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REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly64
Changes in Rural Economy of India, 1971 to 2012
Lessons for Job-led Growth
Ramesh Chand, S K Srivastava, Jaspal Singh
Views expressed are personal.
Ramesh Chand (rc.niti@gov.in), S K Srivastava (shivendraiari@gmail.
com) and Jaspal Singh (jaspal.singh82@nic.in) are with the NITI Aayog,
New Delhi.
The transition in the rural economy in the last four
decades is examined based on the analysis of growth
and composition of output and employment.
A reduction in the share of agriculture, and a dominance
of non-farm activities in the rural economy is noted from
2004–05 onwards. However, agriculture continues to be
the predominant source of employment. Employment
in the construction sector increased substantially, but
was not large enough to absorb workers leaving
agriculture, resulting in a decline in rural employment
after 2004–05. A serious imbalance has emerged in
output and employment in different sectors in rural
areas requiring urgent attention to create jobs in
manufacturing, services, and construction. Creation of
jobs in rural areas requires a complete rethink of rural
industrialisation.
I
ndia is predominantly a rural country. As per the 2011
Census, 68.8% of the country’s population and 72.4% of
the workforce reside in rural areas. However, steady transi-
tion to urbanisation over the years is leading to the decline in
the share of population residing in the rural areas. Between
2001 and 2011, India’s urban population increased by 31.8% as
compared to 12.18% increase in the rural population. Over
50% of the increase in urban population during this period
was attributed to rural–urban migration and reclassifi cation
of rural settlements into urban (Pradhan 2013). Population
projections indicate that India will continue to be predominantly
rural till 2050, after which, urban population is estimated to
overtake rural population (United Nations 2012).
It is often felt that unplanned rural to urban migration,
particularly in search of better economic opportunities, is
putting severe pressure on urban amenities and forcing a large
number of low wage migrants from rural areas to live in
unhygienic and deprived conditions. Thus, to check unplanned
migration from rural to urban areas and to improve socio-
economic conditions of a vast majority of the population in the
country, there is a need to make rural economy stronger and
create employment opportunities in rural economic activities.
The improvement in economic conditions of rural households
is also essential for reducing the disparity in per capita rural
and urban income that has remained persistently high. This
requires signifi cantly higher growth in rural economy.
Traditionally, agriculture is the prime sector of rural economy
and rural employment. The transformation in the composition
of output and occupation from agriculture to more productive
non-farm sectors is considered to be an important source of
economic growth and transformation in rural economy. Several
scholars have observed that such transition is taking place in
the Indian economy (Aggarwal and Kumar 2012; Maurya and
Vaishampayan 2012; Papola 2012). This paper examines the
nature of growth in rural economy and analyses its effect on
job creation and occupation structure spanning over a period
of the last four decades. An attempt is made to identify the
reasons for mismatch in growth in output and employment in
various non-farm activities. The fi ndings are used to suggest
pro-employment rural growth strategy.
The paper discusses the changing contribution of rural areas
in India’s total output and employment since 1970–71. It exam-
ines the trend in rural–urban disparity in worker productivity
and documents the changes in rural–urban distribution of
output and employment in various economic activities. Then it REVIEW OF RURAL AFFAIRS
Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5265
provides empirical evidence on the performance and changing
composition of rural output and employment during the past
four decades. After 2004–05, the rural areas have witnessed
negative growth in employment in spite of high growth in
output. We then explore the reasons for growth in jobs not
keeping pace with the growth in output, and dissect the per-
formance of different sectors and explain the asymmetric
changes between output and employment.
Data Sources
The data on rural and urban net domestic product (NDP) is
available for the years 1970–71, 1980–81, 1993–94, 1999–2000,
2004–05 and 2011–12 at current prices. For estimating growth
rates, nominal values of NDP were expressed in real terms
using sector-specifi c implicit price defl ators (2004–05=1) for
national output. The information on different aspects of em-
ployment in the country was extracted from the unit level data
of quinquennial employment and unemployment surveys
(EUS) conducted by National Sample Survey Offi ce (NSSO). The
fi rst quinquennial NSSO-EUS was carried out during 1972–73 to
assess the volume and structure of employment and unemploy-
ment in the country. Thereafter, these surveys were repeated
in 1983, 1993–94, 1999–2000, 2004–05, 2009–10, and 2011–12.
