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An economy of reasonable size such as an average nation engages in hundreds or event thousands of different types of economic activities producing and selling thousands of different type of products. To understand the behaviour of these different economic activities, and how they impact and in turn are impacted by the total economy, it is useful to qualify them in larger group of economic activities. One such way of grouping economic activities is to classify them in primary, secondary and tertiary activities.
Primary economic activities, also called extractive sector include all the activities for extracting or harvesting raw materials and other products from land and other natural resources. This include activities such as farming, forestry, fishing, and mining. Primary activities also include the packaging and processing of the extracted materials.
Secondary economic activities, also called manufacturing sector, includes all industries manufacturing finished goods. This group consists of many broad industrial sectors such as, automobile, chemicals, textiles, engineering equipment, and construction.
Tertiary activities, also called service sector, provides services to the consumers as well as to other producers. This includes services such as distribution, retail, communication, transport, hotels and transport.
Division of all economic activities in these three groups enables us to study and understand many important characteristics of economic behaviour, and to understand the nature and state of an economy. For example it is found that economies have different relative composition of these three sectors at different stages of economic development. The undeveloped economies are almost entirely base on primary sector. As the economy develops, the share of secondary sector increases and becomes most developed. Simultaneously the tertiary sector also develops, but it is not dominant. This was the case of most of the developed countries during first half of twentieth century. twentieth century. As economies develop further the service sector accounts for the greatest percentage of total economic activities. The manufacturing sector becomes the second biggest, and extractive sector is the smallest sector. The India economy is currently at the stage where service sector is on the point of overtaking the manufacturing sector.
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