Fluctuations in Income in Three Villages of India's Semi-Arid Tropics

We examined several aspects of income instability in contrasting study villages in India's semi-arid tropics (SAT). The data cover 5 cropping years from 1975-76 to 1979-80 and pertain to 110 continuous sample households in three study villages where ICRISAT has posted resident investigators since 1975. The mean coefficient of variation of per person household income over the 5 years was 35% and ranged from 8 to 86%. About one household in four suffered a 50% shortfall in income in one year from the median income level over the 5 years. Because these shortfalls stemmed from multiple causes, stabilizing a single income source would not lead to appreciably lower coefficients of variation for most households. Earnings in the labor market was the most stable income source. Income variability was significantly correlated with consumption variability, but the relationship was not as strong as anticipated. Policies and investments such as public work programs that increase and enhance the stability of labor demand will be more "progressive" in attaining stability objectives than those that focus directly on crop income stabilization which differentially benefits large farm households. Emphasizing crop income stability for small farm households in Africa's SAT would be a more appropriate means to arrive at reduced consumption variability than in India's SAT where a functioning labor market confers stability benefits on many rural families. Fluctuations in Income in Three Villages of India's Semi-Arid Tropics T.S. Walker, R.P. M. Asokan, and H.P. Binswanger In this paper, we describe several aspects of income instability in three contrasting study villages in India's Semi-Arid Tropics (SAT) 111. The villages are the sites of ICRISAT's multipurpose Village Level Studies (VLS) where the farming and socioeconomic activities of a panel of 40 households have been monitored in each village since 1975 (21. This data set enables us to address several empirical questions on household income instability in India's SAT. These include: (1) how large are fluctuations in income for representative rural households in India's SAT, (2) what are the immediate and underlying causes of large fluctuations in household income, (3) what effect composition of income from different sources has on household income stability, (4) what are the equity implications of fluctuations in income, Principal Economist, Economist, and Research Associate, respectively, at ICRISAT, where T.S. Walker is stationed as an Associate of the Agricultural Development Council. H.P. Binswanger is a Senior Economist with the World Bank. The authors are grateful to Y. Mohan Rao, M.J. Bhende, K.G. Kshirsagar, V.K. Chopde, V.B. Ladole, and T. BalaraMaiah who were responsible for data collection in the villages on which the study is based. We also thank the investigators, particularly Y. Mohan Rao, for tracking household histories to determine the sources of and reasons for income fluctuations. Their interpretative comments were very useful. We are grateful to Murari Singh for statistical advice and to A.K. S. Buda for supplying the empirical probabilities of rainfall. We thank Jere Behrman, Anil Deolalikar and Rolf Mueller for comments. (11. This report is the third installment in the VLS income analysis. The two earlier reports defined concepts used in the analysis (Singh and Asokan 1981) and described the size, composition, and other aspects of rural income in six study villages (Singh, Asokan, and Walker, 1982). A sequel to this paper will analyze in greater depth fluctuations in income in the same villages based on real income data for eight cropping years. A forthcoming paper by Rosenzweig and Binswanger will examine the determinants of income, investment and wealth in six study villages with data for nine years. (2). Data collection procedures for the VLS are thoroughly described in Binswanger and Jodha (1978).