metadata: authors: 0: author: Hazell, Peter B.
1: author: Haggblade, Steven
count: India
docna: 0: docna: Rural - urban growth linkages in India
docty: Policy Research Working Paper
subtopic: Rural Settlements,Construction Industry,Common Carriers Industry,Food & Beverage Industry,General Manufacturing,Pulp & Paper Industry,Plastics & Rubber Industry,Food Security,Business Cycles and Stabilization Policies,Agricultural Growth and Rural Development,Transport Services
teratopic: Poverty Reduction
abstracts: cdata!: The rural nonfarm economy accounts for
            one-quarter of all full-time employment in rural India and
            for nearly one-third of rural income, and is also intimately
            linked to agriculture. This paper examines the importance of
            rural-urban growth linkages in India, and aims to assess the
            impact of agricultural growth on national demand for nonfarm
            products. In addition, because growing land scarcity raises
            concerns about prospects for rural labor absorption, the
            paper highlights the impact of agricultural growth on rural
            nonfarm incomes and employment. Four major sections address
            these objectives. The first provides a descriptive overview
            of nonfarm activity in India. It examines the importance,
            composition and location of nonfarm activity as well as
            general trends over the past 30 years. The second explores
            the relationship between agriculture and changes in nonfarm
            activity. After reviewing previous growth linkage studies,
            it compares nonfarm activity in high- and low-productivity
            agricultural states cross-sectionally and over time. The
            third section estimates the volume of rural nonfarm income
            and employment generated by agricultural growth, while the
            fourth projects patterns of demand for nonfarm goods
            emanating from alternative agricultural growth scenarios.
geo_reg_key: 517198,517212,517191
repnme: repnme: Rural - urban growth linkages in India
display_title: Rural - urban growth linkages in India
listing_relative_url: /research/1990/05/700277/rural-urban-growth-linkages-india
topicv3: Agriculture and Food Security m1326205 435,Manufacturing Sectors m1326521 1281,Transport m1326661 135,Population, Aging and Health m1327736 640,Rural Development m1504505 2667
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Poverty Reduction
origu: Policy, Research & Ect Affairs
no_of_pages: 89
model_extractions: **Policy, Research, and Extemal Affairs**

__e1710_ a,.

# **Agricultural Policies**

This paper, a backgrounld paper for the l;Y 1991 Comntry Ecoiinomiic Memorandum l'or Inidia, is a product ol tihe Agricultural Plolicies Division, Agriculture and Rural Development Department and is part of a larger effort in FIRE to leani mlore about the ind(irect ef'l'ccts of agricultural growth on **the** rural **nontarm** economy, and how the valuc of'the incomc and employment benefits can tv cbnhanccd for the poor. Copies are availabic 1ree from the World Bank, 1818 H Sirect NW, Washington DC 20433. Pl.ase contact Cicely Spooner, room N8-039, extension 3(464 (79 palges with tables).

Using two models - an economtcric analysis of' cross-sectional data on states and tlistricts and a semi-input-output model f-itted to a nationl; input-output table for 1979/80 -- Hazel] and Haggblade analyze thc relationship between agricultural growth and growth in the rural nonifarnn economy. They conclude that.

Bccause of strong links to agricultural growth, rural nonftaim income and employmcnt will both grow faster than thcir agricultural counterparts. A sustained agricultural growth rate of 2.4 percent (the past trcnd) will leIad to 3.() pcrccnt groAllh in nonfarm iieomiic in irural areas and towns and 2.8 pCercent growth in nonliIrmn cnlmplo\mcnt 11 aer'I'icIUltr 4 -to' perce:nt, thesc rates imnrc. to 5 _( pe IIaI t. ;1nd 4.0 per:ent. re'spec't'Iive'!

> Continued LroAth in atcriultural output **is** unlikcl Ito provide the g(rownth in product **i\c** e- pl'oniv nt re(qlair lIsorh bto projected in tte nrural Ilzbor force 'I' emc priplovni-cnt gap w **i** ll incr.asC if irrigation pla\s a dCcreasing role in a'ni ulltri pg **r** a o lh Second: Ir\ lounds 0o

> gro'lth in tlhc rural non farlil CLe0n0m **\** cOuldL bridgc this gap givcn modcratt. agricultural gro\A th.

Export and domestic urban demand Imlust play ani imipo)rtant role if m1an U faCtIUring is. to continiuc to groA 8 percent a \car. Despite thc strength1 ol the' rural-urban linkages, agriCultural growth aiorne cannot provi(de enouoh 1miarket to sustain rapid growth in Indiia's manufacturing sector. An agricultural growth rate of 2.4 pevrcent a year will generate only 1.8 percent (if' irrigated agriculture) to 1.9 percenit (if rainfed agriculture) growth in national manutacturing output. Even 6 percent growth in agriculture will geneiate only atb)ut 5.5 percent growth in manu facturing OulpUt.

Agricultural growth will lead to expansion in high-\alluC agricultural output, especially livestock and torticulturall products. Increased production of thcse labor-intensivc products slhol(d especiall hbenefit the poor.

'I'hic si;c of Ihc ariculiur1al incomC nIUltiplicrs decpndLs prim nrila on the l\c\l of' pr capita ricu0li **il** ila i nonle. bUt plulic poliCy _Call alffeCt_ tlheir in agn-MitUdC. They' are posititclv related to **tlec dej8 lopllolllt** of suLchi rural infra-MI'tUtre as roads electri fea and banking serviCes. ,ion I'le Thyredtolnrcases re' st ronger un(dcr irrigated than rain fed agricLultural girov Ih and larger ftor sii alll- toi mCdi um- simz'e larni than f0(r largcr fanns

> Impro\ irig tihe niol'anif rcsl)nse to growing deniand i'rom agriculture calls for appropriate growth in agricultural technology, adequate investments in rural infrastructure, well-devel. oped rural towns. and thc avoidance of tax, regul atory, or licenisinlg policies **that** discriminiate against sinall, laNor-intcnsi\c businesses in favor

> ol iheir larocr. Calpitll-inltnSiVe COUSinS.

> AThc I'1 k>Wrk ic) AnIPl .9kr< **_ci -- , tI'_ !:ld T; I \!rk III)JOt \A** ' !rl **_c!_ l.I llk IT II.\nI ,** POi<.. **_IC_ TL 1hl IuI** r **kI rl.Ml p I,' Th! t** 1 F **1** tI i> **1 T i IIL.'T! !h 'I'l .l:** t )is,' I I r) (c **T** I **I I'lLI' I" Ir IInnnI'I IrI**

**I't( III,** I'd 1 t!%<C **_I'_ R J [)l>IIIC! !1I TlAt 11 II** **_(_ CTr! L t**
RURAL-URBAN GROWTH LINKAGES IN INDIA

# Table of Contents

||||Page|
|---|---|---|---|
||EXE|CUTNE SIRY<br>..............................|I|
|L|INTR|ODUCTION ................................|1|
|IL|DES|CRIPTIVE<br>PROFILE OF NONFAM ACTIVITY .......<br>.....|2|
||A.|hIportance<br>....|2..........<br>2|
||B.|Location .6||
||C.|Compositon .8||
||D.|Fe-male Participaton .10||
||E.|Trends .12||
|IIL|AGR|ICULTUE AND GROWTH<br>OF THE_NONFAR_ECONOY ..|.....<br>15|
||A.|Key Linkages ...........................|15|
||B.|, ior Evidence ..........................|16|
||C.|Comparisons Across States ..................|18|
|IV.|ESTI|MATING RURAL A(;RICULTURAL<br>GROWTH<br>MULTPLIERS..<br>|.....<br>26|
||A.|Econometric Model ........................|26|
||B.|Income Multipliers<br>........................|29|
||C.|Employment Multipliers<br>.....................|31|
||D.|Projections<br>............................|31|
|V.|PRO<br>DEM|JECTIONS<br>OF NATIONAL MANUFACTURING<br>AND TERTIARY<br>AND RESULTING<br>FROM AGRKILTURAL GROWTH .....<br>. . . .|.<br>40|
||A.|Semi-Input-OutputModelingof GrowthMultipliers.|..<br>. 40|
||B.|<br>Results<br>.........<br>. .. . .. . . .. . .. . .. . . ..|.<br>43|
|Vl|CON|CLUSIONS<br>..........<br>..<br>............<br>.. .. .. .|.<br>47|
||REFE|RENCES<br>...........<br>.. .. .. .. .. .. .. .. .. .. .|.<br>49|

## APPENDIX A. SUPLEMNTARY TABLES

## APPENDIX B: A FIVE-SECTOR SEMI-INPUT-OUTPUT W)OEL

Background paper prepared for the 1991 Country Economic Memorandum for India
# Ust of Tables

|Table 1:|Nonfarm Share of Total Employment.<br>4|
|---|---|
|Table 2:|Nonfarm Share of Rural and Urban Income.<br>5|
|Table 3:|Income Distribution by Fuhctbnal Classification.<br>7|
|Table 4:|Nonfarm Employment Donsity bySize ofSettleent<br>...<br>8|
|Table 5:|Composition of Nonfarm Activity bySize ofLocality<br>...<br>9|
|Table<br>:|Women's Share I<br>Total Empoyment.<br>11|
|Table 7:|Trends In Measured Female Participation Rates .12|
|Table 8:|Changig Composition of Nonfarm Activity<br>.14|
|Table 3:|Agricultural Productivity Ranking of Major Indian States<br>20|
|Table 10:|Density of NonFarm Activity Across States with_Differhg_<br>Agricultural income .21|
|Table 11:|Correlation Between Agricultural Productivity, Population<br>and Locatlon of Nonfarm Activity<br>.23|
|Table 12:|Composition of Nonfarm Activity Across States with Differi<br>Agricultural Incomes .25|
|Table 13:|Rural Income Multipilers Across States wlth Dlfferhg<br>Agricultural Incomes .30|
|Table 14a:|Projections of Rural Plus Rural Town Income and Employmwnt<br>Through the Year 2040 (2.4 percent agricultural<br>growth rate) .36|
|Table 14b:|Projections of Rural Plus Rural Town Income and Employment<br>Through the Year 2040 (3.5 percent agricultural<br>growth rate) .37|
|Table 14c:|Projectlons of Rural Plus Rural Town income and Employment<br>Through the Year 2040: Case of High Agricultural Growth<br>(4 percent) .38|
|Table 15:|Projected Employment Growth Rates In Rural Areas Pius<br>Towns<br>.........<br>.. . .. .. . .. . .. . .. .. . .. .<br>.<br>39|
|Table 16:|National Agricultural Output and Income MultiPllers for<br>Irrigated versus Rainfed Agriculture .44|
|Table 17:|Compound Annual Growth Rates In Nonfarm Output and<br>Nontradable Agricultural Output Undor Altornative<br>Agricultural Growth Rates.<br>_46_|
# LIST OF APPENDIX TABLES

# APPENDIX A

- Table A.1 Changes In Population, Workforce, and Nonfarm Employment In India,

- Table A.2: Income Distribution by Farm Size, Rural India Table A.3: Income Distrlbution by Farm Slze, Rural India 1970/71 and 1980/81 Table A.4: Locational Changes In Population, Workforce and Nontarm Employinent In India, 1961-81

- Table A.5: Measured Female Employment Density by Activity, India 1961-81

- Table A.6: Urban Population Distrlbution Across States with Differing Agricultural Incomes: India 1981

- Table A.7: Rurai-Urban Differences In Nonfarm Activity in States with Differing Agricultural Incomes, India 1981

- Table A.8: Changing Composition of Nonfarm Activity Across States with Differing Agricultural Incomes, India 1971-81

- Table A.9: Employment Density by Activity In Six Indian States, 1971-81 Table A. 1 0: Varlations In Male Agricultural Wages a/ Across Regions, India 1970/71-1984/85

- Table A.1 1: Composition of Change In Rural Income for a Panel of Households Indla 1970/71 - 1981/82

- Table A. 1 2: Rural Consumption Profile by Expenditure Class, India 1983 Table A. 1 3: Regression Coefficients for Estimating Income Multipliers District Data

- Table A.14: Data, Income and Wage Multipliers for Regions of Varying Agricultural Productivity

- Table A.15: Regression CoeffIclents for Estkiating Income Multipliers State Data

- Table A.16: Regression Coefficlents for EsthnatUng Empioyment Multipliers Table A. 17: Changes In Rural Consumption Patterns, India 1967/68 - 1983
List of **Appndix Tables** - 2

**Table** A.13: Rural Consumption Parameters Across States With Dlffering Agricultural Incomes, India 1983 20 Table A.19: Semi-input-Output Parameters for India, 1979/80 21

# APPENDIX **B**

The authors are grateful to Ataman Aksoy, Pamela Cox, Kelth Obiltas, Frank Place, Toja Raparlu, and Roger Slade for helpful comments on earlier drafts.
EXECUTIVE SUMMARY The rural nonfarm economy accounts for 20 percent<sup>of full-the employment In</sup> Indla's rural economy and for 30 percent of rural<sup>heome. Expanding the definition of</sup> rural to Include rAral _tmns_ up to 1930,000<sup>h size, these shares Increase to 25</sup> percent and 35 percent, respectively. Nontarm activlties are espeially huportant to the poor; landless laborers and mall farmers tyolcally<sup>obtain half or moreofther</sup> Income from nonagricultural actIvitIes. Women are also<sup>active participants, particularly</sup> In food procossig and household marutacturing<sup>activities. Sew In thIs context, It Is</sup> clear that the rural nonfarm econouy will<sup>play a key role In determining future</sup> prospects for employment growth and poverty<sup>allevlatW In India.</sup> II. Dominating the rural nonfarm economy are commerce,<sup>service and small-scale</sup> manufacturing activitlis that cater largely to agrcultural<sup>atid rural consumer demands.</sup> As such, tveir fate Is Intimately linked to agricultural<sup>performance. This can be seen</sup> In the shifting structural composition of the<sup>Indian economy over the.</sup> The nonfarm sharos of national empoyment and Income remahid<sup>ahlost constant for many decades,</sup> but showed a sizeabos Increase In the 1970s.<sup>This chango coincided wlth a perlod of</sup> rapid agricultural growth associated with the<sup>green revolution.</sup> Ill. The relationship can also be seen by comparing<sup>states of varying agricultural</sup> performance. High performance states, such<sup>as PunJab and Haryana, have a greater</sup> density of rural nonfarm activity, a greater density<sup>of rural towns, and proportlonally</sup> more commerce, service and factory manufacturing<sup>than states wlth poorer records of</sup> agricultural productivlty and growth.

Iv. More formally, the relationship between agricultural<sup>growth and growth in the</sup> rural nonfarm economy can be analyzed wlth the aid<sup>of models. Two approaches are</sup> used in thl paper. The first Is an econometric<sup>analysis of cross-sectiona! state- and</sup> district-level data. The second Is based on a<sup>sem-Input- output model fitted to a</sup>

- I -
national kput-output table for 1979/80. Both approaches provide eotknbtes of the agrIcultural income multipiler, defined as the increase In value added In the nonfarm sector attrlbutable to a one rupee Increase In agricultural value added.

v. The sconometrli analysis leads to an estbiated Income multipiler of Rs 0.64, distrlbuted as Rs 0.39 _In_ the rural towns and Rs 0.25 In rural areas. The multiplier Is largest In high-Income agricultural regions; Rs 0.93 In Punjab and Haryana versus Rs 0.46 In low productivity agricultural states such as Madhya Pradesh and Blhar.

vI. In contrast, the semi-input-output model leads to an agricultural Income multiplier of Rs 1.35. This Is twice as large as the econometric esthiate because the semi-Input-output multipller pertains to the national, not just the rural, economy and **assumes** highly elastic supplies of nonagricultural outputs. The seml-Input-Gutput model also provides disaggregated multipliers for different types of agricultural growth. The income multiplier for Irrigated agriculture is Rs 1.56 but It is only Rs 1.23 for rainfed agriculture.

vil. The models are used to project, through the year 2040, the volume of nonfarm Income, employment and rural demand for manufactured goods that will result from agricultural growth. They project nonfarm Increases under a range of agricultural growtt. rates and separately for Irrigated versus rainfed expansion. The following conclusions emerge:

- 0 Because of strong agrc'iltural growth linkages, rural nonfarm income and employment will both grow faster than their agricultural counterparts. A sustalned agricultural growth rate of 2.4 percent (equal to past trend) will lead to 3.0 percent growth in nonfarm income In rural areas plus rural towns, and 2.8 percent growth in nonfarm emipioyment. These growth rates Increase to 5.8 percent band 4.0 percent, resrectively, If agriculture grows at the Planning Commisslon's target of 4 percent.

- 11 -
0 By itself, continued trend growth In agricultural output Is unikely to provide the growth In productive employment that Is required to absorb projocted Increases in the rural labor force. The employment gap will Increase further If IrrIgatIon plays a reduced role in future agricuWtural growth. However, secondary rounds of growth Induced In the rural nonfarm economy will brldge this employment gap given moderate rates of agricultural growth. ThIs will _be_ especially Important to the rural poor who depend on nonfarm activity for sizeable shares of their total _Incomes._ Consequently, the rural nonfarm economy merits close attentlon In Indla's rural development strategy.

