Insights into rural economy

Rural Transformation in India - The Role of the Non-Farm Sector, edited by Rohini Nayyar and Alakh N. Sharma; Institute for Human Development, New Delhi, 2005, Manohar Publishers and Distributors; pages 536, Rs.950.

ONE of the celebrated laws in the area of development studies is that an indicator of growth and development is the sectoral composition of the economy. As an economy grows, the agricultural sector's share will come down and the shares of the manufacturing and service sectors will go up. Correspondingly, the share of agriculture in developed economies will be low and those of the manufacturing and service sectors will be high, the opposite being the case in less developed economies. This, of course, is no iron law, but a widely observed empirical finding across countries and over time.

The share of a sector can be measured in terms of its contribution to total output, normally indicated by gross domestic product (GDP), and total employment. The standard case is where both these indicators move in tandem. Thus, normally, when an economy develops, the agricultural sector's share in both GDP and employment will come down with the other two sectors gaining in terms of these indicators. However, such synchronised movements may not always happen. In India, for instance, the relative share of agriculture in the GDP has been coming down steadily, but for many decades its share in employment has remained high and fairly stable. Agriculture's share in the GDP came down from 40 to 25 per cent between the early 1980s and the early years of the present decade, but its share in employment has remained in the neighbourhood of 60 per cent during the same period (about 58 per cent now). One of the inferences to be drawn from this pattern is that labour productivity in agriculture has not been moving up as much as in the other sectors.

If agriculture were the only occupation in the rural areas, this would mean that rural earnings may not be going up in comparison with the rest of the country. However, while agriculture dominates the rural scene, it is not the only economic activity there. To the extent that agriculture gets commercialised (sale of agricultural produce and purchase of input for agriculture) trade and other service activities will pick up in the rural areas. Further, educational and health activities may also be expected to go up. Traditionally, rural areas have had some manufacturing activities too - handloom weaving, oil pressing, bidi manufacturing and so on. What happens to these non-farm activities in the rural areas as the economy develops? Sufficient attention has not been paid to this question, though it is an important one in terms of the livelihood patterns of vast sections of the population, understanding of the rural-urban divide (or link), and the larger democratic processes in the country.

The Institute for Human Development, New Delhi, deserves to be congratulated on and thanked for making available to the community of scholars and interested general readers a volume rich in factual material relating to this problem, robust in analysis and with a plethora of inferences that need to be picked up by those involved in development studies and policy formulation for development. Apart from a very helpful introduction by the editors, the volume consists of 30 papers put together by 47 writers, some of them leading economists in the country and some very promising young scholars. Most of the papers were presented at a seminar organised by the Institute with the support of the Planning Commission and some international development agencies. The Institute has already published similar volumes on important topics by drawing on and coordinating the specialised knowledge of scholars in different parts of the country. One hopes that other centres of development studies will follow this example.

THE 30 papers in the volume have been thematically divided into six parts - international experiences in changes in the rural non-farm sector (RNFS), patterns of change in India, the experience of disadvantaged sections, analysis at the state- and micro-levels, sectoral scenarios, and institutions and policies.

It is well known that in the early stages of post-revolutionary development, the communist regime in China paid special attention to land utilisation and agricultural development, largely on cooperative and collective basis. With the introduction of the Household Responsibility System in the late 1970s, farm incomes increased. The resulting increase in the demand for non-farm goods and services was met largely by the RNFS. Because of the restriction in the rural-urban mobility of labour and the increase in the productivity of agriculture, the RNFS flourished, leading to a general increase in rural incomes and the reduction of poverty. China has continued its emphasis on the RNFS. In Thailand, agricultural growth was impressive in the 1970s and 1980s, but that did not promote the RNFS.

In India, the diversification of the rural economy was achieved largely during the 1970s and 1980s. The RNFS employment increased from 16.6 per cent in 1977-78 to 23.8 per cent in 1999-2000, but there was hardly any increase after 1987-88. And the evidence suggests that a period of rapid growth came to an end as soon as the "reforms" began. Another important finding is that when the growth of the non-farm sector did take place, it was less related to the performance of agriculture and more owing to an increase in the rural infrastructure that was quite deliberately brought about during the decades of planning. Equally significant is the finding that it is the down-turn in the rural manufacturing sector in the 1990s that led to the stagnation in rural non-farm employment. A sluggish diversification of the rural economy during the past decade and a half in contrast to the promising acceleration in the two decades prior to it is one of the major conclusions emerging from the studies.

The pattern of rural non-farm diversification that took place is worth noting. The growing demand for milk, meat and eggs has resulted in the increased importance of livestock in the rural economy. It may also be a reflection of the programme of the distribution of cattle to landless households during the integrated rural development approach of the 1980s. Another employment and income generator in the rural areas is the wood industry, which employs more than five million people and is, in fact, the third largest generator of employment in the manufacturing sector, next only to textiles and food processing. One of the chapters documents the widely known fact that employment in the handloom industry has been shrinking and that, except in a few States such as Karnataka, Tamil Nadu and Andhra Pradesh where the industry still provides full-time employment, it is a provider of part-time employment, the share of part-timers ranging between 50 and 98 per cent.

As to the impact of rural diversification on disadvantaged groups, the major findings are that the proportion of self-employed women workers in non-agricultural activities continues to increase (this includes those working at home on a piece-rate basis) and that the proportion of Scheduled Caste workers in the RNFS is only marginally lower than that of the non-S.C. category but they are more in the self-employment and casual work sectors than in regular paid work.

For an overall understanding of an important segment of the economy and of the millions in the rural areas, the catch-all reference to the RNFS is defensible, but the main characteristic of this sector is its heterogeneity. The volume brings this out quite vividly, but it underlines some general policy measures for stimulating and sustaining its development. These include, as the editors suggest in the introduction, "augmentation of rural infrastructure; increasing the institutional credit flow to the small and tiny sector; building of support systems that would improve market information and market networks; introduction of measures for skill and technology upgradation, and for promoting quality consciousness and quality control". Needless to say, that it is a tall order.