Poverty Decline, Agricultural Wages and Non-Farm Employmentin Rural India: 1983-2004

We analyze five rounds of National Sample Survey data covering 1983, 1987/8, 1993/4, 1999/0 and 2004/5 to explore the relationship between rural diversification and poverty. Poverty in rural India has declined at a modest rate during this time period. We provide region-level estimates that illustrate considerable geographic heterogeneity in this progress. Poverty estimates correlate well with region-level NSS data on changes in agricultural wage rates. Agricultural labor remains the preserve of the uneducated and also to a large extent of the scheduled castes and scheduled tribes. We show that while agricultural labor grew as a share of total economic activity over the first four rounds it had fallen back to the levels observed at the beginning of our survey period by 2004 This all-India trajectory also masks widely varying trends across states. During this period, the rural non-farm sector has grown slightly, mainly between the last two survey rounds. Regular non-farm employment remains largely associated with education levels and social status that are rare among the poor. However, casual labor and self-employment in the non-farm sector reveals greater involvement by disadvantaged groups in 2004 than in the preceding rounds. The implication of this for poverty is not immediately clear – the poor may be pushed into low-return casual non-farm activities due to lack of opportunities in the agricultural sector rather than being pulled by high returns offered by the non-farm sector. Econometric estimates confirm that while poverty reduction occurs where agricultural wages are rising, nonfarm employment is not independently associated with poverty reduction. However, the data do provide evidence that an expansion of the non-farm sector is associated with rising agricultural wages. By contributing to a tightening of agricultural wage-labor markets, growth in the nonfarm sector helps to raise agricultural wages and does thereby also help to reduce pove