Reforming the rural non-farm sector

By S. Mahendra Dev

THE IMPORTANCE of the rural non-farm sector in poverty alleviation and promotion of livelihoods is being increasingly recognised. With its share of less than 30 per cent in GDP, agriculture has to bear the burden of more than 60 per cent of the workers. Migration to urban areas is not a solution as towns and cities have their own problems of demographic pressures. To increase wages in agriculture and to shift workers to more productive areas, promotion of the rural non-farm sector is advocated. An increase in rural non-farm employment is one of the main factors responsible for the reduction in poverty in the 1980s. The debate on the trends in and the nature of rural non- farm employment (RNFE) has once again assumed importance in the context of economic reforms in the country. At this juncture, it is useful to address the following questions: What is the impact of economic reforms on RNFE? Which sub-sectors in RNFE have grown during the reform period? Is the growth in RNFE due to `pull' factors or `push' factors?

Here are some statistics based on National Sample Survey quinquenniel surveys on employment and unemployment to examine the trends in RNFE. The percentage of RNFE in total rural employment increased from 16.6 per cent in 1977-78 to 18.4 per cent in 1983, to 21.6 per cent in 1993-94 and to 23.8 per cent in 1999-2000. We are not considering the NSS data for 1987-88 because that was a drought year. If we look at the yearly increase in the percentage share of RNFE in total employment it was 0.35 per cent per annum during the reform period (93-94 to 99-00), which is more or less similar to earlier periods. Let us look at the absolute numbers in RNFE. The number of workers in RNFE increased from 36.1 millions in 1977-78 to 44.9 millions in 1983 to 62.98 millions in 1993-94 to 71.52 millions in 1999-2000. The growth rate (compound) in RNFE during 1977-83 was 4.06 per cent per annum while it was 3.28 per cent per annum and 2.14 per cent per annum during 1983-94 and 1993-2000 respectively. In other words, during the reform period ('93-94 to '99-00) the growth rate of employment in RNFE was lower than the pre-reform period. This is a matter of concern. However, this has to be seen in the context of the low overall growth of employment (around 1 per cent per annum) during the reform period. Ninety per cent of the additional employment during the reform period was due to RNFE as compared to 39 per cent in the earlier periods. What do we conclude? As in the overall growth rate, the growth rate of workers in RNFE declined during the reform period. There is, however, not much change if we look at the annual increase in the share of RNFE in total rural employment. But, the expected growth in rural non-agriculture due to economic reforms does not seem to have materialised. As compared to the East Asian experience, the growth in RNFE in India has been much slower.

There are, however, differences between males and females in terms of growth in RNFE. In the case of males, the share of RNFE in total rural employment increased from 19.3 per cent in 1977-78 to 28.7 per cent in 1999-00 (a 9.8 percentage point increase over 22 years). In the case of females, it increased from 11.8 per cent to 14.6 per cent during the same period (2.8 percentage points increase). During the reform period (93-94 to 99-00), there was 2.8 percentage points increase for males while it was 0.7 percentage points for females. It looks like the growth in RNFE is more a male phenomenon.

The second issue is about the sectors that contributed to the increase in RNFE during the reform period. K. Sundaram's paper `Employment and Poverty in 1990s' (Economic and Political Weekly), August 11-17, 2001) provides absolute numbers of employment in rural areas at one digit level. One can derive the shares of sub-sectors in additional employment created during 1993-94 to 1999-00. The additional employment created in the rural non-farm sector during the reform period was 8.54 millions. Out of these, 3.1 million workers were from the construction sector. In other words, 36 per cent of the additional employment in RNFE during the reform period was due to construction. And 27 per cent was due to manufacturing and repair services (the share of repair services being 5.4 per cent) and 25.5 per cent was due to transport, storage and communication. The contribution of retail trade was 13 per cent while that of hotels and restaurants was only 4 per cent. Thus in rural areas also, there is no fear of India becoming a ``restaurant and bar economy''. In the case of community and personal services, there was a decline in employment while the employment of social services (education and health) increased. The shares show that around 63 per cent of the additional employment was due to construction and transport, storage and communications. It is not clear whether the creation of additional employment in these activities led to improvements in the well being of the poor.

The related question is whether the growth in RNFE is due to `push' or `pull' factors. Sundaram's analysis (in the above mentioned paper) on rural real wages of casual labourers indicate that it is a `pull' phenomenon. The growth rates in real wages of casual labourers have not declined during the reform period. However, some other indicators such as poverty in rural non-farm sectors given by Sheila Bhalla suggest that it could be a `push' phenomenon. The numbers show that in the rural areas, the three poorest segments are agricultural labourers, construction workers and manufacturing workers. In fact, poverty among cultivators is much lower. Bhalla's analysis shows that the rural non-farm sector was providing unacceptably low quality employment to increasingly large numbers of people. It is possible that the rural non-farm sector may be acting as a `residual sector'. For example, poverty among the workers in construction (which contributed 36 per cent of the additional employment) is quite high. This is also consistent with slow decline of rural poverty from 39.36 per cent in 93-94 to 36.35 per cent in 1999-00 based on employment surveys of the NSS.

One of the challenges of the reforms now is to improve the quality of employment and incomes in the rural non-farm sector. A three- pronged strategy is needed for enhancement in the livelihoods of the rural poor. First, the Government should have policies to improve education and skills of the workers. Second, they should have several policies to increase employment for the unskilled workers. Third, the incomes of the women have to be improved by creating opportunities in the higher productivity sectors. Most of the women are confined to agriculture. There was only 0.7 per cent increase in the share of RNFE during the reform period. For the above three strategies, pro-poor growth engines have to be identified at sub-sectoral level rather than at the level of broad sectors.

Public investment in agriculture and rural non-agriculture has to be improved significantly to improve the quality of RNFE. Infrastructure development and other incentives are needed for attracting private investment. The Government has to address policy constraints on raising agricultural production, growth of small and medium business, technological progress, improved productivity of natural resources and the marketing of rural products. Allowing the poor to contribute to and benefit from increased growth rates will pose particular challenges as employment in India is largely in the unorganised sector. We have programmes such as DWCRA to help the women. But most of the activities of these groups generate subsistence incomes. High income-generating activities have to be developed for women by improving their skills, technology and marketing. With 61 million tonnes of foodgrains stock, food-for-work programmes can be initiated in a big way to help the poor and improve rural infrastructure.

(The writer is Director, Centre for Economic and Social Studies, Hyderabad.)

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