We then turn to the specific context of Palanpur, a village in western Uttar Pradesh. Palanpur has received intensive scrutiny by economists, based on very rich data on a wide array of economic activities covering the entire village population, from the late 1950s through to the present day. A detailed survey of the village was undertaken most recently during May 2008 to April 2010, and these data can be scrutinized alongside evidence collected during previous decades. The data indicate that many of the all-India patterns and processes seen in NSS surveys are clearly underway also in this single village setting. In Palanpur, poor people were historically sharply disadvantaged in terms of access to a non-farm sector that started to become significant for the village economy in the 1970s. The poor lacked the social status, education, networks, and ability to pay bribes necessary to obtain employment in outside jobs – particularly in those that provided regular, salaried, employment. An important finding from the most recent round of Palanpur data is that as the non-farm sector has seen some further expansion into the village economy, access to non-farm jobs has become noticeably more broad-based. Although the trend towards casualization, pointed to by the sample survey data, can also be clearly observed in Palanpur, it remains that such non-farm employment has translated into upward mobility for a significant number of households that had previously appeared mired in absolute poverty at the bottom of the village income distribution.

Analysis of income trends in Palanpur documents a steady decline in poverty, alongside the expansion of non-farm employment. However, there has also been a sharp increase in income inequality. At first glance, this appears puzzling, because the evidence cited above points to diversification leading to an expansion of economic opportunities even for the poorer segments of the village population. A closer examination of the income data indicates however, that indeed, while greater income mobility may be associated with some equalization of economic opportunities in the village, rising incomes from non-farm sources have nonetheless been strongly associated with rising inequality. The explanation comes from the recognition that non-farm jobs remain far from universally accessible; and as long as some households remain excluded it is not surprising to observe overall inequality to rise. The process is not dissimilar to the story of inter-sectoral transfer described by Arthur Lewis (1954) in which growth takes place against a background of labor transfer out of traditional subsistence cultivation and agricultural wage labor toward a modern sector. Fields (1980, 2000) demonstrates that such a process is able to generate the well-known “inverted U-curve” of first rising and then falling inequality, first described by Kuznets (1955, 1963). What is interesting to observe from the Palanpur context is that this process can occur within a village, as a result of the modern economy entering into the village economy via employment opportunities outside of agriculture. It need not involve wholesale migration from rural areas to urban areas – the more conventionally used narrative to describe the Lewis (1954) process.

# **Economic Diversification and Rural Poverty:  All-India Trends**

After a long period during which the share of agriculture in the Indian labor force remained constant, its share started declining in the mid-1970s, a trend that continues to this day. The share of the rural non-farm sector (all rural employment activities other than agriculture and 3