The Role of Non-Farm Sector in Indian Economy

Abstract

There is a close relation ship between development and change in occupational structure from agriculture to industry and from industry to service sector. Based on such empirical premises many models were developed to make the 'Transition' of the Less Developed Countries (LDCs) from a pre-capitalist mode of production to an advanced capitalistic mode of production. Further expansion of non-farm sector was quite critical to many of these theories. Among the Asian countries, the most sited example is of East Asia's extra-ordinary growth performance after 1970's. However in India there was a predominance of agricultural employment till 1970. It was attributed to two factors. Firstly, the weak linkages between the agriculture and non-agriculture sector and secondly, the lack of resilience on the part of village industries to meet the demands of the more affluent sections of the peasantry. Surprisingly from the early 1970's there is a shift of rural workforce towards non-agriculture sector. It is largely agreed in literature that the 1980's non-farm growth was fostered by massive public investment in infrastructure and poverty reduction, where as in 1990's the growth could not be sustained due to massive cut in public expenditure under New Economic policy. Non-farm income in rural India contributed, on an average, about one third (34 per cent) of the total household income in 1993/4. Non-farm income shares are highest in the states of Himachal Pradesh, the Northeast, West Bengal and Tamil Nadu. In these states, non-farm income sources account for more than 45 per cent of total income (more than 50 per cent in Himachal Pradesh and the Northeast). Conversely, in the states of Gujarat, Madhya Pradesh, Andhra Pradesh, Maharashtra and Karnataka the share of income accruing from non-farm sources is below 25 per cent (and below 20 per cent in Maharashtra). It is further argued by various studies that sustainable irrigation facility along with equitable distribution of land, education and access to cheaper credit would not only ensure higher productivity in agriculture sector but also promote growth of non-farm employment in the long run. The sub agro-climatic regional analysis revealed that, though there can be growth of non-farm sector in the hitherto backward regions through ground water exploitation, mechanization of agriculture, use of improved seeds and fertilizers etc., there is a greater need to work towards other forms of sustainable irrigation facilities if those regions do not have regular rainfall and if the current levels of ground water exploitation are unsustainable. Coming to the relevance of non-farm sector in development debate, it is clear from the study that states like Andhra Pradesh, Maharashtra and Karnataka which have very low share of income accruing from non-farm source (below 25 per cent and below 20 per cent in Maharashtra) are the ones which also experienced highest farmer's suicide in India. Therefore, the need for diversification from farm to non-farm sector in those states to enhance livelihood security in India is highly indispensable.