Which of the following activities constitute real sector in the economy?

1. Farmers harvesting their crops
2. Textile mills converting raw cotton into fabrics
3. A commercial bank lending money to a trading company.
4. A corporate body issuing Rupee Denominated Bonds overseas.

Select the correct answer using the code given below:

[UPSC Civil Services Exam – 2022 Prelims]

(a) 1 and 2 only

(b) 2, 3 and 4 only

(c) 1, 3 and 4 only

(d) 1, 2, 3 and 4

Answer: (a)        

Explanation:

• The real sector of an economy is crucial as its activities affect economic output and comprise the essential economic segments for the economy’s GDP growth.
• A healthier financial system complements the real sector, thereby facilitating its growth.
• The real sector’s statistics encompass various data and indicators, such as production in the agricultural and industrial sectors, GDP, private investment and consumption, price indices/inflation, and employment.
• The real sector deals with production, while the nominal economy deals with finance, with examples of the former being farmers harvesting their crops and textile mills converting raw cotton into fabrics. Statements 1 and 2 are correct.
• Financial activities primarily support real production activity and generate factor income but do not contribute significantly to the economy itself. Examples of financial sector activities are commercial banks lending money to trading companies and corporate bodies issuing Rupee Denominated Bonds overseas. Statements 3 and 4 are not correct.