Despite the strength of the rural-urban llnkages, a(ricultural growth alone cannot provide the necessary market to sustain rapid growth in India's manufacturIng sector. An agricultural growth rate of 2.4 percent per year will generate 1.8 to 1.9 percent growth In national manufacturlng output; the higher figure relates to Irrigated agriculture, the lower figure to rainfed agriculture. Even a six percent agricultural growth rate will sustain only about 5.5 percent growth In manufacturlng output. Clearly, export and domestic urban demand will have to play an kitportant role If manufacturing Is to continue to grow at elght percent or more per annum.

o Agricultural growth will lead to strong expansion In high-value agricultural output, especially livestock and horticultural products. For example, an agricultural growth rate of 2.4 percent will gcnerate nearly four percent growth In the output of these products. Given their I'gh labor Intensity. increases In the productlon of tiese products should be especially beneficlal to the poor.

_ 111 -
vill. Although the sizo of thj agricultural hicome multipliers depond prbnarlly on the leve' of per capita agricultural hcome, public policy can Influence their magnitude. The multiplers are positively relato'i to the development of rural Infrastructure (roads, electrification, banking servicos, etc.). They are stronger under irrigated rather than rainfed agrlcultural growth and larger for amall- to medium-sized farms than for very large farms. Hence appropriate regional and farm targeting of agricultural technolgy. supported by adequate lnfrastructural Investments, will be especially knportant for kIprovhng the nonfarm response to growing demand from agriculture. Moreover, other studles have shown that well-developed rural towns foster stronger rural-urban growth lincagis, and that government polceas towards small nonfarm businesses are Important. It Is particularly hportant to &vold tax, regulatory or llconcing pollcies that discriminate against small, labor-Intensive businesses In favor of thelr larger, capital Intensive cousins. These relatlonships provide a rich agenda for Identifying government policies that will strengthen the size and distribution of the Indirect benefits emanating from agricultural growth.

- iv -
# RURAL-URBAN GROWTH LINKAGES IN INDIA

## L INTROOICTION

1. The rural nonfarm economy accounts for one-quarter of all fulwtimte employmont h rural India and for nearly one-third of rural Income. It Is also the backbone of the economy of numerous small towns scattered tl%oughout the countryside as well as the primary source of Income and emp,oyment for many of Indla's poor. Seen In this lIght, the rural nonfarm economy will play a key role In determining future prospects for mployment growth and poverty allevIatlon In India.

2. The rural nonfarm economy Is also Intimately linked to agrIculture. For example, a substantial share of rural xiufacturing Involves agroproc4aslng and the production, repair and supply of farm Inputs. Moreover, t;he dominant sectors In the rural nonfarm economy consist of trade and service establishments that cater largely to rural consumer demand. The prospects for growth In the rural nonfarm economy will, therefore, hinge on future agricultural performance.

3. Increases In farm Income stImulate demand for consumer goods and services (Meilor 1976). Likewise, a growing agriculture demands production Inputs and supplies raw materials to transport, processing and marketing firms. In additIon to stimulating natlonal economIc growth, these production and consumptlon linkages affect poverty and spatlal growth patterns. Because most of the resultant growth In nonfarmn activIty Is located In rural areas and small towns, It can contribute to the contalnment of excessive rural-to-urban migration. Moreover, when agricultural growth Is focused on small and modIum-sized farms, the resulting demand patterns typically favor products produced by small, labor-intensive ' erprises whose growth can contribute to hwreased employment opportunitlos for the poor (Johnston and Kllby 1975).
**-2-**

4. This paper examines the knportance of these rural-urban growth linkages In Indla. It _kiims_ to assess the imiact of agricultural growth on natlonal demand for nonfarm products. In additlon, because growing land scarcity ralses concerns about prospects for rural labor absorptlon, the paper highlights the Impact of agricultural growth on rural nonfarm Incomes and employment.

S. Four major sections address these objectives. The fIrst provides a descriptive overvlew of nonfarm activity In Indla. It examines the Importance, compositlon and location of nonfarm activity as well as general trends over the past 30 years. The second explores the relationship between agriculture and changes In nonfarm activity. After reviewing previous growth linkage studles, It compares nonfarm activity In highand low-productivity agricultural states cross-sectlonally and over time. The third sectlrt estimates the volume of rural nonfarm Income and employment generated by agricultural growth, while the fourth projects patterns of demand for nonfarm goods emanating from alternative agricultural growth scenarlos.

# IL DESCRPTIVE PROFLE OF **NONFAM** ACTrvrrY

# A. kmportance

6. Nonfarm enterprises account for one-th' d of all full-tUne employment In India (Table 1). In large citles, nonagricultural pursuits occupy 95 percent of the workforce, In rural towns, 75 percent, and In rural areas, 20 percent. These proportlons have remained roughly corstant since 1961.

7. Part-time and seasonal employment frequently increase the knportance of nonfarm activity. lnaeed, some nonfarm undertakings In Indla are highly seasonal; 2050 percent of rural manufacturlng enterprlses ooerate only part-time or seasonally (National Sample Survey, 1969). But In the aggregate, measured secondary employment appoars very small. According to the 1981 population census, only 2.4 percent of
**-3-**

Indla's economically active population finds secondary employment in nonfarm sectors.<sup>1</sup> This holds true in both rural and urban areas. Natlonal Sample Survey data place the rural figure e Xi lower (National Sample Survey 1961). Of course, standard labor force definitions, because of their emphasis on usual employment and Inability to fully capture f*e,ale participation, may obscure the extent of seasonallty and part-time nonfarm employment, as the following Income figures suggest.

8. Income data reveal a larger role for nonfarm activity, Indicating that It contributes about two-thirds of national Income compared to a one-third employment share. Similarly In rural areas, excluding rural towns, nonagriculture normally contributes 25-35 percent of total income In contrast with Its 20-25 percent share of employment (Table 2). The higher Income than employment share Implies either greater returns to labor In nonfarm activity or considerable part-time and seasonal nonfarm pursuits uncaptured in the emplo,.. ent statistics.

**1** So India (1988), Tabl* **B-6.**
**-4-**

Table 1: Nontfau **Share** of Total Employment: **hWd** 1961/81

||Rural Ar|eas Plus Rural|Towns|||
|---|---|---|---|---|---|
|Year|Rural<br>Areas|Rural<br>Townsa/|Total<br>RRT|Large<br>Urban bl|Total<br>Natlonal|
|||(Perce|nt of Total Full|-Time Workers)||
|1 961|1 8.0|79.4|22.8|96.2|27.7|
|1971|15.2|76.5|20.4|95.4|27.9|
|1981|18.9|77.4|24.3|95.8|33.3|

- a/ Rural towns are defined as urban areas under 100,000 in population. They are _settlements of betwen_ 5,000 and 100,000 people.

- b/ Large urban setlements are all those with population exceeding 100,000. Total urban figures reported in the censuses equal the sum of what have been partitioned here into rural towns and large urban settements.

**Scurce:** Population consus of 1961, 1971, and 1981. See India (1961a-d, 17a-b and 1981b). Raw data are reproduced in Appendix Table A.1.
# **Tabe 2: Nonfarm Share of** Rural **and** Urban hcolr V: **hdba** 1067/68 to **19B1/2**

||||R U<br>|R A L|||Urban|
|---|---|---|---|---|---|---|---|
|Source of Income|1967/68|1968/69|1969/70|1970/71|1975/76|1981/82|1975/76|
|Own harm<br>**Wage**iaboL|62.8<br>(11.7)|54.9<br>19.9|61.2<br>17.7|60.5<br>17.4|55.8<br>13.7|53.3<br>(16.5-<br>1 1.9)|4.7<br>0.5|
|Totd agri-<br>**culture**<br>|(74.5)|74.8|78.9|77.9|69.5|(69.8-<br>65.2)|(5.2)|
|Nonfarm<br>||||||||
|Selfmploym nt<br> IbP|10.3<br>|8.4<br>|7.6<br>|9.0<br>|8.1<br>||26.4<br>|
|Wageao|(2.0)|3.4|2.1|3.0|8.6|(2.9-<br>75)|10.6|
|Salary<br>|10.5<br> <br>|8.0<br>|5.9<br>|5.8<br>|9.8<br>|.<br>-|49.1<br>|
|Rent&dividends|<br>2.7|5.4|5.5|4.?|4.0|-|5.6|
|Totalnonanrm|(25.5)|25.2|21.1|22.1|30.5|(30.2-<br>34.8)|-|
|TorM**hoome**|100.0|100.0|10|10.0|100.0|100.0|100.0|

a/ Excludes trasfer income from 1967/68 and 1975/76 to make income definition comparable with owt years.

b/ In _some_ yes, published asults fail to disaggregate farm and nonfarm wages. Figures in parenthese partition wages based on farm and nonfarm shares prevailing in other years. For 1967/68, the estimated wages breakdown takes nonfarm share of total wages at 15 percent, the I1 prevailing in 1968/691970/71. Since nonfarm share of wages appear to have risen over time, Xt 1961/82 stimate offers a range. The lower bound takes nonfarm wage share at 15 percent, the upper bound puts it at 38.7 percent, the level prevailing in 1975/6.

Not applicable. Wages disaggregated in those years.

## Breakdown not available

Source. National Council for Applied Economic Research (1972, 1975, 1980, 1986a).
9. Although many labor-intensive nonfarm activities provide work opportunities for the very poor, the aggregate data suggest a mixed Impact on Income distrlbution. In rural and urban areas alike, nonfarm Income constitutes the largest share of Income among both the very poor and the very rich (Table 3). For the wealthy, salarles, business profits and rents are most Important, while the poor depend most heavily on wage Income, both farm and nonfarm.<sup>2</sup> 10. By landholdlng, no such ambigulty arises. The smallest landholders routinely depend more heavily on nonfarm earnings than do families with larger holdings (Tables A.2 and A.3). Moreover, the recent NCAER panel study of rural households Indlcates that over time the smallest rural landholders, like all rural households, have become Increasingly dependent on nonfarm earnings (Table A.3).

B. Location 11. Not surprisingly, the density of nonfarm activity Increases dramatically In urban areas and with town size. In rural settlements, about 50 people per thousand work In nonfarm occupations (Table 4). Yet In even the smallest rural towns, of 10,000 to 20,000, that flgure quadruples. A second Jump In nonfarm activity occurs as town size Increases to 50,000 and then 100,000.

1 2. Currently, about 20 percent of Indla's nonfarm employment Is based In rural towns, defined In this paper as localitles between 5,000 and 100,000 In populatlon.<sup>3</sup> A further 35 percent reside In large citles over 100,000, while rural areas house the remaining 45 percent (Table A.4).

> 2 Unfortunately, **as** In **Tables** 2 **and** 3, most **studies fail** to **disoggregate between farm and** nonfarm **wages when** presenting income distribution prof I **I-_.** But **aggregate** income **figuroe** indicate that **nonfarm wagso** account for about 40 percent of rural **wages and 95 percent** of urban **wages.** Applying **these percentages** to **the wage** data In **Table** 3 **indicatoe** that under **any** conceivable **form-nonfarm** distribution, **nonftrm wages** account for **a far** higher **share of** incom for **the** poor then for **the** rich. **Pal and** Quison (1983, Table 13) corroborate this with NCAER **data** from 1970/71.

> J Tho remaining urban **settlements, those** over _100,000_ **are** roforred to **as** largo cities.
-7-

# Table 3: hemo Distrbutlon by Funtiotnal Classification, **bidl** 1075/76

|Income<br>Level|Farming|Wages|Salary|Business|Rent,<br>Dlvidends,<br>Transfers|Total|
|---|---|---|---|---|---|---|
|(Rs/Household)|||(Per|cent)|||
|Rural Areas|||||||
|Less than 3,600|40.1|45.0|2.3|6.0|6.3|100|
|3,601- 7,500|58.5|16.2|11.7|7.0|6.8|100|
|7,501-15,000|64.5|2.1|18.8|8.4|6.2|100|
|15.001-30,000|74.5|.2|10.0|9.8|5.5|100|
|Over 30,000|40.5|0|7.5|38.8|13.2|100|
|Urban**Areas**|||||||
|Less than 3,600|4.7|54.6|16.4|17.3|7.0|100|
|3,601- 7,500|5.0|15.6|50.5|21.1|7.8|100|
|7,501-15,000|4.7|2.1|56.5|26.9|9.8|100|
|15,001-30,000|3.8|.1|57.5|29.4|9.0|100|
|Over 30.000|6.4|0|41.0|44.1|8.5|100|

- a/ Includes farm and nonfarm wages together. Nonfarm wages account for roughly 40 percent of rural wage. and 95 percent of urban wages.

## Source: NCAER, 1980.
-8-

# Tab 4: Nonfwa Wlloy nt Density by Size of Settement kdla, 1971

|Size of Locality|Nonfarm<br>Agricultural<br>Employment<br>Employment|
|---|---|
||(Employment per 1,000 Population)|
|100,000 phls|284<br>14|
|50,000-99,999|243<br>39|
|20,000-4P,000|224<br>61|
|10,000-19,999|1 99<br>93|
|5,000- 9,999|198<br>96|
|Under 5,000|51<br>287|

Ss.us Ihndia (1971a-b)

# C. Compodton

**13.** The composition of nonfarm activity differs considerably across locality sizes. in rural areas, services and household manufacturing dominate nonagricultural pursuits (Table 5). But In the move to rural towns, commerce and services lead the dramatic surge In nonfarm activity. Similarly, factory manufacturing and transport Increase substantlally. Even the prevalence of household manufacturing Increases In rural towns, although It declines In Importance In large urban centers. In the largest urban localities, factory manufacturing emerges as the dominant nonfarm activity.<sup>4</sup>

4 **The date** In **Table** 6 co_ froe 1971 **because the** 1961 **breakdown** of **rural** towns is not **yot available.**
# Table 6: C_botn of Nonfam Actlvfty by Stte of Localty **hda** 197!

||||||Non-Agr<br>|iculture<br>|||||
|---|---|---|---|---|---|---|---|---|---|---|
|||||House.<br>Hld|NorH4ou<br>Hd|se-|||||
||AQrIcLi5Jr|s_TotWl_|Mhg|o<br>MIfr.|c<br>Mfr.|CondS.|<br>Co4mn.|Trans.|OOsr<br>SenAoe|TOTAL|
||||(Full-Tlm|e Emplo|yment per|1,000 Po|pulation)||||
|Total Employment|||||||||||
|Rural<br>|287<br>|51|1|11|8|2|8|3|18|338|
|Rural Town|se<br>68|220|4|19|43|10|56|23|65|287|
|Large Urban b/|14|284|2|11|86|10|61|34|79|298|
|Males|||||||||||
|Rural|230|45|1|9|7|2|8|3|16|274|
|RuralTown<br>|54<br>|198<br>|4|1S|39|9|54|22|55|252|
|Large Urban|12|260|2|9|82|10|58|33|68|271|
|Females|||||||||||
|Rural|57|7|0|2|1|0|1|0|2|64|
|Rural<br>Town<br>|14<br>|22|0|4|3|1|2|1|10|36|
|Large Urban|2|25|0|2|4|1|3|1|13|27|

a/ Rural towns _ae_ al urban are under 100,000 in population. b/ Large urban _wra_ **ae** _all_ above _10,000 in_ population. Souce: India (1971a-b)
- 10 -

14. These differences, at least as measured by employment statistics, reflect almost exclusively changes In the level and compositlon of male employment. Measured female participatlon<sup>5</sup> remalns minor in all locallty sizes and activities and Increases perceptibly only In services In rural towns.

# D. Femal Partlipation

15. Females account for about 15 percent of national employment, 20 percent In agriculture and 10 percent In nonfarm act!vlty (Table 6). Among nonfarm occupations, women are most prevalent In household Industries, where they account for 20 percent of all workers. Since household manufacturfing declines precipitously In large cities, the female share of nonfarm and total employment drops to Its lowest level In these major centers.

16. Employment data, though they afford the most comprehensive framework for viewing changes in nonfarm activity and differences across reglons, are least reliable In evaluating women's economic role. The Invisibillty of women working In the home coupled with a restricted definition of economically galnful actIvity compromise our efforts to fully measure the economic participation of women. Table 7 Illustrates the potentlal magnitude of the undercounting, what some refer to as the 'statistical purdah' (World Bank, 1989). Beginning In 1971, the population census adopted a more restrictive employment definitlon than that used In 1961,6 and nonfarm activitles In which women predominate bore the brunt of the discounting. Measured female nonfarm and total participation rates dropped by over 60 percent between the two

> 6 **S.o** World **Dank** (1989) **for a** good discussion **of** how dramstically conventional labor **force** definitions undercount **fem_le** participation.

