Sectoral Economic Analysis

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On 15th August 1947, when India got independence from the British rule the country rejoiced and celebrated. But sooner or later a realization came into picture where India had to independently build itself, its economy and its global importance. The people faced distress but then they realized that India did not need a foreign land dominating the country’s land to manage it. After Independence, systematically organizing the economy became a major challenge for the government. However, by 1956 many important and strategic decisions were taken which are still shaping the India economic journey.

Today India is ranked the seventh largest economy, and third largest in terms of Purchasing Power Parity (PPP). The Indian economy’s GDP is pegged at $ 2.9 tn.

Sector means the division of one whole subject into sub-divisions. Sectors exist mainly to help divide one huge subject into various sub-divisions. It also helps to understand and evaluate the performance of an individual sector.

The economic sector can be defined as the area of an economy in which various businessmen work. The business might be same or different from each other. The economy represents the growth and development of the country as a whole. It is believed that a county’s economy is divided into 5 sectors. They are:

1) PRIMARY SECTOR –

The primary sector is mainly involved in extracting and harvesting the natural products of the earth. The activities are called Agriculture, Mining and Forestry. The primary sector is also known as extraction sector. The extracted materials are renewable such as fish, wool and wind power or non-renewable in nature such as oil extraction, mining for coal. The primary sector is the key part of a country’s economy.

2) SECONDARY SECTOR –

The secondary sector is mainly involved in manufacturing, processing and constructing. Basically, the secondary sector produces finished goods from the raw materials which were extracted by the primary sector. The raw materials are in turn converted in to high value-added finished goods. Due to the improved technology, the cost incurred by the secondary sector for production and labour has been reduced.

3) TERTIARY SECTOR –

The tertiary sector is mainly involved in companies that provide services to the public directly. Tertiary sector is also called the Service sector. The good manufactured by the secondary sector are distributed to the direct consumers by the tertiary sector. This sector consists of retailing the manufactured goods. Due to improved labour productivity and high paid incomes, the tertiary sector has grown and developed.

4) QUARTERNARY SECTOR –

This sector involves companies working in intellectual pursuits such as educational businesses. This sector is to be called the intellectual aspect of the economy or the knowledge economy. The intellectual services provided this sector help to drive technological advancement. The various activities involved in this sector are educating, training, development of technology and research and development.

5) QUINARY SECTOR –

The sector is mainly involved in making top-level decisions. The different types of decisions made range from the head of a family to making decisions for the society, economy.

There are the 5 main sectors of an economy. Even though these sectors are divided, there are sub-divisions of the economy.

Latest news about the economy:

https://economictimes.indiatimes.com/markets/expert-view/saurabh-mukherjea-on-3-sectors-where-we-could-see-a-multi-year-strong-rally/articleshow/77906253.cms?frm=mailtofriend&intenttarget=no

 

SUB-DIVISIONS OF THE ECONOMY:

  • AUTOMOBILE INDUSTRY –

The automobile industry basically means the business of producing and selling self-powered vehicles. The types of vehicle might be passenger car, trucks, farm equipment’s and other commercial vehicles. As to manufacture these vehicles, the automobile industry needs steel, oil and many other materials. The auto-industry has become one large sector which employs a huge amount of people, thus is considered as a key determinant of economic growth in a country

India has the 5th largest automobile market in the world, India has reached the sales level of 3.81 million unit. In 2019, it became the 7th largest manufacturer of commercial vehicles. The two-wheeler’s segment has dominated the market in terms of volume. This segment was most demanded by the growing middle class and the young population. The growing interest of the population in this sector has made various companies gain interest in this sector and have offered to help the sector expand by providing two-wheeler’s in rural markets too. This idea helped the sector grow and give a positive side. India is an exporter as well as an importer. Even though India imports, the exporting business has been prominent. It is expected in the near future that India will build strong export growth. Several initiatives have been taken by the Government and major automobile players in the Indian market, and thus it is expected that India will become a leader in the two-wheeler and four-wheeler market across the world.

DISRUPTIONS CAUSED BY CORONAVIRUS-

The Covid-19 pandemic has caused a huge impact on the global automobile markets very quickly. It has caused a huge pressure on this industry which has eventually led to a downshift in the economy and global demand. The pressure might force various companies to get indulged in merger and acquisition activities.

  1. Shortage of vehicle parts:

China is a massive supplier of vehicle parts to all the parts of the world. Due to lockdowns of various countries and the border lines being shut, it has led to disruptions in the supply chain and thus caused shortage of required parts.

  1. Halting the manufactures of vehicles:

Due to limited supply of parts and a reduced workforce, it has forced many manufacturers to halt the production. This measure taken by the Original Equipment Manager (OEM) is to secure the liquidity and thus not cause overproduction even though there has been a decrease in sales.

  1. Drop in liquidity:

Due to drop in sales and manufacturing, many companies are facing a decline in their cash flow. Companies are failing to meet their short-term liabilities and salaries which have to be paid to their employees. The cash reserve maintained have been exhausted. The companies have failed to minimum generate their working capital requirements.

  1. Government aids might be necessary to prevent bankruptcies and job losses, including funding for short-term work, short-term financing, tax deferrals, etc.

