Tertiary sector

Also called: Service sector, tertiary activities · Topic: Sectors of the Indian Economy · NCERT: Class 6, Ch 14 "Economic Activities Around Us"; Class 10, Ch 2 "Sectors of the Indian Economy"; Class 11, Ch 2 "Indian Economy 1950-1990"; Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"; Class 11, Ch 6 "Employment: Growth, Informalisation and Other Issues"; Class 11, Ch 8 "Comparative Development Experiences of India and its Neighbours"

Meaning

The tertiary sector (also called the service sector) is the group of economic activities that help production but do not produce a good themselves. Examples are transport, storage, communication, banking, trade, and services such as teaching, healthcare and software.

It matters because services are now the largest part of India's economy, at about 55% of total size (FY24) [3]. Yet the sector holds only 28.9% of the workforce (PLFS data cited in Economic Survey 2023-24) [3]. This gap between output and jobs is central to India's development story.

Formulas used to study the sector:

• Output share (%) = (GVA of services ÷ total GVA) × 100
• Employment share (%) = (workers in services ÷ total workers) × 100
• Relative productivity = output share ÷ employment share

Explanation

How to spot a tertiary activity

• Ask one question: what is being done, and with what?
• Taking something directly from nature → primary
• Changing a natural product into a new form → secondary

• Helping, or giving a service, with no good produced → tertiary

• Judge the activity, not the product.

• A dairy farmer gets milk from the animal → primary.

• A milk vendor only sells that milk → tertiary (trade).

• A service provider is a person who gives a service to others for payment.

• Class 10 MCQ drill: courier, priest, moneylender, astronaut, call-centre employee and milk vendor are all tertiary.

Three groups inside the tertiary sector

• Group A: services that help the other two sectors
• Transport moves goods from farm and factory to market.
• Storage keeps goods safe until they are sold.
• Communication connects buyers and sellers.
• Banking gives loans and handles payments.

• Trade covers wholesale and retail selling.

• Group B: essential services not linked to goods

• Teachers, doctors, washermen, barbers, cobblers, lawyers, and administrative and accounting staff.

• Group C: new ICT services (ICT means information and communication technology)

• Internet cafés, ATM booths, call centres, software firms.

• Class 6 adds: warehouses, hotels, restaurants, airports, retail shops, pilots, and technicians who repair phones, TVs and tractors.

• Official grouping (Class 11): statistics divide all activity into eight divisions. Three of them make up the tertiary sector:
• (vi) Trade
• (vii) Transport and storage
• (viii) Services

Why the sector grows (textbook reasons)

• More farming and industry means more need for help services.

• More crops and factory goods → more transport, storage, trade and banking are needed.

• Higher incomes mean more demand for services.

• Families that earn more spend more on eating out, travel, private schools and hospitals.

• New technology creates new services.

• ICT has created call centres, software firms and digital services. Many of these are sold abroad.

• Not all of it is modern. Many service workers are small vendors, repair workers and helpers, who often earn little and work in the informal sector.

Beyond NCERT: quaternary and quinary sectors

• Quaternary sector: knowledge work, such as R&D, IT, consulting and information processing.
• Quinary sector: the highest level of decision-making, such as top executives, senior government officials and leaders in science, media and policy.
• Both are subsets of the tertiary sector. Official Indian data (NAS, PLFS) does not report them separately. They are counted inside services.

Worked example: is a service worker more productive?

• Toy economy: total GVA ₹100 crore and 100 workers.
• Services: ₹55 crore GVA and 29 workers → 55 ÷ 29 = 1.90

• Farming: ₹18 crore GVA and 46 workers → 18 ÷ 46 = 0.39

• Reading the result:

• A value above 1 means each worker produces more than the average worker.

• An average services worker produces about 5 times as much as an average farm worker (1.90 ÷ 0.39 ≈ 4.9).

• Caution: the real shares come from different years and sources, so this ratio is only an illustration and not an official statistic.

In India

• Who measures it:
• MoSPI/NSO measures each sector's output share (GVA).
  • GVA (Gross Value Added) = value of output − value of inputs used up. It is the new value each producer adds.

• The Periodic Labour Force Survey (PLFS) measures employment share. The NSSO (MoSPI) launched it in April 2017 [2].

  • Usual status looks at a person's activity over the last 365 days [2].
  • Current Weekly Status (CWS) looks at the last 7 days [2].

• Size and growth:

• Services are about 55% of the total size of the economy (FY24) [3].

• Services grew 7.6% in FY24 (provisional estimates) [3].

• Jobs: services employ 28.9% of the workforce (PLFS data cited in Economic Survey 2023-24) [3].

• Global position:
• India's services exports were 4.4% of the world's commercial services exports (2022) [3].
• India's share of world digitally delivered services exports was 6.0% (2023) [3].
• Services exports were USD 341.1 billion (FY24), a growth of 4.9% [3].

• Computer and business services made up about 73% of India's services exports (FY24) [3].

• Growth after 1991: the Class 11 LPG chapter shows services becoming the main driver of India's growth after the 1991 reforms. Industry grew more slowly.

Don't confuse with

• Secondary sector: construction and electricity, gas and water supply are secondary, not tertiary. They build or supply a physical output.
• Primary sector: the same product can fall in different sectors. A dairy farmer is primary, but a milk vendor is tertiary because they only trade the milk.
• Quaternary / quinary sectors: these are subsets of tertiary, not separate sectors in official Indian data (NAS, PLFS).
• "Industry" in NAS and Economic Survey tables: this heading covers mining, manufacturing, utilities and construction. It never includes services. Also note that mining is primary in NCERT and PLFS, but it is placed under "Industry" in NAS.

Prelims Hooks

• The tertiary sector covers three of the eight divisions: trade, transport and storage, and services. Construction and utilities are secondary.
• Services are about 55% of the economy (FY24) but hold only 28.9% of the workforce [3].
• PLFS was launched by the NSSO, MoSPI in April 2017. Usual status uses a 365-day reference period and CWS uses 7 days [2].
• Milk vendor, courier, priest, moneylender, astronaut and call-centre employee are tertiary. Tailor, potter and basket weaver are secondary.
• India's services exports were 4.4% of world commercial services exports (2022) and 6.0% of world digitally delivered services exports (2023) [3].
• Computer and business services made up about 73% of India's services exports (FY24) [3].

Mains Points

• Services-led growth that skipped a step:
• In the classic path (Fisher–Clark model), workers move from farm to factory, and then to services.
• In India, output moved mostly to services (about 55% of GVA, FY24) [3], but workers stayed on farms (more than 45% of the workforce) [3].

• As a result, services create high output but too few jobs, and disguised unemployment remains in farming. Disguised unemployment means more people work on a farm than are needed, so some add almost nothing to output.

• Two kinds of service jobs:

• At the top are high-skill, export-earning jobs in IT and business services (about 73% of services exports, FY24) [3].
• At the bottom are many informal, low-paid jobs such as street vending, repair work and domestic help.

• So a higher services share does not automatically mean better jobs. This links to the Class 11 theme of informalisation.

• The job-creation challenge (GS-III):

• India must create about 78.5 lakh non-farm jobs every year until 2030 [3]. Non-farm means the secondary and tertiary sectors together.
• Services alone cannot absorb this many workers. A balanced strategy needs labour-heavy manufacturing, skilling for modern services, and digital infrastructure.

Related concepts

• Primary sector
• Secondary sector
• Natural products
• Manufactured goods
• Manufacturer
• Service provider
• Industrial divisions
• Quaternary sector
• Quinary sector

Read more

• Primary, secondary and tertiary sectors: what goes where