The performance of rural economy in terms of output and
employment was studied during three distinct periods chosen
on the basis of the major changes in the Indian economy
during the past four decades. These periods are 1970–71 to
1993–94, 1993–94 to 2004–05, and 2004–05 to 2011–12, which
can be termed as the pre-reform period, the post-reform
period, and the period of economic acceleration, respectively.
Contribution of Rural Areas in Indian Economy
The contribution of the rural areas in economy of India for the
period 1970–71 to 2011–12 is seen from its share in national
output and employment (Table 1). The rural areas engaged
84.1% of the total workforce and produced 62.4% of the total
NDP in 1970–71. Subsequently, rural share in the national
income declined sharply till 1999–2000. Rural share in total
employment also witnessed decline but its pace did not match
with the changes in its share in national output or income. The
declining contribution of rural areas in national output
without a commensurate reduction in its share in employment
implies that a major portion of the overall economic growth in
the country came from the capital intensive sectors in urban
areas without generating signifi cant employment in the period
under consideration. Notwithstanding, the difference bet-
ween the rural share in output and employment increased
from 22 percentage points in 1970–71 to 28 percentage points
in 1999–2000.
The asymmetry between the output and employment shares
of rural areas in national economy is refl ected in the persistent
disparity in per worker productivity in rural and urban areas.
As can be seen from Table 1, an urban worker continued to
earn around three times or more the income of a rural worker.
After 1999–2000, growth rate of rural economy picked up
pace and was at par with the growth rate of urban economy.
This led to stabilisation in rural contribution in total NDP at
around 48%. The rural share in national NDP dropped slightly
from 2004–05 to 2011–12 despite acceleration in growth rate.
Based on these evidences, we can conclude that the urban
economy has overtaken rural economy in terms of output but
urban employment is less than half of the rural employment.
Higher dependency for employment in rural areas has serious
implications such as wide disparities in worker productivities
between rural and urban areas. The gap in per worker produc-
tivity was
`36.63 thousand in 1970–71, and it crossed `1.11 lakh
during 2011–12 at 2004–05 prices. In relative terms, the
disparity in productivity of urban and rural workers narrowed
down after 1999–2000, but still an urban worker produces 2.8
times the output of rural worker.
Share in output and employment across sectors: The
sector-wise disaggregation shows signifi cant changes in the
contribution of rural areas in the national economy. Besides
producing almost all agricultural produce, rural areas contrib-
uted around one-third of non-farm output and 46% of total
employment in the country (Table 2). The contribution of rural
areas in different sectors of non-farm economy revealed large
variation and interesting patterns.
The most striking change in rural share was observed in the
case of manufacturing sector. Between 1970–71 and 2011–12, the
share of rural areas in output of the manufacturing sector
doubled and exceeded the manufacturing production in urban
areas. Rural areas contributed 51.3% of manufac-
tured output in 2011–12. However, this sharp in-
crease in share in output did not fetch any in-
crease in employment share. On the contrary,
rural share in total manufacturing employment in
the country declined by 4.1 percentage points
during the 40 years preceding 2011–12. Clearly,
manufacturing sector was shifting to rural areas
but without commensurate increase in the employ-
ment. In the same period, the share of rural areas
Table 1: Share of Rural Areas in Total NDP and Workforce, and Rural–Urban
Disparity in Worker Productivity
Year Economy Workforce Worker Productivity at 2004–05 Prices (`/worker)
Rural Urban Disparity
1970–71 62.4 84.1 16,779 53,415 3.2
1980–81 58.9 80.8 17,935 52,702 2.9
1993–94 54.3 77.8 25,351 76,234 3.0
1999–2000 48.1 76.1 30,763 1,08,094 3.5
2004–05 48.1 74.6 37,273 1,20,419 3.2
2011–12 46.9 70.9 62,859 1,74,525 2.8
Source: As mentioned in “Data sources”.
Table 2: Share of Rural Areas in Total NDP and Workforce across Different Sectors (%)
Year Agriculture Manufacturing Construction Services Non-agriculture
NDP Employment NDP Employment NDP Employment NDP Employment NDP Employment
1970–71 96.2 96.8 25.8 51.5 43.2 64.6 32.8 42.1 32.4 47.3
1980–81 94.9 95.9 31.8 48.1 45.6 58.8 34.0 41.7 35.0 44.9
1993–94 93.9 95.8 29.8 51.3 45.1 57.2 33.6 42.3 34.8 46.6
1999–2000 93.2 96.6 41.6 51.5 43.3 57.6 27.1 40.7 31.8 45.8
2004–05 94.1 96.1 42.5 49.6 45.5 64.4 32.7 41.9 36.7 47.2
2011–12 95.1 95.9 51.3 47.4 48.7 74.6 25.9 39.6 35.3 48.7
Non-agriculture includes manufacturing, construction, services, and other sectors.