The Index value of NIFTY AUTO went down to Rs.4452.

Currently trending at Rs. 7996.55

Latest news about the automobile industry:

https://www.business-standard.com/article/automobile/auto-sales-bounce-back-in-august-on-low-base-effect-pent-up-demand-120090101705_1.html

 

  • BANKING SECTOR –

The banking sector is also called the financial sector of an economy. The sector is mainly involved in holding of financial assets and investing those financial assets as a leverage in order to create more wealth. The sector mainly handles cash, credit and other financial transactions. To the public, banks are considered as a safe place where an individual can keep their extra money saved. The sector is also involved in banking activities such as insurances, mortgages, investor services and credit cards. Banking is considered as one of key driver of an economy. The banking sector derives its working capital by earning interest. This interest earned is the difference between the interest rate offered and the interest rate asked for.

The different types of banks are:

1) Commercial Banks

2) Retail Banking

3) Community Banks

4) Online Banking

5) Savings and loan banks

6) Investment Banking

DISRUPTIONS CAUSED BY CORONAVIRUS-

The fact that the pandemic will drastically affect the banking sector cannot be denied. Due to a halt in the world’s trades, this sector has also slowed down. Banks are struggling to meet their basic working capital requirements, which is their main source of earning. In the lockdown period where the economic activities are on a lower side, borrowings in the form of loans are very low. The government gave a 3-month grace payment option but this method might also lead to a rise in the NPA’s- Non-Performing Assets. Job employments have decrease, lakhs of people have lost their jobs, this means even after the 3 months period the loans taken have to be repaid but the question arises How?

Coronavirus has challenged the traditional method of banking. Although it has boosted and fueled the movement of the country towards digital banking.

The index value of NIFTY BANK went down to Rs. 16116.25.

Currently trending at Rs. 23011.50

Latest news about the Banking sector: https://economictimes.indiatimes.com/industry/banking/finance/banking/reserve-bank-of-india-rejigs-priority-sector-guidelines-to-make-banking-more-inclusive/articleshow/77932751.cms

 

  • CONSTRUCTION SECTOR –

The construction sector is mainly involved in the process of making something, the occupation of building or the way that something is put together. After agricultural sector, the construction sector is the 2nd largest employer in India. This sector contributes an average of 8% to the economy. The techniques involved in the assembly and erection of such building structures serve the purpose of providing shelter. The construction sector is mainly involved in building materials, plants and equipment’s. These are generally purchased or hired from other enterprises. For certain specialized services, labour or labour agents are supplied by the contractors. A constructor also helps the contractor in choosing an appropriate professional entity for the designing of the building.

The 5 main sectors of construction are-

1) Residential construction.

2) Heavy Civil construction.

3) Industrial construction.

4) Environmental construction.

5) Commercial construction.

DISRUPTIONS CAUSED BY CORONAVIRUS-

Due to the fear of coronavirus infection, 30% of the labourers denied reporting at the site of construction even though they were ordered to do so. The contractors also did not take part in forcing the labourers to do so as safety concerns are more important. It is expected that there will be a reduction in both supply and demand of land due to the pandemic. Due to a halt in the current construction sites, the contractors are facing a huge loss. It was lately realized that retail contractors as they do not have a supply of cement but cement companies have a huge stock of cement in their production. This means there has been lack of communication and has decreased transportation of the required materials. The halt in on-going projects have led to rise in the overall cost of the project. It is also predicted that the cement demand is to decline by 45-50% in FY 21 due to covid-19.

The Index value of NIFTY INFRA went as low as Rs. 2072.60

Currently traded at Rs. 3171.05

Latest news about the construction sector:

https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/construction-activity-can-be-fast-tracked-via-lgs-construction-technology/articleshow/77804021.cms

 

  • CONSUMER DURABLES –

The consumer durables sector includes appliances such as televisions, refrigerators, air conditioners and washing machines. These goods cannot be used up all at once, it keeps on providing services for a longer period of time. The products under durable goods have a minimum life expectancy of 3 years. Instruments such as microwave, grinder, ovens which are basically used in the kitchen are also considered as consumer durables. Watches, jewelry are also considered as consumer durables. Growing awareness, easier access and changing lifestyles have been the key growth driver of this industry. The market of this sector is steadily growing at Rs. 300 million. The sector is further classified in to 2 parts. They are:

1) Consumer Appliances.

2) Consumer Electronics.

DISRUPTIONS CAUSED BY CORONAVIRUS:

The consumer durable sector has been highly dependent on China for various products but the supply chain has been disturbed now. This may lead to rise in the product prices. The sales level dropped by 55% in March. Due to the fear of the virus, various shops declined to re-open as the nationwide lockdowns continued.

The Index value of BSE Cons Durable went as low as Rs. 16699.02

Currently trending at Rs. 23360.34

Latest news about consumer durables: https://economictimes.indiatimes.com/markets/stocks/news/stock-market-update-bse-consumer-durables-index-gains-600-points-titan-jumps-5/articleshow/77908321.cms

ARTICLE BY:

VRIDHI BHAGNARI.

CONTACT DETAILS: [email protected]