# **Introduction**

Rural India is home to 70% of the nation’s population and about the same proportion of poor people in the country. Most of rural India’s workforce (60%) remains primarily involved in agriculture, but in recent decades this sector’s growth has lagged other sectors in the economy. While there is no escaping the need to galvanize agriculture, it is also clear that India needs to manage a transition of people out of agriculture. The gap between the number of new rural workers and the number of new jobs in agriculture is growing; agricultural advances alone will not meet the rural employment challenge. Migration to urban areas will be important, but the rural non-farm economy will also have to be a key source of new jobs.

The aim of this paper is to study the impact of an expansion of non-farm income opportunities on poverty, economic mobility and income inequality at the village level in rural India. The paper starts by assembling various National Sample Survey Organisation (NSSO) employment surveys in order to track changes in poverty and the non-farm sector at the all-India level since the early 1980s.<sup>2</sup> It then supplements survey-based evidence with insights arising from the detailed study of long-term economic development in a single village, Palanpur, located in western Uttar Pradesh. This village study points to an accelerating impact of rural non-farm diversification on poverty reduction, and rising income and occupational mobility at the village level in India. But the study also indicates that non-farm diversification is associated with a sharp increase in village-level income inequality.

The paper begins by examining NSS survey data to look at the transformation of India’s countryside currently underway. We provide detailed evidence covering the period between 1983 and 2009/10, documenting a process of diversification out of agriculture that is slow but accelerating.<sup>3</sup> Section 2 also shows that with growth of the non-farm sector there is also evidence of declining “quality” of non-farm jobs, notably in the direction of increased casualization of non-farm employment, away from regular, salaried, employment. The section further documents a persistently high share of the overall non-farm workforce engaged in selfemployment activities. The section ends with the observation that since the 1980s, rural poverty in India has been falling and points to analysis in support of the contention that casualization of non-farm employment opportunities has translated into improved access of the historically disadvantaged segments of rural society to non-farm employment. As returns from casual nonfarm employment are higher than from agricultural labor (though markedly lower than from regular non-farm employment), the growing participation of disadvantaged groups in this (sub) sector is likely to have been a positive force for poverty reduction.

> 2 The survey based analysis in this paper draws primarily on five “thick” rounds of the NSS—1983, 1993-94, 19992000, 2004-05, and 2009/10.  We do not report data from the 1987-88 thick rounds because the unit record data do not produce wage rates that are comparable to wage estimates for that year published by the NSS itself.  In addition, because of well-known comparability problems of the 1999-00 consumption aggregate with other rounds, in regression analysis of impacts on poverty, we exclude the 1999-00 survey round.

> 3 We are concerned in this paper with the rural non-farm sector defined in terms of all rural economic activities outside of agriculture.  Non-farm activity may occur in the home or in factories or be performed by mobile traders. Our definition can be contrasted with a broader notion of “off-farm” activity which also considers economic activities that occur “off of the owner’s own farm” but that could for example include wage-employment in agriculture earned on a neighbor’s farm, or the renting out of the services of a tractor to neighboring farmer,   along with nonfarm earnings from the owner’s nonfarm enterprises or from nonfarm wage earnings.  Chapter 1 in Haggblade, Hazell and Reardon (2007) provides a valuable discussion of definitions and concepts.

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