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Poverty decline, agricultural wages, and nonfarm employment in rural India: 1983–2004


  • Note: This work was submitted to Agricultural Economics as part of a cluster of papers organized by Ben Davis, Kostas Stamoulis, Tom Reardon, and Paul Winters. We are grateful to participants of the workshop “Household-Level Linkages Between Farm and Non-farm Rural Income Generation Activities” held at the Food and Agricultural Organization, October 11–12, 2007, and to participants at the Ninth Annual Conference on Indian Economic Policy Reform at Stanford University in June, 2008. Additional thanks are due to two anonymous referees and to Mukesh Eswaran, Subashish Gangopadhyay, Himanshu, Hanan Jacoby, Anjini Kochar, Ashok Kotwal, Aprahajit Mahajan, Martin Ravallion, Abhijit Sen, Forhad Shilpi, TN Srinivasan, Tara Vishwanath, Wilima Wadhwa, and Nobuo Yoshida. We thank Pinaki Joddar for research assistance. The views in this article are those of the authors and should not be taken to reflect those of the World Bank or affiliated institutions. All errors are our own.

*Corresponding author. Tel.: 202-493-9500; fax: 202-522-1153. E-mail (P. Lanjouw).


We 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.