Republic of India Livelihoods in intermediate towns

2.2: Broad trends in the non-farm economy of India: Over the past decades, the contribution of agricultural sector to India’s aggregate income has been declining quite rapidly. It declined nearly by 10 decimal points during 1999-2000 (23.2 percent) and 2012-13 (less than 14 per cent). However, in terms of employment, the agrarian sector continues to be huge. According to official data, a little less than half of the working Indians are still employed in agriculture and allied activities. The move away from agricultural employment seems to have picked-up only in the recent past. Agriculture employed as many as 59.9 percent of the main workers in 1999-2000. During the next five years (2004-05) their numbers came down only by 1 percent to 58.5 percent. However, during the next 7 years, it declined quite significantly, by around 10 decimal points, to 48.9 percent³.

Given that the aggregate employment in the organized sector is not showing any significant growth, the move away from agriculture is mostly towards the non-farm informal economy, either locally in the rural setting or outside, in sectors like construction and infrastructure. Unfortunately, the rural non-farm sector has remained under-studied, primarily due to the nature of its classification. Defined residually, non-farm activities are broadly understood as all activities other than land-based agriculture. It therefore constitutes a diverse range of activities. According to Lanjouw and Lanjouw (2001: 1), ‘a common view is that rural off-farm employment is a low productivity sector producing low quality goods, expected to wither away as a country develops and incomes rise’, as a result of which it hasn’t received adequate attention both conceptually and administratively. Given the method of enumerating primary economic activity by number of labour hours involved, ‘it will be an underestimate of the actual percentage of labor hours which are devoted to non-farm activities’ (Lanjouw and Lanjouw 2001: 3; Wiggins and Hazell 2011). However, despite the methodological and conceptual challenges, several scholars have attempted to understand the nature, scope and growth patterns of the non-farm sector in India.

2.3: Literature on Non-farm Economy: Historically, non-farm economic activities have been an integral part of the rural economy, even if not significantly. Village studies in the past have accounted for the presence of non-farm employment in their region of study, whether it is Epstein’s (1973) study of two villages in Mysore district in the south of India, reporting on the movement of entrepreneurs to the tertiary sector or that of Srinivas (1976) noting the investment in bus lines in a village in Mysore along with similar reportage from Wiser and Wiser (1971) and Saith and Tankha (1992).

Traditional non-farm activities, as Wiggins and Hazell (2011: 8) suggest, ‘particularly labour- intensive household manufacturing of baskets, pottery and roof thatching, die out, displaced by the import of cheap plastic pails, iron pots and corrugated roofing’. Some of such categories of rural non-farm activity, according to Bhalla (1997) have thrived in the past because of protection from outside competition by restrictive production policies (such as reserved handicraft industries in India) but with the removal of such barriers in the wake of liberalization, such rural non-farm employment may have faced a loss of jobs and activities until new forms of activity emerge as they did in India in the 1990s (Bhalla 1997).

However, the expansion of the non-farm sector since the 1980s wasn’t observed as being significant (Acharya and Mitra 2000), except in the state of Kerala. Bhalla (1993) states that between 1961 and 1981, states where non-farm employment expanded were Gujarat, Haryana, Jammu and Kashmir, Karnataka, Kerala, Maharashtra and Rajasthan, besides a modest expansion in Karnataka, Maharashtra, Orissa and West Bengal (Chadha 1997). According to Bhalla’s analysis, undertaken through diversification of the indices at the district level, three kinds of regions could be classified during this period: (i) Bihar with symptoms of agricultural involution, (ii) high farm productivity districts of Punjab and coastal Andhra Pradesh which displayed increasing concentration in agriculture and (iii) a large block of highly diversified districts, clustered around industrial towns, or forming long geographical corridors, linking large urban conglomerations (Bhalla 1993, 1997).