Source: Same as Table 1. REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly66
in construction sector output increased by 5.5 percentage
points, while employment share increased by 10.0 percentage
points. In the case of services sector, rural areas lost to urban
areas in a big way after 2004–05 and accounted for 35% of
services output in the country in 2011–12. These changes indi-
cate that rural employment has risen at a much faster rate in
relatively low paid construction activities. The underlying rea-
sons and implications of these changes are discussed in the
later sections of the paper.
Structural Changes in Rural Economy
From 1970–71 to 2011–12, India’s rural economy expanded
from
`229 billion to `34,167 billion at current prices and from
`3,199 billon to `21,107 billion at 2004–05 prices. In the same
period, employment expanded from 191 million to 336 million.
Thus, despite almost seven times increase in output in rural
India, employment could not even double in this long period of
four decades.
The growth rates in output and employment show large
variations across sectors and over different periods, which is
useful in understanding the transition in rural economy in the
country. The sector-wise growth rate in NDP and employment
during the three sub-periods are presented in Table 3, and
sectoral composition is presented in Table 4.
The period 1970–71 to 1993–94 witnessed 2.57% annual
growth in the NDP of agriculture sector as compared to 5.7%
annual growth in non-farm sectors (Table 3). As a consequence,
the share of agriculture in the rural NDP declined from 72.4%
to 57% by 1993–94 (Table 4). Among the non-farm sectors,
manufacturing, construction, and services sectors experienced
5.18%, 3.94%, and 6.1% annual growth respectively, and their
share in rural NDP increased by 2, 2 and 10 percentage points
during the pre-reforms period, respectively.
During the post-reform period (1993–94 to 2004–05),
growth in the agricultural sector decelerated to 1.87%, whereas
growth rate in non-farm economy accelerated to 7.93%. The
effect of the slowdown in agriculture on rural economy was
offset by signifi cantly higher growth in non-farm sectors
which accelerated growth rate in rural economy to above 5%
as compared to 3.72% during the pre-reforms period. These
changes further reduced the share of agriculture in rural
economy from 57% in 1993–94 to 39% in 2004–05. Thus, the
rural economy became more non-agricultural than agricultural
by 2004–05. Among the non-farm sectors, services, manufac-
turing, and construction sectors constituted 37.3%, 11.5% and
7.8% share in rural output in 2004–05, respectively (Table 4).
During 2004–05 to 2011–12, the agriculture sector wit-
nessed revival and registered impressive annual growth rate
of 4.27%. Similarly, non-farm sectors growth accelerated to
9.21%. Based on acceleration in growth in both agriculture
and non-farm sectors, this period is termed as the “period of
economic acceleration.” Annual growth in the overall rural
economy during this period was 7.45%. It is worth pointing
that this witnessed a much higher increase in agricultural
prices as compared to non-agricultural prices, and growth rate
in agriculture and non-farm sectors at current prices was al-
most the same. Therefore, the share of agriculture in rural NDP
did not decline further and stood at a marginally higher level
of 39.2% in 2011–12 over 2004–05.
Within non-farm sectors the growth in services sector out-
put decelerated to 3.48% after 2004–05 as compared to 8.55%
during the preceding decade. Manufacturing and construction
sectors witnessed impressive growth of 15.87% and 11.49%
respectively between 2004–05 and 2011–12. Consequently, in
these seven years, the share of services sector declined from
37.3% to 27% whereas the share of manufacturing in rural
economy increased from 11.4% to 18.4% and construction
sector share increased from 7.8% to 10.5%.
Growth pattern in various sectors reveal a sizeable diversifi -
cation of the rural economy towards non-farm sectors. From
the economic development point of view, a similar trend and
pattern should be refl ected in employment. This was exam-
ined from employment data in successive NSSO rounds corre-
sponding to the years for which rural–urban distribution of
national income was provided.