> 6 Notorojan (1962) **and Jacob** (1966) provide **a** good **review of the** problems with **changing labor force** definitions. rable **A.4** illustrate- **some of the anomalioe** resulting from **the** changing definition. Notice the meosured **decline** in total **and** nonform workers **between 1961 and** 1971 **even** in tho **face of a** 20 **percent incroose** in population.
- 11 -

# Table 6: Wome's Share In Total<sup>Employment,India1971</sup>

|Activity|Rural<br>Areas|Rural<br>Towns -|Large<br>Urban|Total<br>National|
|---|---|---|---|---|
|||(percent)|||
|Agriculture|19.9|20.6|14.3|19.8|
|Nonfarm|||||
|Mining|15.2|10.4|10.0|13.4|
|Household|||||
|Industry|21.0|22.7|18.5|21.0|
|Nonhousehold|||||
|manufacturlng|12.8|7.8|5.1|8.1|
|Construction|9.8|7.9|9.1|9.2|
|Commerce|7.8|4.3|4.3|5.5<br>|
|Transport|3.2|3.4|3.4|3.3<br>|
|Other services|12.3|15.1|16.5|14.1|
|Total nonfarm|12.9|9.9|8.6|10.8|
|Total full-time|||||
|Workers|18.8|12.4|8.9|17.4|

a/ Rural towns are all urban areas<sup>under 100,000 in population.</sup> b/ Large urban areas are all setliemwns<sup>above 100,000 in population.</sup> Source: India (1971a-b).
- 12 -

# TOM 7: **Trends hI MStea** d **Female** Partkipation Rat". **hdla** 1961-81

||Female<br>Workers<br>per 1,000<br>Populatlon|Female<br>Nonfarm Workers<br>per 1,000<br>Population|Female<br>Workers<br>as a percent<br>of all<br>Fulltbiie Workers|
|---|---|---|---|
|Rural||||
|1961|154|22|34.2%|
|1971|64|7|18.9%|
|1981|78|9|22.5%|
|Total National||||
|1961|135|25|31.4X|
|1971|57|10|17.3%|
|1981|68|13|20.2X|

~ hndis (Iak)i 1971a-b, 1581c). See Appendix Table A.5 for a detailed disaggregation.

our **understanding** of poverty given the low-return, part-tkie, labor-intensive, often home-based activities In which women predomInate.

E. Trend 17. The years nice 1961 have witnessed several changes In the Indlan nonfarm economy. As Table 1 Indlcates, the decade of the 19709 represents a key turning point. Up until 1970, India's agricultural share of natlonal employment remained constant, constant for a century or more accordIng to some.<sup>7</sup> Not until the 1981 census did the first ovidence emerge of an Increase In the national share of nonfarm omployment; It rose from 28 percent In 1971 to 33 percent In 1981. The Income profiles tracked by NCAER researchers likewise Identify the first substantial boost In nrral nonfarm icomes durin the 1970s (Table 2). Thls coincides with the widespread ' **See Sinha** (1962), Vynn **and** Mathei **(1978) and** D..hpande and **D.ehpand. (1985).**
- 13 -

employment; It rose from 28 percent In 1971 to 33 percert In 1981. _The_ Income profiles tracked by NCAER researchers likewise Identify the first substantial **boost** In rural nonfarm Incomes durlng the 19709 (Table 2). This colncides with the widespread adoption of green revolutlon wheat and rice varietles and provldes at least circumstantial evidence linking the big spurt In agricultural growth with erlargement of the nonfarm economy.

18. Urbanization has accompanied the rlsing prominence of nonfsrm activity. The nonfarm employment densities have remained constant in rural areas, rural towns and In large urban centers (Table 1). This, coupled with the rlsing natlonal share of nonfarm In total employment, can only be possible If rural towns and large cities Increase In relative size, as Indeed they have.

19. Yet nationally, the composition of nonfarm activity has shifted only slightly **durng** Its decade of growth. Because of changing labor force deflnitions, reported differences between 1961 and later years do not reliably track changes in economic activity. Between 1971 and 1981, w.an definitions remained roughly comparable, the only perceptible change has been a slight Increase In the prominence of nonhousehold manufacturing In both rural and urban areas (Table 8). Dlsaggregatlon at the state level, however, does reveal a more substantial shift, as Sectlon 1I1. _C._ will discuss.
- 14 -

# Tr 8: **ChUang CoumpoItlon** of Nontam ActMity, hd. 1961 to 1981

||**AWfI**|Tota|Mwhn|HouSe<br>Hold<br>MfV.|Non-A<br>Houser<br>Hdod<br>M1r.|griculture<br>Conw"|Conrnm|_Trans_|oaer<br>Sess|TOTAL|
|---|---|---|---|---|---|---|---|---|---|---|
||||(Full-Tim|e Employ|ment per|1,000 Po|pulation)||||
|Rural Employment|||||||||||
|1981|290|57|1|11|12|4|10|4|17|346|
|1971|287|51|1|11|8|2|8|3|18|338|
|1961 al|369|81|-|28|7|3|9|2|32|450|
|Urban Employment|||||||||||
|1981|38|253|2|14|72|12|58|27|as|289|
|1971<br>|37<br>|256|3|15|67|10|59|29|;3|293|
|1961al|42|293|-|26|70|12|55|27|102|335|

a/ Labor fnrce definion in t981 not comparabl with those in 1971 and 1961.

Source: India (1961a-d, 1971a-b, 1981c).
**15** -

# Ill. **AGRICULTURE** AND GROWTH OF **THE NOIARM** ECONOMY

# **A.** Key Lhkages

**20.** Why does nontarm activity vary over time and across<sup>regions?</sup> Certainly resource endowments, location, ethnicity, historical happenstance, and government policy all play a role. Yet agriculture, because of Its size, must<sup>be added to the list</sup> ,f key suspects.

21. Agriculture can Influence nonfarm activity in at least<sup>three ways: through</sup> productlon, consumption and labor market linkages. On the productlon<sup>side, a growing</sup> agriculture requires Inputs -- of fertilizer, seeds, herbicides, pumps, sprayers, equipment and repalr services -- elther produced or distrlbuted by nonfarm enterprises. Moreover, Increased agricultural output stimulates forward productlon llnkages by providing raw materials that require milling, processing and distributlon<sup>by</sup> nonf arm firms. Consumption linkages arise when growing farmer Incomes boost demand for basic consumer goods; these typically Increase over time as rising per<sup>capita</sup> income Induces diversification of consumptlon spending Into nonfoods.<sup>Much of the</sup> overall Increase In demand -- for Inputs, services, distrlbution and many bAsic consumer goods -- can be serviced by firms In rural areas, and rural towns. Yet<sup>the</sup> heavy productlon Inputs and consumer durables are more likely to be produced In<sup>large</sup> cities or abroad.

22. Although productlon and consumptlon llnkages have attracted most of tha<sup>Initial</sup> Interest In agricultural growth llnicages (Mellor and Lele, 1972; Johnstor<sup>and Kllbe,</sup> 1975), more recent investigat0ns highlight a third Important link, the labor<sup>market</sup> Interactions. In rural areas, In particular, rising agricultural wages raise the opportunity cost of labor !n nonfarm activitles. This Induces a shift<sup>In the composition</sup> of nonfarm activity out of very labor-intensive, low-return activitles<sup>and Into more</sup> skilled, higher Investment, high-return activitles (Hossaln, 1988; Ahmed<sup>and Hossain,</sup>
> - **16** -

1988). Thus rising agrkcultural productivity may be Instrumental In ducng a structural transformation of the rural nonfarm economy.

# S. Prior EvIdence

_23._ Not all analysts have expressed ccnfidence In the prospects for agriculturalled growth. In a provocative and often-cited revIow, Vyas and Mathal (1978) argue that agricultural growth has not In fact stknulated development of the rural nonfarm economy. Using the population census data reproduced In Table 1, they point out that the nonfarm share of rural and urban employfment remained unchangod between 1961 and 1971. In their viow, skewed Income gains In agriculture lhited consumption linkages, while Inadequate rural Infrastructure lknlted the ability of rural firms to supply the modest Increases In Input and consumer demands.

24. Yet most subsequent analyses -- based on longer the series or disaggregated at the state of district level -- disputo Vyas and Mathals posshulstlc concluslon.<sup>8</sup> Tkne sories ovidence from fast-growing agricultural states document the strongest connections between agriculture and the nonfarm economy (Chadha, 1986a). Studies of the Punjab (Chadha, 1986b; Bhalla, et al. 1989) and Haryana (Bhalla, 1981) all highlight the knportance of rising demand for consumer goods and agricultural Inputs as the result of Increased agrIcultural production. Chadha, In particular, emphasIzes the Importance of farm machinery and other Input supply In the Punjab. He notes that whilo state manufacturlng grew at the same rate as agriculture In the 19609. It grew much faster than agriculture In the 19709. Because of first-mover advantages, he believes, machinery manufacture established to supply Its own state agricultur6 stood poised to export to other states In the 1970s. If so, these spilovers caution that IdentifyIng the spatial distributlon of agricultural growth llnkages may be complex.

a The **most** direct **ebuttal, based** on longer **time** _rio, **come** fron **Doehpand.** and **Le.hpand. (1965).**
- 17 -

25. These studies likewise corroborate ANed and H4ossaln's (1988) Initial<sup>evidence</sup> on labor market llnkages. In Haryana and the Punjab, Increased<sup>demand for agricultural</sup> labor has resulted In the highost farm wages In India. By raising the opportunity<sup>cost</sup> of labor In nonfarm pursuits, this has led to a decline In very low-return<sup>household</sup> manufacturlng and a parallel rlse In higher-return modern small factories and services.

26. Other tito-serles evidence comes from the moderately prosperous<sup>agricultural</sup> region of North Arcot. Using a sknulatlon model for the region, Hazell and<sup>Ramasamy</sup> (1989) have esthiated domand multipliers emanating from agricultural growth<sup>over the</sup> 1970s. They estimate that as a result of productlon and consumption linkages<sup>every</sup> 100 Rs. Increase In agricultural Income Induced an additional 82 Rs. In<sup>Income In other</sup> sectors of the rural economy. Production llnkages accounted for about half of the increase and consumption linkages the other half.

27. To date, cross-section comparisons across districts and states have produced similar, although less robust, correlations between agriculture and nonfarm activity. In part, this arises because so many Important factors other than agriculture<sup>vary</sup> across areas, and they also Influence the level of nonfarm activIty. Raw material availability varies across regions; consequently leatherworking industries predominate In Rajastan, while wood processing Is largest In well-forested states like Bihar (Papola, 1985). Moreover, trad;tlon, caste, historical accident,<sup>9</sup> and Indla's elaborate<sup>system</sup> of subsidies and policy protectlon for small and village industries<sup>1 0complicate cross-</sup> section comparisons.

9 Popola (19 6), **for example, describes one district** in Utter **Pradesh specializing In th,** production **of** plastic **jewelry** which **it supplies** to such of **the rest** of Indin. **Despite an absence of** local **raw materials** or **market, the activity flourishes,** for no **obvious reason. He surmiseo** that tradition or historical accident **must *xplain this puzzle. 11 See Singla** *t **al.** (1988) **for evidence** on tho connection between government support **and level of nonfarm** activity.
- 18 -

28. Even so, Radhakrishna et al. (1988), who compared three advanced agricultural districts in Uttar Pradesh with three laggards, found a higher nonfarm employment share In the agriculturally prosperous areas. PaPola (1985), comparing two different districts In the same state, found no correlation. But since he covered only a portlon of rural nonfarm activity -- and the least buoyant at that, household manufacturlng -- the lack of associatlon cannot be considered persuasive.

29. Khandker (1988) has used pooled time serles, cross-section district data to examine the relatlonships among rural employn,ent, wages, agriculture and Infrastructure. He finds both agricultural output and nonfarm employment higher In regions with higher agrocilmatic potential, but he does not attempt to measure the direct connection belween the two.

30. The labor market llnks between agricultural and rural nonfarm activity seem consistently robust In the cross-section studies. All comparlsons to date have confirmed the positive relationship between earnings in agriculture and earnings In rural nonfarm activity.<sup>1</sup> i C. Comparisons Across States 31. To further explore the elfect of agriculture on nonfarm activity, this section undertakes a descriptive analysis using state-level data. After ranking states according to agricultural productivity, It selects six for careful revlew, two high-, two low- and two medlum-productivity states. Initlally, cross-section comparisons examine how the size, compositlon and location of nonfarm activity vary across productivity zones. Then discussion turns to the time-serles evidence from these same six states to see how growth In agriculture affects growth of the nonfarm economy.

32. Table 9 ranks states according to several measures of agricultural productivity. It shows that per capita agricultural income, per capita total income, per capita 11 See Papola (1985), Chadha (1986) and Radhakrishna at al (1988).
- 19 -

foodgraln production and growth rate of foodgrain production all provide a broadly sknilar ranking. So from this listing, two high-productivity states (Punjab and Haryana), two low-productivity states (Bihar and Madhva Pradesh) and two middle-productivity states (Karnataka and Gujarat) have been selected for revlew.

33. Consider first the density of nonfarm activity, which Is generally higher In highIncome agricultural states. As Table 10 Indlcates, th's holds true In both rural and urban areas. But as the complete state profile In Figure 1 shows, the generally positive association between nonfarm activity and agricultural Income masks considerable varlation In Individual states. Kerala In particular houses an unusually high proportion of rural nonfarm activity for reasons that appear unrelated to the character of the state's agriculture. Figure 1 further illustrates the stronger farm-nonfarm assoclation when one expands the concept of rural to Include rural towns.

34. Indeed It Is Important to separate out the rural towns. Our six-state comparison suggests a greater predominance of rural towns in the high-income agricultural states. In fact, rural towns In Punjab and Haryana house nearly twice the population share of similar-sized settlements In Bihar and Madhya Pradesh. (Table A.6). 35. Furthermore, the relationship seems to hold more generally across India. States with high farm Income are typically more urbanized and less rural than states with lowproductivity agriculture (Table 11). And the big difference in urban structure lies In the predominance of Intermediate-sized towns. This suggests that a growing agricultural sector may Indeed contribute to a dispersed pattern of urbanization, as Mohan (1984) and Wanmall (1988) maintain.
- 20 -

# **Tab** 9: **Agrklltural** Prodactlvty **Ranking** of **Major kidan** States

||A<br>Per A<br>1982/83|gricultural Inco<br>aricultural Pop<br>Average<br>1983/84<br>1985/86|me<br>ulation<br>Average<br>1973174-<br>1975176|Total<br>Income<br>Per<br>Cadta<br>1982/83|Foodgramn<br>Production<br>Averags<br>1984/85-<br>1986/87|Annual<br>Rate<br>of Growth<br> <br>in Food<br>Production<br>1961/62-<br>1981/84|
|---|---|---|---|---|---|---|
|||(Rs./Capita|)|(Rs/Capita)|(kg/capital|(percent)|
|PunJab_/|2,764|3,423|1,486|3,484|924|6.3|
|Haryana a/|2,357|2,773|1,263|2,798|507|4.6|
|Kerala|1,347|2,250|1,018|1,447|43|1.0|
|RaJasthan|1,314|1,651|739|1,574|191|2.5|
|Maharashtra|1,294|1,623|662|2,525|123|2.0|
|Andhra Pradesh|1,282|1,440|734|1,536|165|2.4|
|Karnataka1/<br>|1,136|1,501|837|1,559|157|2.6|
|Gujarat-'<br>|1,116|1,626|718|2,182|98|4.2|
|Orlssa|1,066|1,256|634|1,308|219|1.5|
|West Bengal|920|1,813|699|1,595|158|1.4|
|Uttar Pradesh|902|1,106|503|1,439|247|3.0|
|Madhya Pradesh|862|1,189|570|1,311|239|1.6|
|Taml Na/du<br>|731<br>|742<br>|595<br>|1,373<br>|135<br>|.6<br>|
|Blhar -|599|852|415|995|138|.7|

## a/ Selcted for comparative anaiyuis.

Source: Economic Intelligence Srvice (1988), Economic Monitoring Service (1986).
- **21** -

> **Tabe 10.** **_Deost_ of Norfm Acvty Ac States with DWfforkg AgrIcutural hobme, hida** 1981

|**States**|Rural Areas|Urban Areas**al**|
|---|---|---|
||(Full-tknu Workers**per**1,000|Population)|
|**High**Agricultural Income|||
|PunJab|67|263|
|Haryana|67|258|
|Medium Agricultural**Income**|||
|Karnataka|61|247|
|Gujarat|53|258|
|Low**Aoricultural hcome**|||
|Madhya Pradesh|44|241|
|**Bihar**|38|212|

a/ Urban **inud ail** localities over 5,000 in population. It encompasses both rural towns and large urban **areas.**

**Source: India (1QS1c).**
-22-

**FIGURE 1**

<!-- Start of picture text --> RELATIONSHIP BFETWEEN NONFARM EMPLOYMENT AND AGRICULTURAL INCOME<br>ACROSS INDIAN STATES, 1981 0 Andhro Prodesh<br>a Bihar<br>RURAL AREAS 0 Gujorat<br>0.6 * Haryam -<br>. Hiwal Prodesh<br>0 O A Karnataka<br>0 Kerala<br>i .<br>* Maya Prodesh<br>. * Maharashtra<br>p 0.4 _ * b/~~~~~~~~~~anipur<br>. * ~~~~~~~~~~~~~Orissa<br>0 o.3 _°0 Punjob<br>*0 fr Rojasthon<br>0 0 Tamil Nadu<br>0 9.2 *s 9 * Tripura<br>I O Uttar Q Prodesh<br>di . , I + West Bengal<br>0.1 . _, . I I I<br>0 Soo 1 000 l S00 2000 2500 3000<br>AGRICULTURAL INCOME PER AG. POPULATION (RUPEES)<br>RURAL AREA PLUS TOWNS UNDER 100,000<br>0.6 I .S.<br>O.S<br>0.4~<br>0.2 S<br>0., 1.<br>0 Soo 1000 1500 2000 2500 3000<br>AGICULTURAL INCOME PER AG. POPULATION (RUPEES)<br><!-- End of picture text -->
- **2a** -

# **Table** 11: Correlation **Betwen** Agrkultural Productlvfty, **Populatio** and Location of Nonfarm Activity, hdian States, 1981

||C|orrelation Coef|ficient betwee|n|
|---|---|---|---|---|
||Agricultural<br>S|Income per A<br>hare In Each L|gricultural Pop<br>ocallty Slze of|ulation and|
||Nonfarm E|mployment|Popu|lation|
||All States|All Except<br>Kerala|All States|All Except<br>Kerala|
|Rural Areas|-. 23|-. 28|-. 23|-. 24|
|Rural Towns|||||
|5 -<br>100|.33|.38|.41|.41|
|5 - 250|.49|.57|.44|.45|
|Large Urban|||||
|100 +|.08|.10|.08|.09|
|250+|-. 06|-.05|-.04|-.04|

-oure: Employment and popu.ation data from India (Igelb). Agricultural income data from Economic Intelligence Service (1988).
- 24 -

36. The compositlon of nonfarm activity also differs in high-income agricultural states. The prominence of services, commerce and factory manufacturing rises perceptibly there, while household manufacturing attains less Importance (Table 12). These differences stand out most clearly in rural areas where the high-income states attract double the volume of services, commerce and factory manufacturing and only half the level of household manufacturing as In states with low-Income agriculture. Consequently, the disparity between rural and the urban nonfarm employment profiles becomes most pronounced In the low-income states because of their lower level of rural nonfarm activity (Table A.7).

