The Transmission of Production Fluctuations and Technical Change in a Village Economy: A Social Accounting Matrix Approach

Abstract

Rural poverty in India remains a pervasive and pressing problem of development, despite the favorable performance of agricultural production which has nearly doubled in the last 2 decades.1 Defining the poverty line as the level of income that permits an intake of 2,250 calories per day, the incidence of poverty was 39% in the late nineteenfifties. Two decades later, the latest available estimates, for 1977-78, show that 39% of the population is still below the poverty line.2 Because the increase in agricultural production is concentrated in areas with irrigation or assured rainfall, much of the poverty is located in the unirrigated, semi-arid regions of irregular rainfall, and it remains an important social issue. The apparent failure of economic growth per se to decrease the incidence of poverty, among other reasons, led policymakers in India, as elsewhere, to formulate in the mid-seventies specific antipoverty programs that focused on creating employment and production assets for the poor. The search for solutions to the problem of rural poverty requires both a better understanding of its dynamics and of the effectiveness and limitations of these and other programs. This article, a case study of a village, is a step in this direction. It presents simulations of the impact of weather-induced fluctuations in production and of the process of investment and accumulation in the village which reveal the most vulnerable groups in need of compensatory programs. It also shows the important welfare effects that investment programs can have on the village economy. Any study of rural poverty in India must contend with the fact that it is not a homogeneous phenomenon. In addition to the geographical variation in its incidence and causes, rural poverty is also socially highly differentiated. Even in a small geographical region such as a village, systematic differences arise between groups of poor house-