Question

Explain the role of tertiary sector in an economy.

Hint:

Explain that tertiary activities support the other two sectors rather than producing goods. Cover transport, storage, trade, communication and banking, the basic services, the growth of demand with income, and note that it is now the largest producing sector in India.

Answer 1

Concept:

• The role of the tertiary sector becomes clear if we imagine removing it and asking whether anything else could still work.
• Nothing could, which is why it is called the sector that supports all the others.

Step 1: Remove transport, storage and trade.
A harvested crop would rot in the field, and a factory would fill up with goods nobody could take away. Production would stop not for want of capacity but for want of a way to move and sell the output.
Transport, warehousing and shops are therefore not extras but conditions of production.

Step 2: Remove banking and communication.
Payments could not be made, loans could not be taken, and a trader could not learn what a buyer in another city wanted. Both farming and industry depend on credit and on information reaching them in time.

Step 3: Remove the basic public services.
Hospitals, schools, courts, police, post offices, municipal bodies and defence are all tertiary activities. Without them there would be no healthy or educated workforce and no security in which to invest.
This is why the availability of these services is used to judge how developed a country is.

Step 4: Note how the sector grows as a country grows.
As incomes rise, people spend more on eating out, tourism, private schooling, private health care and professional services. Newer services built on information and communication technology have also expanded quickly and earn foreign exchange.

Step 5: Note the one caution.
In India the tertiary sector has become the largest producing sector, having grown the most between 1973 and 2013. Yet it holds two very different kinds of work, highly skilled well paid services on one side and small shopkeepers, repair workers and casual labour earning very little on the other.
Growth in this sector therefore has to be judged along with the quality of the jobs it creates.

Final Answer: Nothing in an economy works without the tertiary sector. It moves, stores, finances and sells whatever the other sectors produce, supplies health, education, security and administration, and expands as incomes rise, though much of the employment within it remains poorly paid.