35 per cent in 1990-91 due to rapid growth in the industrial and service sector.  As the transformation of the industrial as well as services sector has overwhelmingly been based on capital-intensive techniques requiring skilled manpower, the relative shift in sectoral incomes has been devoid of any commensurate relocation of surplus labour and more than three-fifths of the population continued to draw its livelihood from the real sector.

The Government of India and State Governments have been taking several measures to reform the agriculture sector such as free movement of agricultural commodities, the APMC Act permitting farmers to bypass the mandatory requirement of sale in regulated markets, and the relaxation of restrictions under the Essential Commodity Act, 1955. In addition to the above measures, the introduction of futures trading brought major changes in the pricing mechanism from manipulation by local traders. Commercial Banks in India are lending to farmers at a concessional rate of interest for agriculture and allied activities. Large consumer goods companies directly source agricultural terms of trade (TOT) for the agriculture sector, this trend in TOT was also strengthened by lowering of protection for the manufacturing sector and market-determined price of foreign exchange. With economic growth and rising disposable incomes, the consumption basket has changed significantly. Growing demand for milk, poultry products, and horticulture products, has induced substantial diversification towards allied activities which now account for nearly three-fifths of total primary sector output.

The manufacturing industry in India has emerged as a fast-growing sector owing to the rapidly increasing population in the country. Investments in the sector have been on the rise and initiatives like ‘Make in India’ aim to the South Asian country into a global manufacturing hub. The annual production growth rate in the manufacturing industry was 4.7 percent percent during fiscal year 2023.

Deregulation of the industry by way of eliminating licensing requirements, overhauling public enterprises, enhancing the role of the private sector, abolition of MRTP Act, automatic approval route for foreign investment, elimination of quantitative import restrictions and reduction in tariff rates crated a conducive environment to gear up the industry to face growing domestic as well as external competition to which it was exposed by the reform process. Besides, the de-reservation of a large number of items that were earlier meant to be produced exclusively in the small-scale sector came up in the way of more reforms. Measures were further improved with liberalisation of foreign direct investment not only in terms of scope and proportion of foreign ownership but also in bureaucratic details. The industry responded well to reforms by undertaking a massive restructuring of its operations by upgrading its technologies, expanding to more efficient scales of production, resorting to mergers and acquisitions both within and outside the country, and refocusing its activities on the core competence.

Projections indicate that India will continue its upward growth trajectory on the back of stable and robust domestic demand, expanding private consumption and investments, and structural reforms. The future of agriculture in India is on the brink of a technological revolution, with several developments poised to transform the sector. As per Ernst & Young (EY report), agri-tech startups in India have the potential to reach a market worth $24 billion by 2025. Every year, many innovations, sometimes breakthrough technologies, appear in agriculture. New technologies are contributing to increased efficiency within the agricultural ecosystem making fieldwork more efficient and convenient. This growth is fueled by the widespread adoption of drones and unmanned aerial vehicles (UAVs) for real-time crop monitoring. Simultaneously, the integration of Internet of Things (IoT) devices and sensors will provide invaluable data on soil health and environmental conditions. Artificial intelligence (AI) and machine learning (ML) will play pivotal roles, offering predictive analytics for optimized crop management and image recognition for early detection of potential issues. Blockchain technology, an advanced database mechanism, is expected to contribute to transparency in the agricultural supply chain, ensuring fair compensation for farmers and providing consumers with information about the origins of their food. The development of Biotechnology in India familiarized genetically modified crops with enhanced resistance to pests and adverse weather conditions. The deployment of autonomous vehicles and robotics is set to revolutionize farm operations, resulting in reduced labour costs and improved overall efficiency.

By 2030, India is expected to be the manufacturing hub for the global market with its capacity increasing to $1 Trillion, and to $20 Trillion by 2047. This also aligns with our need to generate over 100 million jobs by 2030 with a focus on the manufacturing sector, according to the World Economic Forum.

In this dynamic landscape, the precision real sector in India is positioned to thrive. Read about the economic transformation of the financial sector in India.