37. Over the growth decade of the 1970s, urban nonfarm employment has Increased most rapidly In the high-productivity agricultural states (Table A.8). Yet rural nonfarm employment has grown at about the same rate In high- and low-income states, perhaps because the Initlal spurt In Punjab and Haryana began In the late 1960s, earlier than elsewhere. Unfortunately, the change In census employment definitlons makes it Impossible to confirm this, although Shalla et al (1989) advance anecdotal evidence of rapid growth In small agrolndustries during the 1960s.

38. In rural areas across Indla, the most rapidly growing segment of the nonfarm economy has been factory manufacturIng. (Table A.8). In huh-income states, commerce and transport have also contributed. Likewise, In urban areas factory manufacturing has dominated Increments to the nonfarm labor force.

39. Wage data reveal substantially higher farm earnings In Punjab and Haryana than in the other states. Although the gap has narrowed slightly In real terms, agricultural wages In Punjab and Haryana remain roughly double those In Bihar and Madhya Pradesh (Table A.10). Thus In part, the higher level of nonfarm activity In the high-productivity
- 25 -

**Table 12:** CompOsition **of** Nonfarm Actity Across States wIth **Differkg** Agricultural **_hcome_** India 1981

||TotJ<br>Nonfarm|Mlning|House<br>Hold<br>Mtr,|Non-<br>Hous-<br> <br>Hold<br>Mftr.|Ccstr.|Comm.|Trans.|ottew<br>Servis|
|---|---|---|---|---|---|---|---|---|
|||(Ful|l-Time|Workers|per 1,|000 Pop|ulatlon)||
|A. Rural**Areas**|||||||||
|High Agricultural Income<br>|||||||||
|PunJab<br>|67|0|7|15|5|12|7|22|
|Haryana|67|0|7|15|5|10|5|23|
|Medium Agricultural Income<br>|||||||||
|Karnataka|81|2|14|13|4|11|3|13|
|Gujarat|53|1|2|17|3|10|5|15|
|Low Agricultural Income<br>|||||||||
|Madhya Pradesh|44|3|12|6|4|6|2|12|
|Bihar|38|3|7|7|1|7|3|11|
|**9. Urban Areas**al|||||||||
|Hlgh Agricultural Income<br>|||||||||
|PunJab<br>|263|0|10|73|10|70|24|75|
|Haryana|258|0|10|76|14|66|21|71|
|Medium Agricultural Income<br>|||||||||
|Karnataka|247|3|18|70|15|57|25|60|
|Gujarat|258|1|8|95|9|57|28|59|
|Low Agricultural Income<br>|||||||||
|Madhya Pradesh|241|7|18|59|13|51|25|68|
|Blhar|212|19|8|48|10|50|23|54|

a/ Urban includes all localities over 5,000 in population. It encompasses both rural towns and large urban areas. Source: India (1971a-b, 1981c).
- **26** -

states may stem from greater consumption llnkages as consumers channel rising Incomes Increasingly Into nonfoods.

40. In sum, the state-level comparisons generally support the notlon that growth In agriculture goes hand-in-hand wlth development of rural towns and growth In rural nonfarm activity. To quantify the magnitude of the growth multipliers requires more formal modelling approaches.

# IV. ESTIMATING RURAL AGRICUTURAL GROWTH MULTPLERS

# A. Econometric Model

41. Agricultural growth multipllers can be estimated In several ways. This section uses cross-section district and state data In order to estimate econometrIcally the Indirect rural employment and Income generated by agricultural growth. An alternative method Involves use of Input-output and consumptlon parameters to model the linkages. Since this second method Is better able to project urban as well as rural linkages, It Is used In Sectlon IV for that purpose and as a check on the econometric estimates of the rural growth multipliers.

42. The following model Is an adaptatlon of the economic base model developed by regional scientists (e.g., Rlchardson, 1985). It assumes that agricultural output Is constrained by technology, land and agroclimate, but that rural nonfarm activity Is constrained only by demand. Improved agricultural technology Increases farm output and hence the demand for nonfarm Inputs and consumer goods. Since agricultural output varles across reglons, the following relationship allows a rough estimate of the growth multiplier: RNFY - a + b AGY, where RNFY Is rural nonfarm Income, AGY Is agricultural Income and b - dNFY/dAGY Is the agricultural Income multiplier.
- 27 -

43. Of course, other factors besidos the level of agricultural Income Vary across districts and states, and they too may affect the size of the nonfarm economy. Different types of agriculture may generate different linkages since Input Intensity and processing requirements vary across cropping systems. Outside of agriculture, analysts generally single out Infrastructure, population density and per capita Income as candidates most likely to increase growth multipliers. Infrastructure facilitates communication, transport and credit flows and should improve the responsiveness of the nonfarm economy to demand Increases from agriculture. Likewise population density, especlally In rural areas, may reduce the geographic catchment area necessary to achieve miimknum officlent scales of production, reduce transport costs and thereby knprove prospects for rural responses. And higher agricultural Income per capita should lead farm families to diversify their consumptlon Into nonfoods, thus increasing their incremental expenditure on nonfoods.

44. To take account of these other Influences on the growth llnkages, consider the following elaboration of C1: RNFY - a + b AGY + c AGY*INFR + d AGY*POPDEN + e AGY*AGYCAP + f AGY*IRRIG t2] where INFR refers to Infrastructure, POPDEN to rural population density, AGYCAP to agricultural Income per agricultural population and IRRIG to the share of Irrigation In total cropped area. Irrigation is used as a proxy for intensity of Input use across agricultural zones. The four ancillary variables are Included as multiplicative Interaction terms because In this form the Income multiplier becomes: dRNFY/dAGY - b + c INFR + d POPDEN + 2 e AGYCAP + f IRRIG. (3] That Is, Infrastructure, populatlon density, per capita agricultural Income, and input Intensity of agriculture affect the multipiler Itself (the slope) rather than merely the level of nonfarm activity (the y-Intercept).
- 28 -

45. Note that other factors Influencing the level of nonfarm activity are captured in the error term. Raw material avallabillty, historical accident, location, othnicity, and differentlal policles all undoubtedly Influence nonfarm activity to some extent. But they are difficult to measure and It seems reasonable to model then as varying randomly across districts.

46. The same model can be used to estimate rural nonfarm employment (RNFL) multipilers by substituting employment for Income as follows: RNFL - a + b AGY + c AGY*INFR + d AGY*POPDEN + a AGY*AGYCAP + f AGY*IRRIG [4) 47. Both equatlons (2] and [4] have been estimated separately using state and district-level data. For the distrwcts, we have used the same 85-dIstrict sample used by Blnswanger and Khandker<sup>1 2</sup> (1988) and Khandker (1988). It Is a representative, India-wide sample Including districts from Andhra Pradesh, Bihar, Gujarat, Haryana, Jammu and Kashmir, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu and Uttar Pradesh. Since Income data are not available at the district level, farm and nonfarm Income (Y) are estimated as employment (L) times the wage rate (w) divided by the wage share (S,) In total Income (Y - wL/S,,).<sup>13</sup> curthermore, since only agrieljtural wage data are avallable, we must assume wage rates are equal In farm and nonfarm activities. For Infrastructure, we have used road density per square kilometer, although rural bank branches and rural electrification are highly correlated and produce similar results. Farm and nonfarm Income data are available for each 12 **We are** grateful to Shahid..- Khandkor **for access** to **the** agricultural **and** infrastructural variables necessary for **estimating** this **model. We have** supplemented **the** employment figures by returning to the population **census** (India, 181b) to **break** out nonfarm employment **in** rural towna **as** woll **as** rural **areas and** large urban **centers.** 1<sup>3</sup> Transtating from **wage** to income **multiplieor quires** the following **adjustment. We** wish to **estimate the** Income multiplier (dRNFY/dACY **_*_** b) from RNFY a a * b ACY. ut d?te constraints **require us** to **estimate** a **wage** -ultiplier, bl, **Instead** from RNFW a **n'** + b AGW. **The wag*** equstion **can be rewritten as** RNFY*Swn **u a*** **_*_** bl AGf * S n So long **as** **_wage_** pharee of total income, S , remain constnt, **we can comput** b **from** bl **as** follows: b **_*_** bl s Sw/Swn Calculations **bosed** on Hazell **and Rmasa my** (19i1) **place Swa/Swn** at e.e2. **hence the wage share** adjustment **described** in **Table** A.13.
- 29 -

state, but In this case there Is no breakdown among rural areas, rural towns and large urban centers. Footnote 13 describes the allocation mathods used.

48. We estimated the model separately for rural areas (RNFY), rural towns (RTNFY), and the expanded rural region (RRTNFY) encompassing both. This provides a useful Indlcatlon of the spatial daiierslon of the rural demand llnkages. We also estimated the model by both OLS and 2SLS. The latter seemed necessary to correct for potential endogenelty problems with some of the right-hand side varlables. For example, It could be argued that the rural nonfarm economy has Its own stimulatory effects on agriculture (the urban growth pole model), In which case RNFY and AGY would be simultaneously determined. Also, population and Infrastructure may be concentrated In regions with higher agricultural potential, leading to selectively bias problems.

49. The econometric estimates are reported In AppendIx Tables A.12 - A.15. Because of multlcolilnearity problems, the IrrigatIon varlable was never si2nificant, hence we dropped It from the fInal runs. As expected, the Breuch-Pagan test revealed heteroskedastlcity In the district data. Consequently, all district regressions were run using the Prals-Houthaker adjustment to correct the problem.

# B. hcome Multipliers

50. The Income multipliers from these regression coefficients suggest three major conclusions. First, on average, a one hundred rupee Increase In agricultural Income will generate about an additlonal 64 rupees In rural nonfarm income, 25 rupees In rural ar3as and 39 In rural towns (Table 13).14 14 Although this **Is** our best **estimate, the** actual value probably rang-o anywhero **between** 64 **and** 79 **rupees. This** interval **is** that computed from **the** state-levol **regressions.** They offer **an advantage** in that farm **and nonfarm** income **are available** for **each** state, whi **lo we must extrapolat based** on **wage** earnings **for the** districts. Yet with **the state** data, **a** different difficulty **emerges; we** must partition *tate-wide nonfarm **income among** rural **areas,** rural towns **and large** urban **centers. There are several ways** to do **this. The** upper bound multiplier **arises** by taking rural **nonfarm** income **as** proportional to **its share** in **state nonfarm** employment, that **is** RNFY x RNFL*(state NFY/state NFL). Tho **lower** bound **takes per** capita rural **nonfarm** income an **equal** to earnings in agriculturo, that **is** RNFY a RNFL * (state AGY/atate **AGL).**
- 30 -

# Tae 13: Rural **hooWome** MutWUe Acros Stats with _Dtrffhg_ **Agricultural** hcomes

||Change in Nonfarm<br>One Rupee Increase<br>Rural<br>Areas|Income Resulting<br>In Agricultural In<br>Rural<br>Townsal|from<br>come<br>Rural Areas<br>Plus Rural Townsb;|
|---|---|---|---|
|PunJab/Haryana|.34|.59|.93|
|All India average|.25|.39|.64|
|Karnataka/Gujarat|.24|.40|.63|
|Madhya Pradesh/Blh|ar<br>.18|.28.|.46|

a/ Rural towns are localities betwen 5,000 and 100,000 in population.

b/ Sirc separate equatns are obtained from the 2SLS-PH district regressions as described in Table A.13. The state-specific muftipiwrs are simizy derived. They vary because the average rod desity, per capita income and population density all differ across states. For details, see Table A.14.
- 31 -

51. Second, all of the ancillary factors -- Infrastructure, population density and per capita agricultural income -- increase the agricultural<sup>growth multiplier. Take roads</sup> as an example since policymakers can most easily<sup>Influence infrastructure. Given the</sup> parameters reported In Table A.13, a 10 percent Increase<sup>In road donsity will Increase</sup> the aggregate rural plus rural town multiplier by 2.2 percent,<sup>to .66.15</sup> 52. Third, because the Infrastructure, population density and per capita<sup>agricultural</sup> Income differ so markedly across states (Table A.14), the coefficlents<sup>from equation</sup> (2] can be used to calculate multiplier differences among them.<sup>Reported In Table 13,</sup> the multipliers Indicate a considerable range across regions. While<sup>one hundred rupees</sup> of agrlcultural Income will generate 93 rupees In rural (Including<sup>rural towns) nonfarm</sup> Income in Punjab and Haryana, it will only support 46 rupees of nonfarm Income<sup>In Bihar</sup> and Madhya Pradesh. Hlgher consumption linkages and higher Input Intensity In agriculture account for the substantially higher linkages in the<sup>high-productivity</sup> agricultural states.

C. Employment MultUlbrs 53. Both the state and district regressions In Table A.16 proJect<sup>employment</sup> multipliers. They Indicate that every 100,000 rupees In<sup>additional farm Income will</sup> generate 3.7 nonfarm jobs In rural areas plus rural towns. But statistically, tho regression results were much less robust than was the case with<sup>the Income multipliers.</sup> D. Projectins 54. The estknated regression parameters provide a basis for<sup>forecasting</sup> the nonfarm Income and empioymen **t** hat might materlalize under<sup>different agrIcultural growth</sup>

**15** Unfortunately **for** policymakers, this **does** not **mean** that building **more** roads wi 1 **guarantee** higher **nonfarm** growth **linkages.** Since **all** infrestructure **variables are** highly **correlated** (with **a** correlation **coeffiieont** of .8), it **is** not possible to **separate** out **the** Individual **effects** of **roads from banks,** electricity, or **telephones, at least** not with **thes** cross-sectional **data.** Rerunning the model using bank **density** rather than roads, for **exaople,** produces virtually identical **paroaters.** So to **achiove** tho **2.2 percent Increase** in multipliers, it will probobly be **necessory** to develop Infrostructure across **the** board by 18 **percent.** Khandker (1989) **Is more** succoessful in Isolating **the seperate coAtributlons** of different kinds of rural infrastructure, but **he has access** to pooled **time-series, cross-soection** data for **the same** districts
- 32 -

sconarios. Given assumed growth rateb for agricultural Income, populatkin and road density, the district-level regressions In Table A.13 are used to project the changes In the Income multiplier for selected years between 1981 and 2040. The product of the multipiler and the projected agricultural Income for each year then provides a forecast of Incremental rural nonfarm Income. Nonfarm employment can be proJected by dividing the forecasted rural nonfarm Income by per capita earnings.<sup>16</sup> The latter Is eacily projected each year from the assumed growth In agricultural income and population. We choose to project nonfarm employment In this Indirect way rather than using the employment regressions in Table A.16 because the latter are statistically so weak.

