Rural non-farm employment in India: access, income and poverty impact

This paper attempts to assess the contribution of non-farm incomes to the total incomes of different sectors of the Indian rural population; examines the factors associated with employment in the non-farm sector; and studies the direct impact of the sector on agricultural wage rates. It is based on rural data collected on 32,000 households across India in 1993/94.

Analysis of the data shows that:

• non-farm incomes accounted for roughly one third of household income in rural India on average, with considerable variation across population sectors and between states
• non-farm income tends to come from casual wage labour for the poor, household-owned enterprises for middle income groups, and salaried employment for richer households
• education appears to improve the prospects of finding non-farm employment, and even small amounts of education could improve the prospects of finding such work considerably
• women were markedly more likely to be employed in agricultural than in non-farm activities and to earn lower non-farm incomes; a similar, though weaker pattern applied to scheduled castes and scheduled tribes
• those with larger per capita land holdings were more likely to find non-farm work, yet on average had lower non-farm incomes; this may be because households with large land holdings have better networks of contacts and are more able to pay bribes, but choose to work shorter spells because they have other options
• the direct contribution of a gradual expansion of the non-farm sector to poverty reduction may be quite muted, because poorer people lack the assets to participate in this sector; only a large expansion would be sufficient to make factors such as networks and bribes less important
• some non-farm sub-sectors, such as construction employment, can draw people out of agricultural production, leading to increases in agricultural wages and a reduction in rural poverty.

The paper argues that policymakers seeking to maximise the impact of an expanding non-farm sector on rural poverty should:

• focus on removing the barriers to the entry of the poor into the non-farm sector, by improving rural educational levels
• pay attention to the possibility of discrimination against population groups with low social status and to the evidence that the job search process seems to favour the non-poor
• bear in mind the strong evidence that expansion of rural construction employment, in particular, has a positive impact on agricultural wages.