Rural income diversification and inequality: A decomposition analysis by source income

Abstract

This article uses survey data collected from three villages of K.V. Kuppam Block in Yellore district of Tamil Nadu. Gini Decomposition technique has been used to analyse the effects of rural income diversification in income inequality. Results show that the agricultural income contributes the highest share in the overall income inequality of the region followed by non- agricultural income and transfer income. The same trend is not seen in all the villages. It has been found that in the region both agricultural and transfer income are inequality increasing sources of income while non-agricultural income source is inequality decreasing. But village level data shows that in Maliyapattu, a village with traditional subsistence agriculture non-agricultural income is an inequality increasing source of income. It is observed that no uniform policy prescription for reducing income inequality based on source income would emerge. Policy interventions have to be tailored to the local conditions if success across the board is desired.