55. Projections are reported In Tables 1 4a-1 4c under the foliowing three assumptions about the agricultural growth rates; a continuation of past trend, 2.4 percent; the World Bank's target, 3.25 percent; and the target rate set by the Natlonal Planning CommIssion, 4 percent. The nonfarm projections comprise an aggregate of rural areas plus rural towns, and they are based on the 2SLS-PH regressions In the last block of Table A.13. All the projectlons assume a population growth rate of 2.2 percent and an unchanging density of rural roads.

56. The tables also Include projections for agricultural employment. These are obtained by multiplying the projected growth In agricultural output by an agricultural employment elasticity each perlod. Three alternative elasticities are used, corresponding to different scenarios for agricultural growth.

16 As **before, wo take por capita** nonfarm income **as equal** to agricultural **income** in rural **areas** but double **that in** rural towns. **If women's nonfarm** earning **differ** from **those** of **men** by **the same 29** percent margin prevailing In agriculture (Acharys 1986), **these** projections **my** understate employment growth. Since **woomn** account **for** only **19** percent **of** th- **measured** rural **nonfarm** labor force, **an** appropristely weighted downward **adjustment** in **per** capita **nonfarm income** will 7ncrosse **the mployment** growth **rate** by only 2 percent. This **amounts** to **a** change in **the** 2nd **decimal place,** Increasing **nonfaro** employment growth, for **example,** from 2.11 percent per year to 2.16 percent. **Of far greater** importance **is the large volume of unmeasured female** employment that **we have** no reliable **means** of imputing **at all.**
- 33 -

57. Scondrlo l: The status quo assumes that the pattern of growth - In terms of the crop mix, Irrigated versus ralnfed, and area versus yield growth - will be the same as observed In the period 1968/69-1970/71 to 1976/77-1978/79. For this scenario, we use Tyagl's (1981) estimate of the agricultural employment elasticity of 0.75.

58. Scenario II: Irrigation assumes that futLre agricultural growth will ar'se from greater emphasis on irrigation, a concomitant shift towards more paddy and wheat, and a modest Increase In per hectare yields. SpecifIcally, we assume that 50 percent of future agricultural growth will arise from Increases In the gross cropped area, 20 percent from Increases In the crop mix In favor of rice and wheat, and 30 percent 17 from higher yields. Then, using relevant employment elasticities reported by Tyagi each one percent growth in agricultural output will lead to:

1.0((1.05)(0.5) + (0.76)(0.2) + (0.66)(0.3)] - 0.88 percent

growth In agricultural employment.

59. Scenario liI: rainfed agriculture assumes future growth will depend on rainfed agriculture, with a shift away from sorghum and millets and Into ollseeds, sugarcane, and less traditional crops. In the absence of any estimated employment elasticitles for most of these crops, we simply assume that the growth will be predominantly yield driven and use Tyagl's (1981) aggregate yleld employment elasticity of 0.6.

60. Since per capita agricultural Income is assumed to Increase over time, so too do the Income multipliers In Tables 14a-14c. As per capita Income rises, consumers Increasingly diversify their consumption Into nonfoods. rhe strength of this relatlonship Is shown In Table A-19, where states with higher agricultural incomes spend

**17 Tyagi** (1961) **gives** employment elast;citieo for solected crops; paddy 0.73; **wheat** 0.79, sorghum 0.44, **sugarcane 0.30, milleto S 15** percent. **He also** givoc **aggrogate** slasticitie with **rospect** to **changes** in **the gross** cropped **area (1.65), a** cropping pattern index (0.47) **and** yield **(0.66).**
- 34 -

a higher share of thelr income on nonfarm commoditles and services. Mbreover, as Incomes have risen over time, the average income share spent on nonfoods has increased substantlaily, from 23 percent to 34 percent between the mid-1960s and the early 1980s (Table A-20). So tti,e race between population and farm income, because of Its Infiuence on per capita income will have a major bearing on the magnitude of the farm-nonfarm linkages. Given 2.2 percent populatlon growth, and an Initial multiplier of 0.64, the multiplier Increases by 0.02 percent, 0.88 percent or 1.64 percent per annum depending on whether agriculture grows at 2.4, 3.25 or 4 percent, respectively. 61. Nonfarm Income will grow faster than agricultural Income under each of the three levels of agricultural growth assumed In Table 14. So will nonfarm employment, although It will not grow as fast as nonfarm Income. This difference arises because, as earnings rise In agriculture, they pull up rural nonfarm earnings In tandem. Consequently, a given nonfarm Income Increment will represent fewer jobs at a high wage than at a low wage. Even so, nonfarm employment will grow faster than agricultural employment under all scenarlos.

62. Table 15 shows the prospects for growth In farm and nonfarm employment given a wider range n agricultural growth rates and two alternative rates of population growth (1.8 percent and 2.2 percent). If agricultural output only grows by one percent per annum, then total employment will grow at between 1.16 and 1.32 percent depending on whether the agricultural growth Is oriented towards rainfed or Irrigated areas. This would be less than the estimated growth In the rural plus rural town labor force, which is currently Increasing at around 2.2 percent per annum.

63. An agricultural growth rate of 2.4 percent per year would enable the growth In total employment to keep pace with the labor force, If the agricultural growth Is Irrigation led. However, growth In rainfed agriculture cannot generate adequate growth
- 35 -

In total employment unless agricultural output grows by at least 3.25 percent per annum.

64. Note that growth In nonfarm employment contributes relatively more to the Increase In total employment when agricultural growth Is low and/or has a low employment elasticity. It will be particularly Important In helping to absorb projected increases In the rural labor force If agriculture grows at less than 2.4 percent, especially If future growth Is focused on rainfed a agriculture.

65. For hlgh rates of agricultural growth, Table 15 suggests that total employment would quickly outstrip the growth In the total rural plus rural towri labor force. The surplus labor demand would clearly have to be resolved through higher wage rates or urban-rural Irrlgatlon, neither of which Is adequately captured In our model.
- 36 -

# Table 14a: Projections of

# of Rurol Plus Rural **te.** jace.. and 6mploymt i laad, Through tb. Year 2949: Agricultural Crowth Cotiawe _ t _Trend_ Rate (2.4 percent)

|Year|Agr. In_pe<br>(RoilW"|<br>far<br>Multipler<br>(Re)|m Inco g<br>(RcI0W)|Nonfarm<br>Employment<br>(Million)|A ricu<br>Scenario<br> <br>I<br>(million)|ltural<br>Eplo<br>Scenario<br>**II**<br>(million)|y- nt<br>Scennrio<br>III<br>(million)|To<br>ScnaroI<br>I<br>(million)|tal Employ-m<br>Scenario<br>**II**<br>(million)|nt<br>Scenario<br>III<br>(million)|
|---|---|---|---|---|---|---|---|---|---|---|
|1961<br>|446|1.636|184|47|147|147|147|194|194|194|
|1986|490|0.638|212|64|166|160|166|211|213|209|
|1990<br>|662<br>|6.640|262|63|172|177|167|238|240|230|
|206<br>|76|0.646|347|86|206|216|193|291|303|277|
|2016<br>|U67<br>|*.648|468|112|246|269|222|368|381|334|
|**2020**<br>|1,126|o.648|622|146|294|332|26e|446|478|403|
|2030<br>|1,426|0.646|617|188|362|409|296|648|697|484|
|2640<br>|1, 66<br>|0.641|1062|240|421|604|341|66|744|681|
|Compoun<br>Rate.|d Growth<br>2.4|0602|3.02|2.01|1.80|2.11|1.44|2.1U|2.31|1.88|

Assumptions: Growth rates: population, 2.2 percent; agricultural income, 2.4 percent; roadu, 0 percent. Agricultural employment elasticity: Scenario I, 0.76; Scenario II, 6.88; Sconario III, 0.6.
- 37 -

**Table** 14b: Projections **of** Rural Plus **Rural Town Ioeo.** Eeploymet **Is ldia Through the Year 2049:** Agricultural Growth Achieve. World **Bank Torgt (5.26** perendt)

|Year|Agr. Inp<br>(Ro19'J|_No_<br>Multi<br>t'aiprso<br>(R.)|r (R919'|Nonfarm<br> <br>**Ion)**|Agric<br>S<br>I<br>(million)|ultural<br> <br>Scnrio<br>II<br>(million)|o _t<br>Scnario<br>III<br>(million)|To<br>Se nario<br>I<br>(million)|tal<br>lo mo<br>Scenario<br>II<br>(million)|nt<br>5cenario<br>III<br>(million)|
|---|---|---|---|---|---|---|---|---|---|---|
|1961<br>|446|9.636|184|<br>47|147|147|147|194|194|194|
|1986<br>|697|0.6S8|223|<br>54|162|164|169|216|219|213|
|1990<br>|C96|0.687|283|<br>65|162|139|176|246|266|240|
|29ee<br>|619|0.760|444|<br>92|232|251|313|324|343|394|
|2919<br>|1126|*.819|686|<br>129|296|33a|267|424|461|a3U|
|202<br>|1553|9.89C|1,060|<br>178|376|441|312|663|616|489|
|203e<br>|2130<br>|0.977|1,698|<br>243|473|584|378|721|828|621|
|2040<br>|2044<br>|1.068|2,421|<br>332|698|776|469|940|1107|791|
|Conpound<br>Rate|Crowth<br>3.25|0.88|4.48|3.38|2.44|2.86|1.95|2.71|3.00|2.41|

Assumptions: Growth rates: population, 2.2 percent; agricultural income, 3.26 percent; roads, 0 percent. Agricultural employment elasticities: Scenario I, 0.76; Seonario II, 0.88; Scenario III, **0.8.**
- 38 -

**Table** 14c: Projectiem

of Rural Plus Rural Tom _Income_ od Eapleymast Is ladle Tbrough the Year 2646: **Case of** High Agricultural **Growth** (4 **perosat)**

|<br>**Yer **|Agric. In o<br>**(Rc**U)<sup>9</sup>~|me Nonfars I<br> Multiplier<br>(Rs)|ncoe<br>(Ru 109)|**Nonfarm**<br>E<br>mploy<br> <br>Million|mnt<br>Snrio<br>I<br>(million)|l<br>!!MleL<br>II<br>(million)|meiltur!<br> <br>t<br>III<br>(million)|T<br>Scennrio<br>I<br>(million)|otal Em ploy<br> <br>Sc nario<br>II<br>(million)|nt<br>Scenario<br>III<br>(million)|
|---|---|---|---|---|---|---|---|---|---|---|
|1961<br>1986|446<br>622|0.636<br>6676|184<br>2|47<br>|147<br>|147<br>|147|194|194|194|
|<br>1990|<br>o5s|.<br>0732|34<br>|66<br>|166<br>|169|161|220|224|217|
|<br>2666|<br>946|.<br>6868|313<br>666|68<br>|192<br>|206<br>|162|269|268|250|
|2016|<br>**1391**|.<br>1008|<br>977|1l1<br>|267<br>|283<br>|238|368|364|331|
|2026|<br>2069|.<br>1188|<br>|148<br>|346<br>|466|292|494|548|440|
|<br>2630|<br>3048|.<br>1402|1711<br>2911|217<br>|466<br>|566|376|682|782|587|
|2646|<br>4612|.<br>_18d1S_|<br>|317<br>|625<br>|866|469|942|1117|786|
|<br>Compou|<br>nd Growth|_._|6230|464|84S|1130|696|1363|1694|1669|
|<br>**Rate**|<br>**4.6**|1.64|6.84|3.97|**3."6**|3.62|2.46|3.29|3.64|2.92|

Assumptions: Crowth rates: population, 2.2 percent; agricultural income, 4 percent; roads, 6 percent. Agricultural employmnt elasticities: Scenario I, 0.76; Scenario II, 0.88; Scenario III, 6.8.
- 39 -

# Table **1S:** Projected Employm **et** Growth Rates **i** Rural Areas Plue Towns, India 1981-2640 Under Alternative Peulatlem ed Agricultural GrwtJ Sceneries

|||||Compound Annual Grow|thRates.<br>19#1-2040|||
|---|---|---|---|---|---|---|---|
|Agricultural<br>Output|<br>Nonfars<br>EmEployment|Agr<br>Scenario|icultural<br>Emelo<br>Scnario|ym_nt|T<br>nro|otal E!p!lcymnt<br>cnrio|<br>narioIII|
|Population<br>Grow|th 2.2%|||||||
|1.6<br>|2.26<br>|0.76<br>|0.88<br>|O.6<br>|1.26|1.32<br>|1.16<br>|
|2.4<br>|2.81<br>|1.80<br>|2.11|1.44|2.10|2.31|1.88|
|3.2F<br>|3.38<br>|2.44<br>|2.86<br>|1.96<br>|2.71|3.00|2.41|
|4.o<br>|3.97<br>|3.00<br>|3.62<br>|2.40<br>|3.21|3.64|2.92|
|.60|6.73|4.60|6.28|3.60|4.88|6.46|4.38|
|Population Grow|th 1.8%|||||||
|1.0<br>|1.94<br>|0.76<br>|0.88<br>|6.06|1.12|1.20|1.63|
|2.4<br>|2.63<br>|1.80<br>|2.11<br>|1.44<br>|2.04<br>|2.26<br>|1.81|
|3.26<br>|3.24<br>|2.44<br>|2.86<br>|1.95<br>|2.67|2.96|2.38|
|4.0<br>66|3.86<br>|3.oe<br>|3.62<br>|2.46<br>|3.26<br>|3.61<br>|2.88|
|.|5.66|4.66|5.28|3.60|4.86|6.38|4.36|

Scenario I assumen the **sane** pattern of agricultural growth **as** occurred during 1968/69-1976/71 to 1976/77-1978/79; Scenario II aasumes an irrigation intensive growth strategy; Scenario III **assumes** agricultural growth will be predominantly focussed in rainfed areas. Assumptions: Growth rates: agricultural income some as the growth in agricultural output; roads 0 percent. Agricultural employment elasticities: Scenario I, 06.76; Scenario II, 0.88; Scenario III, 6.6.
- 40 -

66. The lower rate of population growth (1.8 percent) has a surprisingly small effect on the employment projections in Table 15. Slnce, other things being equal (including per capita Incomes), the multiplier Increases with population density (Table A-1 3), then the lower population growth rate leads to a marginally smaller Increase In nonfarm Income and employment.

87. **Caution** The above projections pertain only to the growth In nonfarm Income and employment that might arise as a consequence of the Indirect effects of agricultural growth. Additional growth In nonfarm Income and employment will undoubtedly arise from increasing export opportunitles from rural areas, both to large urban areas within India and to overseas markets. But these sources of growth are likely to continue to provide a relatively small share of the total market for rural nonfarm activity.

# V. **PROJECTONS OF NATMNAL MAMJFACTURIG AND TERTIARY DBAAN RESULTING** FROM AGRCLTURAL GROWTH

# A. SeM-hput-Output ModeqkV **of** Growth **MultipIlers**

68. Since growing agricultural output stinulates demand for consumer goods, productlon Inputs and processing services, It Is possible to model the demand Increments directly using Input-output coefficlents and consumption parameters. Unlike the cross-section econometrics, this approach allows estimation of changes In total national demand for nonfarm products. Because agriculture clearly drives changes In the rural nonfarm economy, It Is possible to estimate the rural growth linkages econometrically as In Section IV. But In large urban centers, export demand, government spending and other forces outside of agriculture Influence the level of nonfarm activity In a ma or way. Since agriculture is not the only engine stimulating
large urban center Industrial growth, Input-output techniques are useful ior Isolating the demand Increments attributable directly to agriculture.

69. The semi-Input-output method, a variant of Leontief's Input-output rodel, seems most appropriate for estimating Indlan agricultural growth lInkages.<sup>1 8</sup> The key distinction between It and standard Input-output analysis lies In Its assumption<sup>of what</sup> constrains agricultural output. Input-output analysis assumes productlon In all<sup>sectors</sup> Is demand constrained. It presumes producers are able to supply unilnited additional quantities of output at constant cost. But seml-input-output analysis<sup>maintalns the</sup> assumption of perfectly elastic output supply holds only for some sectors, not<sup>for</sup> others. For agriculture, In particular, It seems doubtful that farmers could Increase output In unlInited volume at constant cost. If they could, fewer rural households would go hungry. It seems more plausible, as the semi-Input-output model presumes, that agricultural output is constralned, not by demand, but rather on the supply side by technoiogy, land and labor availability. This assumption leads to smaller, and mors realistically sized multipliers than many analysts have estimated using Input-output techniques.I 9 70. This Is not to Ignore the heroic assumptlons remaining In semi-Input-output models. The perfectly elastic supply assumed for nonfarm output may approach reality In rural reglons where frequ',it excess capacity and the seasonabiilty of rural labor markets allows highly elastic supply response at constant cost But at the national level, the constant price assumptlon is less defensibe. Because of the complexity of general equilibrium modeling and because the semi-Input-output multipliers do at least place upper bounds on the growth multipliers, we proceed by casting the usual blind eye to price endogeneity. Moreover, de Janvry and Subbarao (1986) have estimated 19 See Bell **and** Haz-ll (1980) for **a detailed** formal prosontation of **th,** modol. 19 **See** Krishna (1975), **Shlla** (1989) **and** Chosh *t **al.** (1968) **for** typical **oxauplee.**
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a general equlilbrium model for Indla, so It will be possible to contrast the seml-inputoutput results with thelrs.