The existing literature also points to the crucial links between the rural farm and non-farm sector especially in the wake of emergent ‘production, consumption and potential linkages’ due to the income effect of the green revolution technologies (see also Hazell and Haggblade, 1991; Bell, Hazell and Slade 1982; Hazell and Ramasamy 1991; Wiggins and Hazell 2011). Similarly Vaidyanathan (1983) argues that non-farm employment emerges as a response to (i) agriculture being unable to provide adequate employment as well as to (ii) a situation of higher farm incomes. Vyas and Mathai (1978) clearly state that non-farm economic activities are crucial supplementary sources of income for ‘more than half of the agricultural households in India’ whose ‘cash income from farming is inconsequential’ (Vyas and Mathai 1978: 335). Thus, the expansion of non-farm economic activities is not entirely a function of either residual or distress activities in the rural economy but may also be a case of diversification within the rural economy.
According to Himanshu et. al. (2011), the non-farm sector in rural India has grown steadily during the past 30 years, with some acceleration during the late 1990s to the mid-2000s followed by a leveling off after 2004-05. Kumar et. al. (2011) also demonstrate that the non-farm sector has consistently grown over time and employed nearly one-third of the rural workforce in 2009-10, as compared to merely one-fifth in 1983 at all-India level.
Even though non-farm employment grew faster than agricultural employment, it was not accompanied by decline in the agricultural workforce in absolute terms until 2004-05 when the non-farm sector not only absorbed the new entrants to labour force, it was also accompanied by decline of workforce in the agricultural sector (Himanshu 2014). Both the nature of such diversification and the regions across which such transformations have occurred since 2004-05 lend themselves to an interesting analysis as (i) it is driven by casual employment in a few sectors such as construction and transport and communication and (ii) poorer states have now become the new drivers of non-farm employment diversification unlike the previous two decades when it was driven by the rich and industrialized states (Himanshu 2014). For example, the growth of non-farm employment 2004-05 to 2012 has been higher than the national average for Rajasthan, Uttar Pradesh, Bihar, Chhattisgarh, Assam, Madhya Pradesh and Jharkhand, which have traditionally been states with low agricultural productivity and high poverty in rural areas as compared to the lower growth rate of non-farm employment in traditionally better-off states of Tamil Nadu, Gujarat, Andhra Pradesh, Maharashtra and Kerala.
Village level studies in Tamil Nadu (Lindberg 2012; Hariss and Jeyaranjan 2014; Heyer 2013), Gujarat (Breman 2015), Punjab and Haryana (Singh and Bhogal 2014; Vatta and Siddhu 2007; Vatta and Garg 2008; Jodhka 2014), Uttar Pradesh (Himanshu et. al. 2015; Srivastava 2015), Bihar (Rodgers et. al. 2014; Jha and 52014) and in Andhra Pradesh (Rawal et. al. 2008) point to the increasing importance of the non-farm sector in rural economies, even if varying in degree. As Himanshu (2014) suggests, these studies also highlight some general commonalities: the declining role of agriculture, increase in self-employed and casual work rather than regular employment, benefit of the expansion in non-farm activities to vulnerable groups within the village and the importance of infrastructure for commuting to nearby urban areas for non-farm work.
What is also distinct about the growth of non-farm employment in the period after 2004-05 is the reduced agricultural distress in India due to an increase in the Minimum Support Prices (MSP) for some crops, betterment of terms of trade in favour of agriculture, higher public spending in the rural economy including the MGNREGA, and increased resources in the form of social protection measures that minimized the impact of external shocks to the rural economy (Himanshu 2014). However, most of the growth in the non-farm sector is not only concentrated in few activities but has also been dominated by construction and transport, constituting 92 per cent of all the new jobs created in the non-farm sector between 2004-05 and 2011-12, with manufacturing actually declining as share of total rural non-farm employment. Himanshu (2014) also contends that most of the increase in non-farm employment has been in the nature of casual employment, in the absence of agricultural employment opportunities and ‘was in all probability residual in nature’.
Increased public expenditure in the rural areas is seen as another reasons for expansion in the growth of rural non-farm activities in India, particularly on items such as electricity, roads, education and health (Fan, Hazell and Thorat 2000). According to Bhalla (1997) after several decades of agriculture-led growth, India’s urban economic growth stimulated corridors of rural non-farm development along major highways and transport routes. Papola (1992) highlights the role of small towns in the rural hinterland in the employment of rural workers and in promoting non-farm employment in rural areas. Chattaraj (2010) in her analysis of ‘roadscapes’ focuses on informal industry and everyday life along a highway, the National Highway 117, which links rural and urban spaces, and in doing so highlights how ‘new forms of previously city-based work have spread along highways, and rural spaces are urbanizing in-situ as villagers increasingly shift away from agriculture towards consumer cultures’.