1
A perusal of Table 3 shows that growth in rural employment
and output followed different patterns. Rural employment
sho wed 2.16% annual growth rate during the pre-reform peri-
od, which decelerated in post-reform period to 1.45% and
turned negative (-0.28%) in the period of economic accelera-
tion. The output growth rate in the same sub-periods acceler-
ated.
2
Thus, employment increased at a much lower rate
compared to output and even declined in the wake of high
growth in output post 2004–05.
The main reason for this sluggish growth followed by
negative growth in employment in rural areas is that the
Table 3: Growth Rates of NDP at 2004–05 Prices and Employment in
Rural Areas (%)
Period Agriculture Manufacturing Construction Services Non-agriculture Total
Net domestic product (at constant prices)
1971–94 2.57 5.18 3.94 6.10 5.70 3.72
1994–05 1.87 8.38 7.92 8.55 7.93 5.06
2005–12 4.27 15.87 11.49 3.48 9.21 7.45
Employment (usual status)
1973–94 1.72 3.55 4.82 4.51 4.22 2.16
1994–05 0.74 2.79 8.32 3.25 3.70 1.45
2005–12 -2.04 0.67 12.09 1.35 3.65 -0.28
Source: Same as Table 1.
Table 4: Sectoral Share in NDP and Employment in Rural Areas, 1970 to 2012 (%)
Year Agriculture Manufacturing Construction Services
Share in rural NDP (at current prices)
1970–71 72.4 5.9 3.5 17.1
1980–81 64.4 9.2 4.1 20.6
1993–94 57.0 8.2 4.6 26.8
1999–00 51.4 11.1 5.6 28.6
2004–05 38.9 11.5 7.8 37.3
2011–12 39.2 18.4 10.5 27.0
Share in rural employment
1972–73 85.5 5.3 1.4 7.3
1983 83.6 6.2 1.3 8.8
1993–94 78.4 7.0 2.4 11.4
1999–00 76.3 7.4 3.3 12.5
2004–05 72.6 8.1 4.9 13.9
2011–12 64.1 8.6 10.7 15.5
Shares do not sum up to 100 as some minor sectors are not included in the sectoral
classification. REVIEW OF RURAL AFFAIRS
Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5267
non-farm sectors could not absorb the labour force leaving
agriculture. The results presented in Table 3 also imply that
employment elasticity in rural areas declined over time and
have turned negative after 2004–05. The employment insensitive
growth raises serious concerns over the capacity of the rural
economy to provide productive jobs to the rising population
and workforce moving out of agriculture. Among non-farm
sectors, deceleration in employment growth was experienced
in manufacturing and services sector; but construction sector
witnessed sharp acceleration in employment expansion with
the passage of time.
Changes in Rural Employment after 2004–05
After 2004–05, rural areas witnessed negative growth in em p-
l oyment despite 7.45% annual increase in output. It is pertinent
to explore whether the decline in rural workforce between
2004–05 and 2011–12 was on account of rising unemployment
or due to change in the labour force itself. It would also be inter-
esting to know the status of the persons who left the workforce,
and the sectors where these changes took place. These aspects
are analysed by examining household-type and gender-wise
changes in labour force participation and workforce distribu-
tion across sectors, and by tracking the activity status of “not
in labour force” population between 2004–05 and 2011–12.
During the period of high output growth and falling
employment (2004–05 to 2011–12), rural population increased
by 62 million, distributed equally between male and female
(Table 5). As indicated by labour force participation rate
(LFPR), the proportion of male population joining the labour
force remained almost unchanged (55%) and 16 million out of
31 million incremental male population joined the labour force
between 2004–05 and 2011–12. However, female labour force
participation declined signifi cantly from 33% in 2004–05 to
25% in 2011–12, resulting in decline in the female labour force
by 22 million. This led to a net decline of about 7 million in
rural labour force (male + female) between 2004–05 and
2011–12. Interestingly, NSSO data did not show any change in
unemployment (based on usual status) during this period, and
it showed that workforce in rural areas reduced by a similar
magnitude as in the labour force. These evidences imply that
the decline in labour force and in its subset (workforce) was
primarily due to the withdrawal of female workers during the
period under consideration.