71. The following estimates use a five sector version of the semi-input-output model. The five sectors Include three In agriculture, Irrigated (1), ralni v..' (A) and nontradable (N) agriculture, In addition to manufacturlng (M) and tertlary activity (T). Nontradable agriculture comprlses high-value livestock and horticultural products. We assume the output of Irrigated and rainfed agriculture Is constrained by technology and resource constraints, but that output In the remaining sectors Is highly elastic and constrained only by domestic demand. This is clearly the case for most tertiary, horticultural and livestock products, since thelr perishability or location specificity severely limits internatlonal trading possibilities. It Is less obvious with manufactured goods, and our assumptlon Is designed to capture the effect of trade restrictions (both domestic and foreign) that essentially pro-determine the amount that can be exported.

72. As new technology Increases Irrigated and rainfed agricultural output, the nontradable agriculture, N, and nonfarm sectors, M and T, respond to the consumption and production linkages that ensue. Hence the key parameters affecting the magnitude of the llnkages are the Input-output coefficients, the marginal propensity to consume nontradable foods and nonfarm goods, savings and tax rates (leakages In that they represent Income not spent on nonfarm goods), and the value-added share In gross output (which allows translation from gross output to Income multipliers). Appendix B develops the model formally,20 while Appendix Table A.19 displays the parameters used to obtain the following results.

2e S Bol I **and HazolI** (1980), **Ha2*l1** (1964) **and Haggblade and** Hazell (1989) for additional applications.
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# **B. Resuts**

73. Table 16 contrasts the sectoral gross output and Income multipliers that arlse from growth In Irrigated and riinfed agriculture. A 100 rupee Increase in irrigated agricultural output generates 105 rupees of additional output In manufacturlng, 114 rupees of additional tertiary output and 45 rupees of additlonal nontradable agricultural output. This amounts to a total nonfarm output multiplier of 2.19, and a total output multipiler of 2.64. In contrast, rainfed agriculture, because of Its less Intense use of manufactured and tertiary Inputs (Table A.19), generates nonfarm gross output multipliers that are about five to ten percent smaller.

74. An Income multipiler gives the amount of Income (vaIue added) generated in a particular sector as a result of a one rupee Increase In Income (value added) In either Irrlgated or rainfed agriculture. These multipliers are relatively small for manufacturing because of the low value added to gross output ratios In that sector. They are also relatively large for the tertlary sector. Table 16 demonstrates that Irrigated agriculture has larger nonfarm Income multiDliers than rainfed agriculture, and that the latter are about 20-25 percent smaller.

75. The figures In parentheses In Table 16 show the percentage of the gross output multiplier, that Is attributable to household consumptlon linkages rather than Inter-industry production linkages. For the total nonfarm economy, only 6 percent of the gross output multiplier Is attributable to productlon linkages when the expansion Is driven by rainfed agriculture. The share Increases to 18 percent with Irrigated agriculture because of Its higher dependence on purchased Inputs.

76. Taking a base-year welghted average of the Irrigated and ralnfed agricultural multipliers, Table 16 Indicates that a one rupee Increase In agricultural output will generate about 2.11 rupees In gross output of nonfarm goods and services. This corresponds to an Income multiplier of 1.35, nearly twice as large as the 0.66 Income
- 44 -

**Table 16: National Agriclatural** Output and **hcome** MultoIIe for **bripated** versus **Raifed Agricuture**

||Irrig<br>Agric|ated<br>ulture|Rain<br>Agricul|fed<br>ture|Total<br>Cropd|
|---|---|---|---|---|---|
|ONE RUPEE**NCREASE**IN CROP OUTPUT||||||
|**Resulthg**<br>**ease**<br>InSectorGrossOu|tput|||||
|Manufacturing|1.05|(77)|0.94|(92)|0.98|
|Tertlary|1.14|(87)|1.11|(95)|1.12|
|Nontradable Agriculture|0.45|(94)|0.50|(90)|0.48|
|Total Nonfarm|2.19|(82)|2.05|(94)|2.11|
|Total|2.64|(84)|2.55|(93)|2.59|
|**ONE RUPEE SCREASE**<br>IN CROP**INCOME**||||||
|**ReDuthg**<br>**wease**<br>**hI**Sector hcome||||||
|Manufacturing|0.47||0.35||0.39|
|Tertlary|1.09||0.88||0.96|
|Nontradable Agriculture|0.51||0.47||0.48|
|Total Nonfarm|1.56||1.23||1.35|
|Total|2.07||1.70||1.83|

a/ Weighted average using base-year gross output (ircome) weights of 0.4 (0.36) kr irrigated crops and 0.6 (0.64) for rainfed crops.

Note: Figures in parentheses are the percentages of the increases in total sectoral outputs that are attributable to consumption linkages.

multiplier estimated econometrically for rural areas alone. Moreover, the gross output multiplier of 2.11 is also much hlgher than the multiplier of 1.35 Impilcit In de Janvry and Subbarao's (1986) general equilibrium results. The discrepancy undoubtedly reflects the extreme elasticity assumptions made In a semi-input-output model. By assuming that the supplies of manufacturing, tertiary and nontradeable agricultural output are perfectly elastic, the model embodies an optimistic view of the abillty of the Indian economy to expand In response to Increases In domestic demand. The semiInput-output multiplIers must therefore be vlewed as upper bounds on the true parameter values.
- 4u -

77. The semi-input-output model can be used to project growth In nonrfarm output corr"sponding to different sconarios for agricultural growth. Table 17 shows that If agricultural output Is driven by irrigated agriculture, and that an average growth rate of 2.4 percent per annum Is sustained until the year 2040, then this will stimulate an average annual growth rata of 1.92 percent In manufacturing output, 2.54 percent In tertiary output, and 3.8 percent In nontracable agricultural cutput. The nonfarm growth rates will be about 5 percent lower If agricultural growth Is driven by rainfed agriculture. Both sets of growth rates are reduced by about one-trird If the semiinput-output multipliers are scaled down to be consistent with our econometric estimates;that Is, so that the cotal nonfarm Income multipilor Is 0.64 (see footnote 6 In Table 17). However, the multipieors do not Increase very much when we allow for techoiogolcal change that Increases the multiplier over time (Table 17).

78. If agricultural growth Is to have a significant Impact on the growth of the national nonfarm economy, then Table 17 shows that agricultural growth rates of at least 4 percent will be required. This suggests that the current growth In Indian manufacturing of about 8 percent per annum must be driven more by export and urban demand than by agricultural growth through Its rural-urban linkages. Future manufacturing growth may also have to depend on these same sources of demand growth. The prospects for high-value livestock and horticultural producta (nontradable agriculture) Is more encouragi-ig. The model projects growth rates of about 4 percent per annum for these products even given relatively modest rates of agricultural growth.

7b. Caution: As with our econometric based forecasts, the above projectlons only Indicate the growth In nonfarm activity rosulting from agricultural growth. Growth in exports and demand In large urban centers will also play a role In driving manufacturing, tertiary and nontradeable agricultural output.
> - 46 -

Table 17: **CoepowAd** Awel **r.wh 2bate** I **lcsefrs Output**

**ad** Nontradabl- Agricultural

**utpwut** UIdar Alto tive Agrlcultural Growth Rates

|Annual Growth<br>in Agricult rol<br>Ou put'|Manufact<br>FFrojction|Resul<br>urin<br>l1ige|ting Crowth Rate<br>Tertir<br>Projection|in Output ofOth<br>y<br>Range|_r Sectors<br>No<br>Projectio|nfarm<br>n<br>**Ra**|Nontradable<br>A<br>Pti|griculture<br>|
|---|---|---|---|---|---|---|---|---|
|i)GrowthOrigima|tesInIrrigated<br>A|riculture||||<br>**,g;**|rojecon|Range|
|<br>1.0|<br><br>872|038-072|||||||
|2.4<br>|.<br>1.9<br>|..<br>1.16-1.93<br>|1.06<br>2.64|1.67-1.06<br>1.80-2.66|0.86<br>219|0.46-0.86<br>136-221|1.89<br>|1.13-1.90<br>|
|3.26<br>|2.73<br>|1.78-2.74<br>|3.43|2.32-3.45|.<br>304|..<br>201-306|3.80<br>|2. 6-3.81<br>|
|4.0<br>|3.46<br>|2.36-3.47<br>|4.22|3.01-4.24|.<br>380|..<br>26E-382|4.81<br>|3.66-4.83<br>|
|6.1<br>|4.46<br>|3.22-4.47<br>|6.27|<br>3.94-6.29|.<br>482|..<br>364484|5.6o<br>|4.32-6.68<br>|
|6.6|6.46|4.13-6.48|6.36|<br>4.90-6.32|.<br>686|.-.<br>448687|6.77<br>|6.35-8.78<br>|
||<br>||||.|.-.|7.84|6.36-7.86|
|ti)Growth Ortigoatee<br>1.0|<br>**is Painfed**Agric<br>6.66|ulture<br>634-068|103||||||
|2.4<br>326|<br>1.80<br>|..<br>1.07-1.81<br>|.<br>2.6U|0.67-1.04<br>1.60-2.61|0.81<br>211|0.44-0.82<br>130-212|2.02<br>|1.21-2.01<br>|
|.<br>|2.67<br>|1.66-2.69<br>|3.39|2.32-3.41|.<br>296|..<br>194296|3.96<br>|2.77-3.96<br>|
|4.8<br>**66**|3.29<br>|2.23-3.31<br>|4.18|<br>3.01-4.20|.<br>370|.-.<br>280-372|4.99<br>|3.68-6.00<br>|
|**.**<br>**66**|4.27<br>|3.07-4.29<br>|6.22|3.94-6.24|.<br>471|..<br>346-473|6.85<br>|4.46-6.86<br>|
|**.**|6.27|3.97-6.29|6.26|4.91-6.28|.<br>6.73|..<br>4.38-6.76|8.96<br>8.63|6.60-6.97<br>6.52-8.06|

**a/** Tradable (crop) agricultural output only. b/ The **sam as** lower rang value our econometric **was** estimate. The upper range value is based on the assumption deriv ed by scaling all the national _SIO_ multipliers down **so** that the total nonfarm income multiplior **is** a.64, the to reflect technological chango and shifting expenditure patterns. that the full SIO multiplier increases by 2.6X per annum
- 47 -

# VI. CONCLWKU

80. Thi paper has hlghllghted the kmportance of the rural nonfarm economy In determInIng current and future Incomes and employment In Indla's rural areas and rural towns. It Is a particularly cruclal sector for the welfare of the poor and, unless agricultu.al growth Increases sharply, It will be Instrumental In creating sufficlent productivo employment to absorb projected Increases In the rural labor force In the decades ahead.

81. The growth of the rural nonfarm sector Is driven prhnarily by agricultural growth. We estimate that sach rupee of value added created In agriculture leads to Rs 0.64 of additional value added hI nonfarm activitIes In India's rural areas plus rural towns.

82. But the multipilIrs are not hIvarlant. They hncreas with agricultural development. Thus, the multiplier Is Rs 0.93 hI Punjab and Haryana but It stands at only Rs 0.46 In Madhya Pradesh and Bhar. And all ovidenco suggests that the multipliers will hIcrease over thue. Both production and consumptlon linkages have grown substantially, buoyed by the rlsing Input-intensity of agriculture and the growing Incomes which sthnulate consumer divorsification of spending Into nonfoods.

83. Moreover, the magnItude of the growth linkages can be Increased through appropriate governmental policies and Investments. Our analysis, as well as Khandkers (1989), has Identlfled the kmportance of rural Infrastructure (roads, electrification, banking services, etc.) In enhancing the size of the multipliers. Irrigated agriculture also has larger multipliers than rainfed agriculture. And, as shown by Hazoll and Roell (1983), Mellor
- 48 -

and Lele (1973), Hagbiade and Hazoe (1989) amongst<sup>others, the multipliers are bigger</sup> for small- to medium-sized farms than for very large<sup>farms. Appropriate reglonal and farm</sup> targeting of agricultural technology and Investments,<sup>supported by adequate Investments</sup> In rural Infrastructure, may, therefore, significantly<sup>enhance the size of the Indirect</sup> benefits emanating from agricultural growth.

-... Because much current writing emphasizes the need for Investments In Infrastructure, polcymakers can all too easily<sup>overlook the collateral need for Investments</sup> In people. Since services will be among the most<sup>rapidly growhg rural nonfarm activities,</sup> Investment In human capital will likely be essential<sup>for realizhg those potentlal galns.</sup>

85. Our analysis also confirms the Mnportance of<sup>rural towns as magnets for the</sup> nonfarm spinoffs of agrculture-led growth. By providig<sup>nonfarm enterprises with larger</sup> markets, rural towns offer finms the potential<sup>to exploit economies of scale. Prospects</sup> for **sharig** equiment as woU as the morgonce<sup>of repair and support facilities induce</sup> enterprise establishment in rural towns. This<sup>may In part explain the predominance of</sup> ntermedlate-sized towns In regions of high agriultural<sup>productivity.</sup> It suggests that agricultural growth may be Instrumental to efforts at fostering urban decentralizatlon. 86. Government polices towards small, rural nonfarm<sup>firms are also important.</sup> Subsidies, Investment and tax codes and related legislation<sup>that discriminate against small</sup> rural firms, together wlth historic urban policy<sup>biases, will need to be redressed If small,</sup> rural enterprises are to achieve their full potential<sup>for Income generation and economic</sup> decentralization.
- 49 -

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- Rondinelil, D.A. and K. Ruddle. 1978. Urbanization and Rural Development: A Spatlal Policy for Equitable Growth. New York: Praeger.

- Rondinelli, D.A. 1983. Secondary Cities In Developing Countries: Policies for Diffusing Urbanization. Beverly Hills, CA: Sage Publications.
- 53 -

- Sur, K.B. 1988. Small Scale Entwprises In Industrial Development: The Indian Experience. Now Delhi: Sage Publications.

- Tyagi, D.S. 1981. _Growth of Agricuiturai Output and Labor Aborption In India._ Journal of Develo.mont Studles 18(1): 104-114.

- Vyas. V.S. and Mathal, G. 1978. _Frn and_ **_NonFarn_** _Employment In Rural Aros: A Perspective for Planing._ Economic and Political Weekly 13(6-7):333-347.

- Wanmall, S. 1988. _Dilham_ of _Obsmving the Poor In the Urban Fconowy: Looking Beyond the Cities In India._ Reglonal Development Dialogue 9(4):61-74.

