A breakdown of gross domestic product (or GDP) over the years gives you an indication of how various sectors’ contributions changed. This is important if you’re trying to assess the direction that a country’s economy is headed. You need to know which sector is going to provide the most growth. Once you are able to identify the economy’s future strengths, you can determine which investment will boost returns from that market or region.
A country’s economy has contributions from three sectors:
- Primary – this sector uses natural resources. It includes activities like agriculture, animal husbandry, fishing, and forestry.
- Secondary – this sector focuses on manufacturing activities. It uses products from the primary sector as inputs. In India, mining activities are part of this sector.
- Tertiary – this sector focuses on services like software, financial services, and tourism.
Based on these sectors’ contributions, an economy can be identified as agrarian, industrial, or service, respectively.
India’s economy started out as an agrarian economy. Agriculture and allied sectors contributed to 51.9% of the economic output in fiscal year 1951. Over the years, India’s economy changed. It focused on services. According to the latest reading for fiscal year 2014, services contributed ~60% to real output on constant prices.
The major push for the services sector came after economic liberalization in the 1990s. Technological progress and the boom in the information technology (or IT) and IT-enabled services (or ITeS) were also primary drivers for the sector.
Due to high exposure to financial services and IT, the following exchange-traded funds (or ETFs) benefited. The WisdomTree India Earnings Fund (EPI) and the iShares S&P India Nifty 50 Index Fund (INDY) focus more on financial services. The iShares MSCI India ETF (INDA) and the iPath MSCI India Index ETN (INP) focus on IT. The PowerShares India Portfolio (PIN) focuses on energy and IT.
In the next part of this series, we’ll analyze India’s three sectors. We’ll start with agriculture.