It is worth noting that the withdrawal of female workers
from the labour force happened across all types of households
in the rural areas. This is clearly visible from the increase in
“not in labour force” to population ratio
3
for female workers;
this ratio in agricultural labour, cultivator, and non-farm
households, increased by 8.49, 6.05 and 4.63 percentage points
between 2004–05 and 2011–12 respectively (Table 6). These
evidences also show that withdrawal of female workers from
the labour force was highest among agricultural labour house-
holds followed by cultivators and non-farm households both in
percentage and absolute terms. In the case of male workers,
withdrawal from work force was found only among the agri-
cultural labour households.
Many scholars have provided plausible reasons for the with-
drawal of women from the labour force (Mazumdar and Nee-
tha 2011; Rangarajan et al 2011; Kannan and Raveendran 2012;
Abraham 2013; Rangarajan et al 2013; Chand and Srivastava
2014). One of the reasons for the fall in female LFPR is reported
to be the increased participation in educational activities
(Rangarajan et al 2011). The rising enrolment of female in edu-
cation is seen from the increasing share of “not in labour force”
female population in the category of education across all
household types between 2004–05 and 2011–12 (Table 6).
Among the household-types, the increase in the share of
education in total “not in labour force” female population was
3 percentage points for agricultural workers as compared to
1.4 percentage points for non-farm households. Similarly, male
“not in labour force” population in education witnessed sub-
stantial increase across all household types during the period
under consideration.
Increasing enrolment for education is a desirable trend in
terms of improvement in education level and skills of the persons.
But the real challenge will be to create employment opportuni-
ties for those educated persons who join the labour force after
acquiring education in the near future. Most of the employ-
ment opportunities have to be created in non-farm sector as
the natural choice of the educated youth would be to join the
more productive non-farm sectors instead of agriculture.
It is interesting to note that education accounted for one-third
of the entire reduction in female labour force whereas the
withdrawal of male counterparts from labour force (from agri-
culture) was same as the increase in education. A large number
of female, withdrawn from labour force, confi ned themselves
to household activities as shown by the increasing share of
“not in labour force” female population in the category of
domestic activities during the period under consideration
(Table 6). The highest increase in the proportion of females
withdrawing from farm work and staying back at home is
reported in the case of agricultural labour households. Further,
increase in proportion of females in domestic activities is also
noticed in the case of non-farm rural households. This is a
puzzle as to why women of labour households, whose economic
conditions are not very good,
4
chose to withdraw from work-
force, and stay back in households.
One argument is that high growth in agricultural output
and resulting terms of trade for agriculture during 2004–05 to
2011–12 resulted in high rate of increase in income of farmers
and agricultural labour
5
in this period, which in turn, led to
Table 5: Changes in Population and Economically Active Persons in Rural
Areas between 2004–05 and 2011–12 (million)
Particulars Male Female Persons
2004–05 2011–12 2004–05 2011–12 2004–05 2011–12
1 Population 401 432 379 410 780 842
2 LFPR (%) 56 55 33 25 45 41
3 Labour force 223 239 126 104 349 342
4 Workforce 219 235 124 102 343 336
4.1 Agriculture 146 139 103 76 249 216
4.1.1 Cultivators 93 92 67 49 160 141
4.1.2 Agriculture labour 53 48 37 27 89 75
4.2 Non-farm 73 95 21 26 94 121 REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly68
withdrawal from farm work. This seems to be a part explana-
tion which can hold in the case of some households who real-
ised substantial increase in their income. Some scholars argue
that the female withdrawal from the labour force might be due
to the reversal of an exceptional increase in female labour
force caused by agrarian distress from 1999–2000 to 2004–05
(Abraham 2009; Thomas 2012). However, empirical evidences
refute such arguments because the reduction in female LFPR
was not confi ned to only agricultural households but was
across all household types in rural areas.
Some other reasons for reduction in workforce seem to be:
(i) rising mechanisation of farm operations; (ii) increase in
reservation wage and non-availability of suitable work at that
wage rate; (iii) manufacturing jobs away from the place of the
habitation, discouraging females to go for it; (iv) lack of skill to
get well-paid non-farm jobs; and (v) rising tension between
labour and employer in agriculture due to changing social
relationship between them (Chand and Srivastava 2014).