- World lank. 1989. _Gender and Poverty In Indi Issues and Opportunities Concerning Women in the Indian Economy._ PHRW **D** raft. Washington DC: World Bank.
APPENDIX A: SUPPLEMENTARY TABLES
- 57 -

# Tat

# A.1: **Changt** In Popwation, Woritforoe and Nontaru Eiloy t hI **hdb,** 196181

Urban Areas

|Yea|r|Rural<br>Areas|Rural<br>Towns|Large<br>Urban|Total|Total<br>National|
|---|---|---|---|---|---|---|
|I)|Population||||||
||1961|360|41|38|79|439|
||1971|439|48|61<br>|109<br>|548<br>|
||1981|502|62|94|158|658|
|11|) FuUimthe Workers||||||
||<br>1961|162.2|13.8|12.8|26.4|188.7<br>|
||1971|148.4|13.8|18.2|32.0<br>|180.4<br>|
||198|174.5|17.8|27.7|45.6|220.1|
|111|) Nonfarm Workers||||||
||<br>1961|29.2|10.9|12.2|23.1<br>|52.3<br>|
||1971<br>|22.5<br>|10.6<br>|17.3<br>|27.9<br>|50.4<br>|
||1981|32.9|13.8|26.5|40.4|73.3|

-: Pedopubilo ongs _d_ 1961, 1971, 1961. Se Wia (1961.d, 1971&-b 1sBtb).
- 58 -

# Table A.2: **haCcom** Distrbution by Farm Size, Rural **hdla**

|||Sha|re of Total|Income, by S|ource|
|---|---|---|---|---|---|
|Cropped<br>Area|Household<br>Income|Crops|Farm<br>Wages|Nonfarm<br>and<br>Llvestock|To,al|
|(Ha./Household)|(Rs./Household)|||(Percent|)|
|I) Poor Crop Year (19|68/69)|||||
|Zero|1,734|0|40.5|59.5|100|
|0-<br>1.0|1,618|37.6|32.3|30.0|100|
|1.1-<br>4.5|2,519|72.4|10.1|17.6|100|
|4.6-<br>10.5|4,763|85.5|1.8|12.6|100|
|More than 10.6<br>U) Good Crop Year (197|7,228<br>0/71)|78.0|.9|21.1|100|
|Zero|1,865|0|37.7|62.3|100|
|0-<br>1.0|1,630|38.7|26.9|34.4|100|
|1.1 -<br>4.5|2,889|69.3|9.9|20.8|100|
|4.6 -<br>10.5<br>|5,271|86.2|2.5|11.3|100|
|More than 10.6|11,082|96.4|.2|3.4|100|

# U) Good Crop Year (1970/71)

Source: NCAER (1975)
- 59 -

# **Table A3:** Income Distribution by Farm Slze, Rural lndla 1970/71 and 1980/81

|||197|0/71 inc|ome|||19|81/82 In|come||
|---|---|---|---|---|---|---|---|---|---|---|
|Category|Total|<br>Ag.|<br> Wages|_<br>Other|Total|<br>Total|AW.|Wages|Other|<br>Total|
||(Rs)|||(M)||(Rs)|||C%||
|Land Owners|6,979|75|11|14|100|7,938|65|12|24|100|
|Marginal|4,468|47|26|26|100|5,894|42|22|36|100|
|Small|6,757|78|9|13|100|7,700|68|10|22|.00|
|Medium|10,639|89|4|7|100|11,452|79|5|15|100|
|Large|19,105|93|2|6|100|16,500|83|2|15|100|
|Landless|4,309|6|56|38|100|5,910|19|42|38|100|
|Ag. wage<br>earners|3,580|5|87|7|100|4,834|21|56|23|100|
|Others|5,277|6|65|29|100|7,265|18|51|31|100|
|**Total**||**60**|**21**|**19**|**100**||**53**|**19**|**27**|**100**|

Soure: NCAER (1986a)
- 60 -

# Taft A.4: Loeatinal **C e** Population, Wokforce an Nonfa rmplo ymnt

h~ hda, 196181 In~~ ola WM

|||||Urban Areas|||
|---|---|---|---|---|---|---|
|Yea|r|Rural<br>Areas|Rural<br>Towns|Large<br>Urban|Total|Total<br>Natlonal|
|||||(Percent)|||
|l)|Population||||||
||1961|82.0|9.3|8.7|18.0|100|
||1971|80.1|8.8|11.1|19.9|100|
||1981|76.2|9.4|14.3|23.7|100|
|II)|Pull-the<br>Workers||||||
||1961|86.0|7.3|6.7|14.0|100|
||1971|82.3|9.8|8.0|17.7|100|
||1981|79.3|8.2|12.5|20.7|100|
|Ill)|Nontarm Workers||||||
||<br>1961|65.8|20.8|.3.3|44.2|100|
||1971|44.8|21.0|.4|50.4|100|
||1981|44.9|18.8|36.2|55.1|100|

> S~a~e: c_POPslo _WMwi_ d 1981, 1971, 1981. See hdb (1961a., 1971SAb, 191b). Raw data are reproduced In Appendhx Table A.1.
- 61 -

**Tab** A.G: Measured Fmale **E** oYmnt

**Desty** by ActMtY. hfi 1061-41

|||||No|n-Agricu|lture||||
|---|---|---|---|---|---|---|---|---|---|
||Agriculture|Tota|Mhing|Housa-<br>Hold<br>Mft.|Nor<br>Houe<br>Hold<br>Mfer.|Consr.|_Trwo._|Oer<br>_Srvce_|Total|
||||(Full-Tim|e Femal|e Workle|per 1,|000 Pop|ultIon)||
|Rural||||||||||
|1961|132|22|-|11|1|0|2|8|154|
|1971|57|7|0|2|1|0|1|2|64|
|1981|70|9|0|3|2|0|1|2|79|
|Total||||||||||
|1961|111|25|-|11|2|1|2|10|136|
|1971|47|10|0|2|2|0|1|4|57|
|196 IS55||13|0|3|2|1|1|5|6|

Source: Indi- _(1961ad,_ 197la-b, 1ig1c).
- 62 -

# Tal A.6: Urbn Popuation Dlatrbution Across State with **Differin AUrIcltural kcom: hdba** 1981

||U|rban Town Slze (In thou|sands)||
|---|---|---|---|---|
|State|<br>5-5|<br>0<br>50-200|<br>OvAr200|All Urban|
|||(Percentage State P|opulatlon)||
|High Agricultural Income|||||
|PunJab|11.1|5.6|11.0|27.7|
|Haryana|7.2|12.2|2.5|21.9|
|Medium Agricultural Income|||||
|Karnataka|10.4|5.3|13.2|28.9|
|Gujarat|8.4|6.3|14.1|30.0|
|Low Agricultural Income|||||
|Madhya Pradesh|7.1|5.3|8.0|20.3|
|Bihar|3.9|3.6|5.0|12.5|

Source: Economic Intailigence Srevice (1988) and India (1s9lb).
- 63 -

## **Table** A.7: Rwa$4h%n **Differene** In Nonfum **Actitvity** In States **with DiffeNg AgicWtural** khoo_e,

# **rdla** 1981

||Tota<br>Nonfrm|Mhhg|Hou-<br>Hold<br>Mf.|Non-<br>House<br>Hold<br>Mfr.|.<br>Const.|Comm|Other<br>. Trars.|Services|
|---|---|---|---|---|---|---|---|---|
|||<br>(Full-|Tkne W|orkers|per 1,00|0 Popu|lation)||
|High Agricultural Income<br>|||||||||
|Punjab|||||||||
|Urban/rural|3.9|-|1.4|4.9|2.0|5.8|3.4|3.4|
|Urban<br>|263|0|10|73|10|70|24|75|
|Rural|67|0|7|15|5|12|7|22|
|Haryana|||||||||
|Urban/rural|3.9|-|1.4|5.1|2.8|6.6|4.2|3.|
|Urban|258|0|10|76|14|68|21|71|
|Rural|67|0|7|15|5|10|5|23|
|Medium Agricultural Income|||||||||
|Karnataka|||||||||
|Urban/rural|4.0|1.5|1.3|5.4|3.8|5.2|8.3|4.L|
|Urban|247|3|18|70|15|57|25|60|
|Rural|61|2|14|13|4|11|3|13|
|Gujarat<br>|||||||||
|Urban/rural<br>|4.9<br>|1.0|4.0|5.6|3.0|5.7|5.6|3.9|
|Urban|258|1|8|95|9|57|28|59|
|Rural|53|1|2|17|3|10|5|15|
|Low Agricultural Income|||||||||
|Madhya Pradesh|||||||||
|Urban/rural|5.5|2.3|1.5|9.8|3.3|8.5|12.5|5.7|
|Urban|241|7|18|59|13|51|25|68|
|Rural|44|3|12|6|4|6|2|12|
|Bihar|||||||||
|Urban/rural|5.6|6.3|1.1|6.9|10|7.1|7.7|4.9|
|Urban|212|19|8|48|10|50|23|54|
|Rural|38|3|7|7|1|7|3|11|

**V/** Urbtt i Al - aN _k2m__ aWt_ 5,000 in **popUWlbo ft _wnpin.** both ruie and 1 **.** _e_ Source: India (1371a-b. 1.1C)
- 64 -

# **Table** A.8: **Changig ComPosition ot** Nontarm Activity Across States with **Differing** Agricultural hicomes, **hdba** 1971-81

|||1971-8|1 Cha|nge In N|onfarm|Employ|ment De|nsity|
|---|---|---|---|---|---|---|---|---|
||Totl<br>Nonfarm|Mining|House<br>Hold<br> <br>Mft.|Non<br>- House<br>Hold<br>Mfht|-<br>.Constr|. Comm|. Tran|011w<br>s. Services|
|||(Fu|ll-Time|Workers|per 1|,000 Pop|ulatlo|n)|
|A.<br>Rural Areas|||||||||
|High Agricultural Income|||||||||
|PunJab<br>|7.2<br>|0<br>|-3.3<br>|5.4<br>|0|2.4|3.1|-. 4|
|Haryana|9.6|-.3|-1.9|6.0|1.4|2.1|2.4|<br>-.2|
|Medium Agricultural Incomo|||||||||
|Karnataka|4.2|.2|.6|5.3|.2|1.6|1.0|<br>-4.7|
|Gujarat|6.5|-. 2|-7.2|8.7|1.0|1.0|1.6|<br>1.7|
|Low Agricultural Income|||||||||
|Madhya Pradesh|8.2|1 2|.3|2.8|2.5|1.1|.5|-.1|
|Blhar|5.4|.5|-.2|2.7|.5|1.3|.6|-.1|
|B. Urban Areas|||||||||
|Hljh Agricultural Income|||||||||
|r'unJab<br>|1 1.6|.1|3.4|4.9|.2|-. 2|2.4|.8|
|Haryana|24.9|.3|4.1|18.5|4.9|.7|-1.9|-1.7|
|Medium-AgrIcultural Income|||||||||
|Karnataka|6.0|0|-2.2|10.4|2.3|1.2|-5.9|.4|
|Gujarat|14.1|-.4|-.4|14.2|-1.7|2.5|5.3|-5.4|
|Low Agricultural Income<br>|||||||||
|Madhya Pradesh|.2|-.6|-1.9|6.3|4.4|3.2|.9|-12.1|
|Bihar|-14.6|-5.9|-4.9|3.1|-.1|-1.7|-2.4|-2.7|

a/Karnataka was called Mysore prior to 1971. b/Urban includes all locaities over 5,000 in population. It encompasses both rural towns and large urban areas. Source: India (1971a-b, 1981c). See Appendix Table A.9 for th raw data.
Ta A.9: Employment Dery by Activity h _Si_ hdaf Sttes, 1971-81

||||||Non-<br>|Agricult|ure||||
|---|---|---|---|---|---|---|---|---|---|---|
||Agricultur|e<br>Total|Mining|House-<br>Hold<br>Mftr.|Non-<br>House<br>Hnid<br>Mftr.|-<br>Constr.|Comm.|Trans.|Other<br>Services|Total|
||||(Full-T|he Wor|kers p|er 1,00|0 Popul|atlon)|||
|a.**birl**<br>**Areas**|||||||||||
|PunJab<br>|||||||||||
|1981|226|67|0|7|15|5|12|7|22|293|
|1971|231|60|0|10|9|4|9|*4|23|291|
|Haryana<br>|||||||||||
|1981|215|67|0|17|15|5|10|5|23|282|
|1971|208|57|1|9|9|4|8|3|24|265|
|Karnataka|||||||||||
|1981|335|81|2|14|13|4|11|3|13|395|
|1971|307|57|1|13|8|4|9|2|18|364|
|Gujarat|||||||||||
|1981|279|53|1|2|17|3|10|5|15|332|
|1971|283|46|1|9|9|2|9|3|13|330|
|Madhya Pradesh|||||||||||
|1981|365|44|3|12|6|4|6|2|12|409|
|1971|348|36|1|12|3|2|5|1|12|384|
|Bihar|||||||||||
|1981|253|38|3|7|7|1|7|3|11|291|
|1971|281|33|2|7|4|1|5|2|11|313|
|b. tkban**Areas**b|||||||||||
|PunJab|||||||||||
|1981|35|263|0|10|73|10|70|24|75|298|
|1971|30|251|0|7|68|10|70|22|74|281|
|Haryana|||||||||||
|1981|30|258|0|10|76|14|66|21|71|289|
|1971|30|233|0|6|58|9|65|23|73|263|
|Karnataka|||||||||||
|1981|52|247|3|18|70|15|57|25|60|299|
|1971 _/|55|241|3|20|60|12|55|31|60|296|
|GuJarat|||||||||||
|1981|29|258|1|8|95|9|57|28|59|288|
|1971|31|244|2|8|81|11|55|23|64|276|
|Madhya Pradesh|||||||||||
|1981|75|241|7|18|59|13|51|25|68|316|
|1971|40|241|7|20|53|9|48|24|80|281|
|Bhar|||||||||||
|1981|47|212|19|8|48|10|S0|23|54|258|
|1971|57|226|25|13|45|10|52|25|56|283|

ad Kamataks was called Myws unti 1971. b/ Urban **inlude** all Ioalit.si over 5,000 in popuiation. It encompa both rual tons and lrge urban areas. gauM: India (1971a-b, 1981e).
- 66 -

# Table A.10: Variations hI Male AgrbuJtural Wage a' Across Regns, ida 1970/71-1984/85

|State|1970/71<br>1974/75|1984/85|
|---|---|---|
||(1970/71 Rs./day)||
|Hlgh Agricultural Productivity|||
|PunJab|6.5<br>4.9|6.3|
|Haryana|6.3<br>4.4|6.3|
|Medium Agricultural Productivity|||
|Gujarat|2.9<br>1.9|4.2|
|Karnataka|2.5<br>1.8|2.4|
|Low Agricultural Productivity|||
|Madhya Pradesh|2.2<br>1.5|3.0|
|Bihar|2.6<br>2.1|3.7|

a/ Simple average of all agricultural labor categories as publishec by Ministry of Agriculture's A ricultural Wages in India and reported by Acharya (1988). Deflated by agricultural labor price indiex (ALPI) using i970/7?Tas the base year.

Souce: Acharya (1988).
# **Tatbe A.1 1: ComposItIon of Change** in **Rural hcome for a Panel of** Households **hIdia 1970/71** - **1981/82**

||1970/71<br>|Change I|n Incom|e 1970/71|to 1981/82||
|---|---|---|---|---|---|---|
||Household<br>Income|Ag.|Wage|s<br>Other|Total|Other/<br>Total|
||||(Real|Rupees a/|per Househ|old)|
|Land Owners|6,979|-i06|106|905|959|_94%_|
|Marginal|4,468|369|94|961|1,425|67%|
|Small|6,757|-60|192|811|942|86%|
|Medlum|10,639|-392|248|956|812|118%|
|Large|19,105|-3,947|87|1,255<br>|-^,605|48%|
|Landless|4,309|885|101|614|1,601|38%|
|Ag.wage earners|3,580|627|-410|838|1,254|67%|
|Other|5,277|960|745|333|2,038|16%|
|Total|6,147|203|142|8,5|1,159|70%|

a/ All Income deflated to 1970/71 prices.

