Every economy tries to maximise the returns of economic activities in which it is involved. Whatever be the organising principles of an economy, the economic activities are broadly classified into three broad categories, which are known as the three sectors of the economy.

1. Primary Sector:
This sector includes all those economic activities where there is the direct use of natural resources as agriculture, forestry, fishing, fuels, metals, minerals, etc. In some of the economies, mining activities are considered as part of the secondary sector, though we see direct use of natural resources here. Broadly, such economies term their agricultural sector as the primary sector . This is the case in India .

2. Secondary Sector:
This sector is rightly called the manufacturing sector, which uses the produce of the primary sector as its raw materials. Since manufacturing is done by the industries, this sector is also called the industrial sector – examples are production of bread and biscuits, cakes, automobiles, textile, etc.

3. Tertiary Sector:
This sector includes all economic activities where different services are produced such as education, banking, insurance, transportation, tourism, etc. This sector is also known as the services sector .

Types of Economies:
Depending upon the shares of the particular sectors in the total production of an economy and the ratio of the dependent population on them for their livelihood, economies are categorised as :

1. Agrarian Economy:
An economy is called agrarian if its share of the primary sector is 50 per cent or more in the total output ( the GDP ) of the economy. At the time of Independence, India was such an economy. But now it shows the symptom of a service economy with the primary sector’s contribution falling to almost 18 per cent of its total produce, while almost 49 per cent of the population depends on the primary sector for their livelihood.

Thus, in monetary terms India is no more an agrarian economy, however the dependency ratio makes it so — India being the first such example in the economic history of the world .

2. Industrial Economy:
If the secondary sector contributes 50 per cent or more to the total produce value of an economy, it is an industrial economy. Higher the contribution, higher is the level of industrialisation.

The western economies which went for early industrialisation earning faster income and developing early are known as developed economies. Most of these economies have crossed this phase once the process of industrialisation saturated.

3. Service Economy:
An economy where 50 per cent or more of the produced value comes from the tertiary sector is known as the service economy. First lot of such economies in the world were the early industrialised economies. The tertiary sector provides livelihood to the largest number of people in such economies.

In the last decade ( 2003-04 to 2012-13 ), growth has increasingly come from the services sector, in which contribution to overall growth of the economy has been 65 per cent , while that of the industrial and agricultural sectors have been 27 per cent and 8 per cent, respectively.

By the end of the 19th century , it was a well established fact , at least in the western world, that industrial activities were a faster way to earn income in comparison to agrarian activities.

The Second World War had established the fact for the whole world – and almost every country started their preparation for the process of industrialisation. As country after country successfully industrialised, a pattern of population shift occured from one to another sector of the economy, which was known stages of growth of an economy.

With the intensification of industrialisation, dependency on the primary sector for livelihood decreased and dependency on the secondary sector increased consistently. Similarly, such economies saw a population shift from the secondary to the tertiary sector — and these were known as the post – industrial societies or the services societies.

Almost the whole Euro – America falls under this category — these economies are having over 50 per cent of their total produce value being contributed by the tertiary sector and over half of the population depends on this sector for their livelihood.

Many other countries which started the process of industrialisation in the post – war period did show abberations in this shift of the population and the income – India being one among them.