Abstract
AbstractWe analyze five rounds of National Sample Survey data covering 1983, 1987/1988, 1993/1994, 1999/2000, and 2004/2005 to explore the relationship between rural diversification and poverty. Poverty in rural India has declined at a modest rate during this time period. We provide region‐level estimates that illustrate considerable geographic heterogeneity in this progress. Poverty estimates correlate well with region‐level NSS data on changes in agricultural wage rates. Agricultural labor remains the preserve of the uneducated and also to a large extent of the scheduled castes and scheduled tribes. We show that while agricultural labor grew as a share of total economic activity over the first four rounds, it had fallen back to the levels observed at the beginning of our survey period by 2004. This all‐India trajectory also masks widely varying trends across states. During this period, the rural nonfarm sector has grown modestly, mainly between the last two survey rounds. Regular nonfarm employment remains largely associated with education levels and social status that are rare among the poor. However, casual labor and self‐employment in the nonfarm sector reveals greater involvement by disadvantaged groups in 2004 than in the preceding rounds. The implication of this for poverty is not immediately clear—the poor may be pushed into low‐return casual nonfarm activities due to lack of opportunities in the agricultural sector rather than being pulled by high returns offered by the nonfarm sector. Econometric estimates reveal that expansion of the nonfarm sector is associated with falling poverty via two routes: a direct impact on poverty that is likely due to a pro‐poor marginal incidence of nonfarm employment expansion; and an indirect impact attributable to the positive effect of nonfarm employment growth on agricultural wages. The analysis also confirms the important contribution to rural poverty reduction from agricultural productivity, availability of land, and consumption levels in proximate urban areas.
Highlights
Twenty years ago the common image of India was one of a vast, populous country blessed with a vibrant democracy but afflicted by a highly rigid social structure, low levels of human development, widespread and deep consumption poverty, and doomed to eternal economic underperformance
There is no evidence of any significant relationship between the nonfarm sector and agricultural wages
When we allow for an important role for crosssectional variation in driving parameter estimates, we see that agricultural wages rates are higher in those regions with greater agricultural productivity – controlling for unobserved state-level characteristics
Summary
Twenty years ago the common image of India was one of a vast, populous country blessed with a vibrant democracy but afflicted by a highly rigid social structure, low levels of human development, widespread and deep consumption poverty, and doomed to eternal economic underperformance. Despite evidence of only modest poverty reduction or diversification out of agriculture at the national level, National Sample Survey (NSS) data reveal a great deal of heterogeneity in these outcomes at the sub-state region-level This regional variation can be exploited to study econometrically the relationship between poverty, agricultural wage labor employment and non-farm employment in rural India. First the data indicate that, controlling for agricultural wages, agricultural productivity, land availability and consumption levels in nearby urban centers, expansion of non-farm employment is directly associated with poverty decline. The Foster and Rosenzweig study employs different data definitions and conventions than NSS-based studies (including the present study) their evidence is suggestive of a very significant rise in non-farm employment shares during their study period They suggest that by 1999 about 44% of males aged 25-44 had primary employment in the non-agricultural sector by 1999. This would point to an indirect effect of non-farm employment on poverty reduction via its impact on wages
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