Source: NCAER (1986a).
- 6 8 -

Table A.12: Rural Consumption **Profil** by Expe_dture **Class, ldii 1981**

||*-30|30-40|40-60|Monthly<br>60-60|perCap<br>_6040_|ita<br>Expe<br>7086|nditure<br> <br>|Class<br>in<br>|Rupe<br>||||Ovr<br>|Alel<br>|
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
||||||_-_|-|86-169|190-126|126-169|16-200|2eW260|26030J|_3eN_|**Classee**|
|**food**<br>C-reolo|628|538|||||||||||||
|<br>arm|.<br>6|.<br>6|51.O<br>4|48.6<br>3|46.9<br>3|43.1<br>|49.2<br>|36.4<br>|a.4<br>|26.9<br>|21.3<br>|17.6|13.3|32.8|
|Cereal substitutes|.<br>11|.<br>5|.<br>4|<br>3|.<br>3|.2<br>|.2<br>|.3<br>|.3<br>|.3<br>|.2<br>|.3<br>|_.a_|.3|
|<br>Pulse|.<br>29|.<br>33|.<br>39|.<br>39|.<br>40|.2<br>39|.2<br>|.2<br>|.2<br>|.2<br>|.2<br>|.1<br>|.1|.2|
|Milk**and**silk<br>products|.<br>6|.<br>16|.<br>23|.<br>|.<br>|.<br>|3.8<br>|3.8<br>|3.6<br>|3.4<br>|3.1<br>|2.8<br>|2.5|3.6|
|<br> <br>Edible oil|.<br>32|.<br>36|.<br>39|3.9<br>41|3.9<br>42|6.1<br>|6.4<br>|7.6<br>|9.0<br>|9.9<br>|19.2<br>|9.9<br>|8.3|7.6|
|<br>Met<br>eog f*ih|.<br>36|.<br>17|.<br>18|.<br>22|.<br>|4.4<br>|4.3<br>|4.2<br>|4.1<br>|3.9<br>|3.7<br>|3.6|3.7|4.0|
|,<br>,<br>Vegtables|.<br>68|.<br>63|.<br>66|.<br>66|2.6<br>|2.7<br>|3.9<br>|3.2<br>|3.3<br>|3.4<br>|3.4<br>|3.4<br>|2.8|**3.0**|
|<br>Fruits<br>**and**nuts|.<br>3|.<br>6|.<br>6|.<br>7|6.6<br>8|6.6<br>|6.3<br>|6.1<br>|4.6<br>|4.,.<br>|4.0<br>|3.6<br>|2.9<br>|4.7|
|<br> <br>Sugar|.<br>12|.<br>17|.<br>21|.<br>23|.<br>26|1.9<br>26|1.1<br>|1.3<br>|1.6<br>|1.7<br>|1.9<br>|1.9<br>|1.9|1.4|
|<br>Salt|.<br>6|.<br>4|.<br>4|.<br>3|.<br>3|.<br>2|2.7<br>|2.9<br>|3.1<br>|3.9<br>|2.9<br>|2.8<br>|3.9<br>|2.8|
|Spice.|.<br>32|.<br>33|.<br>32|.<br>31|.<br>29|.<br>|.2<br>|.2<br>|.2<br>|.1<br>|.1<br>|.1<br>|.1<br>|.2|
|<br>**Bevrages**|.<br>13|.<br>16|.<br>19|.<br>20|.<br>|2.8<br>|2.6<br>|2.6<br>|2.3<br>|2.1<br>|1.9<br>|1.8<br>|1.4|2.4|
|<br>Total foode|.<br>764|.<br>778|.<br>714|.<br>761|2.4<br>|2.7<br>|3.9<br>|3.3<br>|3.6<br>|3.8<br>|4.1<br>|4.4<br>|4.e|3.3|
|<br>|.|.|.|.|75.4|74.8|**72.8**|69.9|6.1|62.2|56.9|62.0|44.2|6.|
|Nonfoods<br>**Pan**tobacco<br>intox|31|32|32||||||||||||
|**,**,<br>.<br>Fuel and light|.<br>136|.<br>113|.<br>ld3|3.3<br>97|3.2<br>92|3.2<br>|3.1<br>|3.1<br>|3.0<br>|3.0<br>|2.7<br>|2.7<br>|2.6<br>|3.9|
|<br>Clothing|.<br>13|.<br>12|.<br>16|.<br>22|.<br>2|8.7<br>|7.9<br>|7.6<br>|6.9<br>|6.1<br>|6.6<br>|4.9<br>|3.8<br>|7.1|
|<br>Footwear|.<br>1|.<br>1|.<br>2|.<br>3|.8<br>4|3.6<br>|4.7<br>|6.3<br>|8.6<br>|10.9<br>|14.8<br>|18.4<br>|17.9<br>|8.6|
|<br>**Miscollanous goods and**|.|.|.|.|.|.6|.8|.8|1.1|1.3|1.6|1.8|1.8|1.0|
|<br>services|65|64|72|81|||||||||||
|<br>Durablos|.<br>1|.<br>1|.<br>2|.<br>3|8.7<br>|9.4<br>|19.2<br>|11.6<br>|13.2<br>|14.6<br>|16.9<br>|16.3<br>|17.8|12.6|
|<br>Total<br>-<br>nefooed|.<br>236|.<br>223|.<br>226|.<br>239|.4<br>246|.4<br>|.6<br>|.8<br>|1.2<br>|2.0<br>|2.7<br>|3.8<br>|12.0|2.3|
|<br> <br>|.<br>|.<br>|.<br>|.<br>|.|26.7|27.2|39.1|38.9|**37.8**|43.1|**48.9**|**55.8**|34.4|
|TOTAL WEIOI1UE|**18.9**|**18".**|**189.9**|**1".9**|**1".9**|**1".9**|**18..**|**189.9**|**18.9**|**18.I**|**1".9**|**1".9**|**189.9**|**189.9**|

Source: National Saple Survey 38th Round. Sarvekubana Vol.9,No.3 (April 1986).
69 9

-

# Table A.13: **RWeeeson** Coefficients for **Esthath hcoin IuAiplers**

## District Data

||AGW|AR|AP|AY|R|Wage<br>Multi-<br>plier a/|Income<br>Multl-<br>pller e|
|---|---|---|---|---|---|---|---|
|Rural Areas<br>||||||||
|(1) OLSI<br>|-.324<br>(7.8)<br>|.027<br>(10.9)<br>|1.087**.5**<br>(1.9)|.0444<br>(8.2)|.89|.356|.292|
|(2) OLS-PHs'<br>|-.0182<br>(.9)<br>|.014<br>(3.5)<br>|2.70***4**<br>(.4)<br>|.0213<br>(3.6)<br>|.99|.306|.251|
|(3) 2SLS-PHYd<br>Rural Towns<br>|.0839<br>(.4)<br>|.0051<br>(.4)<br>|3.88***4**<br>**(.3)**<br>|.018<br>(.6)|.72|.302|.248|
|(1) OLS<br> <br>|.0059<br>(.2)<br>|-. 0033<br>(1.9)<br>|1.21**.4**<br>(3.1)<br>|.0124<br>(3.3)|.46|.155|.254|
|(2)<br>OLS-PH<br> <br>|-.0414<br>(1.4)<br>|-.0005<br>(.2)<br>|4.13**4**<br>(.7)<br>|.0212<br>(4.1)<br>|.09<br>|.198|.325|
|(3)<br>2SLS-PH<br>|-.0011<br>(.02)|.0002<br>(.03)|-7.60<br>(.9)|.0240<br>(1.4)|.04|.237|.388|
|Rural Areas**Pkhs**<br>Rural TownsL<br>||||||||
|(1) OLS<br> <br>|-.318<br>(6.5)<br>|.0238<br>(8.1)<br>|2.30 .8<br>(3.5)<br>|.0568<br>(3.9)<br>|.89<br>|.510<br>|.545|
|(2)<br>OLS-PH<br> <br>|-.121<br>(2.7)<br>|.020<br>(3.7)<br>|6.01,4<br>(.7N<br>)<br>|.0485|.26|.504|.576|
|(3)<br>2SLS-PH|-.173<br>|.0258<br>|-1.68.5<br>|.0707<br>|.01|.538|.635|
||(1.1)|(2.0)|(1.2)|(2.4)||||

## Notes:

AGW = total agricultural wage earnings in each district (used as a proxy for total agricullural ,ncome; AR = AGW*roa **d** ensity. AP - AGW*population density. AY = AGW^daily agricultural wage rate (used as an alternative to agricultural income per agricultural popu a c- Left side RNFY = Rural nonfarm wage eamings estimated as rural nonfarm labor*daily agricultural wage rate. There were 83 observations.

The t-ratios are listed in parenthes under regression parameters.

- a/ The wage multiplier is calculated " aRNFY/BAGW evaluated at the sample means of all relevant variables (gven in Table Al10)

- b/ Ordinary les squares estimate.

- C/ Ordinary least squares with thc Pris-Houftker adjustmen for heteoekedasticity.

- d/ Two-stage _les_ squars with th Prui-Houtaker adjustment for heteroekedasticity

- e/ In convetlng **forr.** wage to **inomr multIplrs,** we make two adjustmen. Firt, we multiply all wage multipliers by 0.82, the ratio of wage to totl **incoma in agricultun** relative to nonfim activity (Swa/Swn). Second, because rural town **wage** rat" **_we_ doule** those **inrl** ar, we multiply the rura town wage multiplier by two See note 13 for detais.

- I/ Multipliers calculated as sum of rural a plus rural towns.
70

-

-

> Table A.1 4: Data, hk=" and **Wage** MWtisra for **Rgln** of **Varying AruleWtural** PxroActvKtyi/

||Punjab/<br>Haryana|India<br>Average|Kamataka/<br>Gujarat|Madhya<br>Pradesh/<br>Bihar|
|---|---|---|---|---|
|Data|||||
|Road density|8.3|6.1|4.3|3.2|
|Population density|3,338|2.775|1,645|1,853|
|Dally agricultural wage rate|8.1|5.5|5.4|3.9|
|Wage Multlpilers|||||
|Rural areas|.412|.302|.287|.227|
|Rural towns|.359|.237|.243|.169|
|Rural areas pk. rural towns|.771|.538|.530|.396|
|Income Multipliers|||||
|Rural areas|.337|.248|.235|.186|
|Rural towns|.589|.388|.399|.277|
|Rural areas plus rural towns|.926|.635|.634|.463|

> a.Estimated from 2SLS district regressions. See Table A.1 3 for regression parameters.
- 71 -

# **Table** A.1 5: **ROge#Obn** CoeffWlsnts for Estimathg **hcome** Multllers State Data

||AGY|AR|AP|AY|R<sup>2</sup>|Income<br>Multiplier|
|---|---|---|---|---|---|---|
|Rural Areas<br>F|.537.<br>_(4.0)_|0.0036<br>(2.1)|-1.53.4<br>(.04)|-4.17.4<br>(1.8)|.81|.478|
|a'|-. 035<br>(.7)|.0029<br>(4.2)|3.2.7.<br>(.5)|2.0.4<br>(.2)|.73|.222|
|Rural Towns<br>at|.286<br>(3.2)|.0003<br>(.2)|-1.12*.<br>(.4)|5.245<br>(.3)|.67|.652|
|Rural Areas Plus<br>|||||||
|RuralTowns<br>F'|.823<br>(4.1)|.0039<br>(1.5)|-1.27.7<br>(.2)|3.6655<br>(.9)|.80|.794|
|Y'|.321<br>|.0003<br>|-1.95.7<br>|7.264|.84|.538|
||(3.6)|(2.8)|(.7)|**(.4)**|||

Notes AGY = total agricultural wage earnings in each state, AR - AGY*road denity. AP = AGY*population density. AY AGY'dady agricultural wage rate (used as an alternative to agricuitural income per agricultural population). Loft side Rural nonfarm income. All equations were estimated using ordinary Ieast squares. Heteroskedasticity was not a problem in the state data, so no adjustment was necessary. There were 17 observations.

The t-ratios are listed in parentheses underneath regression parameters.

a/ Nonfarm income estimated as nonfarm employment * average statewide nonfarm income per nonfarm worker.

bl Rural nonfarm income estimated as employment * average agricultural income per farm laborer.
- 72 -

# Table Alt Rsgl Codiciers f Eing Empboyew **Mpliebs**

||AGW|AR|AP|AY|R2|Employment<br>Multiplier|
|---|---|---|---|---|---|---|
|District Data|||||||
|Rural Areas|.024<br>(3.3)|.0023<br>(3.7)|-1.32.4<br>(1.11)|-.0018<br>(2.5)|.02|.022|
|Rural Towns|.015<br>(2.9)|-.0002<br>(.6)|6.65,r<br>(.6)|-.0006<br>(.5)|-.02|.012|
|Rural Areas Plus<br>Rural Towns|-.035<br>(3.7)|.0025<br>(3.3)|-2.04.4<br>(1.2)|-.0017<br>(1.7)|-.02|.037|
||AGY|AR|AP|AY|R2|Employment<br>Multipliere'|
|State Data b/|||||||
|ruralareas|6.2.5<br>(4.3)|6.8.'7<br>(3.7)|-2.4." '<br>(.6)|-1.2.4<br>(.4)|.81|.021|
|Rural towns|3.8.5<br>(4.6)|9.9.4<br>(.9)|2.5.-1<br>(1.0)|-3.1.6"<br>(1.9)|.70|.016|
|Rural Areas Plus<br>Rural Towns|1.0.-4|7.8.'|-4.9e1|-1.4.4|.82|.037|
||(5.1)|(3.1)|(.8)|(3.7)|||

a/ _AGW_ = total agricultural wage eamings in each ditrict. AR = AGWYroad density. AP - AGW*popuation density. AY * AGW*daly **agricultural** wage rate (used as an altenative to agricultr wcome per agricuttural population). Left side - Rural nonfarm wage amirngs etimated as rural ronfarm labor*daily agricultural wage rate. All equations wer estimated uing ordnary least squares, with the ira-Houthaker adjustment for heteroskedasticity. There were 83 observations.

_bl_ AGY **=** totl **agricl** wage sarnins in ch state. AR **-** AGY*road denity. AP **-** AGY*population density. AY **=** AGY*daily agricural wage rat, (used as an alternatiw to agricultural income per agricural population). Left **side** Rural nonfarm iicomG Al equations wr estimated using ordiway lst squares. Heteroekedasticity was not a problem in th state data, so no adjustment wa _neczewy._ **_The_ wer** 17 **obsvations.** The t-aios are listed hi parenthe underneath rgression parametrs.
- 73 -

# TOM A.17: **Chane** In mral Conssption Patte, India 1967/68 - 1983

|Ave<br> <br>|rage Budget Sh<br>|are, Rural Hous<br>|eholds<br>|
|---|---|---|---|
|Item<br>1967/88|1972/73|1977/78|1983|
|Foods<br> <br>||||
|Cereals<br>45.4|40.6|32.8|32.3|
|Grain<br>0.8<br> <br>|0.6<br>|0.4|0.3|
|Cereal substitutes<br>0.8<br> <br>|0.5<br>|0.3<br>|0.2<br>|
|Pulses<br>4.4<br>|4.3|3.8|3.5|
|Mlk and milk||||
|products<br>7.4<br> <br>|7.3|7.7|7.5|
|Edible oil<br>2.9<br>|3.5|3.6|4.0|
|Meat, egg, fish<br>2.4<br>|2.5|2.7|3,0|
|Vegetables<br>3.3|3.6|3.8|4.7|
|Fruits and nuts<br>0.9|1.1|1.1|1.4|
|Sugar<br>3.2|3.8|2.6|2.8|
|Salt and sPlces<br>2.7<br> <br>|2.8<br>|3.0|2.5|
|Beverages<br>2.4<br> <br>|2.4<br>|2.5|3.3|
|Total Foods<br>77.3|72.9|64.3|65.6|
|NonFoods<br>||||
|Pan, tobacco,<br> <br>||||
|Intoxicants<br>2.9<br>|3.1|2.9|3.0|
|Fuel and light<br>5.6<br>|5.6|6.0|7.0|
|Clothing<br>5.5<br> <br>|7.0|8.7|8.6|
|Footwear<br>O0S<br>|0.5|0.7|1.0|
|Misc, goods and services<br>8.1<br>|8.7|10.3|12.5|
|Durables<br>0.1<br>|2.2|7.0|2.3|
|Total Nonfoods<br>22.7|27.1|35.7|34.4|
|Total Expenditure<br>100.0|1 C).0|100.0|100.0|

Soure: National Sample Survey, 38th Round as reponed in S n. Vol.9, No.3 (April 1986).
> - _74_ -

**Tab 18: Aural Conrimptbon Parameters** Acroms States **Wtth Dltterhg** AgrWultural **hbcoms, hdba** 1983

||Total Rural|Budget Share Sp|ent on Nonfoods|
|---|---|---|---|
|State|Expenditure|Average|MarginalV|
||(rupees/capita<br>In 30 days)|(perc|ent)|
|High Agricultural Income<br>||||
|Punjab|170.5|41.3|56.3|
|Haryana|151.8|36.4|46.3|
|Moderate Agricultural Income||||
|Karnataka|116.8|36.5|36.6|
|Gujarat|122.7|33.8|49.0|
|Low Agricultural Incomo||||
|Madhya Pradesh|100.5|33.5|45.5|
|Bihar|93.8|26.3|32.0|
|All India Rural Average|112.5|34.2|41.9|

a/ Calcuated as bl + b2(1 + ln(E)) where E = average total expenditure. bl and b2 are obtan from Engel curves estimated in share form as follows: Snf * bo 1/(E) + bi + b2 liln(E) where S'f - Enf/E= share of expenditure on nonfoods. **See** Hazil and Roell (1983) for details on estimating procedure. Because household data were _ru_ available to us, we have used grouped data induding 13 observations, one for each _expenditure_ cass reported by National Sample Survey.

Sour: National Sample Survey, 38th Round as reported in S Vol.9, No.3 (April 1986).
> - **75** -

# **Table A.19:** Seam-rput-Output Parameters for **India,** 1979/80

|Input-Output Coefficients|Irrigated<br>Agriculture|Rainfed<br>Agriculture|Nontradable<br>Agriculture|Manufacturlng|Tertlary|
|---|---|---|---|---|---|
|Manufacturinga/|0.141|0.042|0.067|0.326|0.145|
|Tertiary|0.081|0.033|0.015|0.188|0.157|
|Nontradable<br>agriculture|0.025.|_0r_45|0.056|||
|Valtie added to<br>gross output ratio|0.669|0.8U7|C.761|0.300|0.640|

|Household Coofficlerts|Urban Households|Rural Households|
|---|---|---|
|Marginal Budget Shares<br>Manufacturing<br>|0.181<br>|0.195<br>|
|Tertiary<br>|0.401<br>|0.338<br>|
|Nontradable agr!cuiture<br>|0.215<br>|0.204<br>|
|Leakage ratios|0.3|0.3|
|Value Added Shares<br>|||
|Agri, ulture:<br>|||
|-<br>Irrigated<br>|0.008<br>|0.661|
|-<br>Rainfed<br>|0.005<br>|0.802<br>|
|-<br>Nontradable<br>|0.005<br>|0.756<br>|
|Manufacturing<br>|0.108<br>|0.192<br>|
|Tertiary|0.230|0.410|

Source:lnput-output coefficients and value added shares adapted from 1979/80 input.outp%;: tables for India and Punjab reponed in Bhalla et al. (1989). Consumption parameters based on Sarveksha (1988) and Hazell and Ramasamy (1986). We took averagd budget shares from SavieksniFa and multiplied by expenditure elasticties from Hazell and 1amasamy.

a/ Does not include direct imports from abroad.