Apart from withdrawal of labour force/workforce, sizeable
shifts in workforce across sectors was also observed between
2004–05 and 2011–12. Out of the 33 million workers who left
agriculture, 27 million (81%) were female and 6 million (19%)
were male (Table 5). Further, outgoing workforce from agri-
culture comprised both cultivators and agricultural labours
with their respective shares of 56% and 44%. It is worth
mentioning that out of 27 million female workers who left
agriculture, only 5 million joined non-farm sectors and the rest
withdrew from labour force itself. On the other hand, 6 million
male workers who left agriculture as well as the 16 million
incremental labour force, joined non-farm sectors bet ween
2004–05 and 2011–12. Based on these evidences
it can be concluded that from 2004–05 to 2011–
12, (i) rural workforce witnessed defeminisation;
and (ii) employment diversifi cation tow a rds non-
farm sectors was biased against females.
Sector-wise Changes in Rural Economy
Agriculture: The results presented in the earli-
er sections show that contribution of agriculture
in rural output gradually declined. This is con-
sidered a desirable change for the progress in
economic development. However, overdepend-
ence on agriculture for employment emerged as
a major challenge. Between 2004–05 and 2011–
12, India for the fi rst time witnessed a reduction
in the workforce in agriculture. The rate of de-
cline was 2.04%. Despite this, agriculture em-
ployed 64% of the total rural workforce who
produced only 39% of the total rural output in
2011–12. It is estimated that for bringing convergence bet-
ween the share of agriculture in total output and employ-
ment, 84 million agricultural workers were required to be
shifted to non-farm sectors in rural areas in 2011–12. This
amounts to almost 70% increase in non-farm employment,
which looks quite challenging.
The overdependence on agriculture is the cause for the large
difference in worker productivity between farm and non-farm
sectors. Per worker productivity (at 2004–05 prices) in the
farm sector was only
`30,912 as compared to `1,19,512 in non-
farm sectors in 2011–12 (Table 7). This shows that non-farm
sectors in rural areas provided 2.88 times more productive em-
ployment than the farm sector. Due to decline in agricultural
workforce after 2004–05, disparity in per worker productivity
between farm and non-farm sectors declined by 1% per annum.
Manufacturing: Manufacturing output in rural areas regis-
tered annual growth rate of 5.18% between 1970–71 and 1993–
94. The post-reform period (1993–94 to 2004–05) witnessed
higher growth rate of 8.38%, which further accelerated sharp-
ly to 15.87% during 2004–05 to 2011–12 (Table 3). Signifi cantly
higher growth in manufacturing compared to other sectors
raised its share in rural NDP from 5.9% in 1970–71 to 18.4% in
2011–12 (Table 4) pointing to a clear trend towards industriali-
sation in rural areas.
However, the signs of industrialisation were not visible
through the changes in the employment structure. Between
1972–73 and 1993–94, manufacturing sector added 10.29 mil-
lion jobs (29% of incremental non-farm jobs) and its share in
total rural employment increased from 5.3% in 1972–73 to 7%
in 1993–94. During the next decade (post-reform period) the
sector added 7 million jobs (23.4% of incremental non-farm
jobs) and its share in total rural employment increased only by
1 percentage point to 8.1% in 2004–05. Between 2004–05 and
2011–12, employment in the manufacturing sector increased
merely by 1.2 million (4.9% share in incremental non-farm
Table 6: Reason-wise Distribution of ‘Not in Labour Force’ Population in Rural Areas (%)
Household Type Education Domestic Activities Others* Not in Labour Force (%)
2004–05 2011–12 2004–05 2011–12 2004–05 2011–12 2004–05 2011–12
Male
Cultivator 62.9 71.3 0.8 0.8 36.3 27.9 44.3 44.1
Agricultural labour 53.7 67.9 1.1 0.9 45.2 31.2 43.2 42.5
Agricultural worker 59.5 70.2 0.9 0.9 39.6 29.0 43.9 43.5
Non-farm 58.9 63.4 0.9 1.0 40.2 35.6 48.1 47.8
Rural worker 59.3 67.1 0.9 0.9 39.8 32.0 45.4 45.3
Female
Cultivator 29.1 31.5 48.3 52.2 22.7 16.3 74.9 80.9
Agricultural labour 28.1 32.5 42.7 49.0 29.2 18.6 65.3 73.8
Agricultural worker 28.8 31.8 46.3 51.1 25.0 17.0 71.2 78.5
Non-farm 27.9 29.3 48.1 51.9 24.0 18.8 81.7 86.3
Rural worker 28.4 30.7 47.0 51.5 24.6 17.8 75.1 81.9
Person
Cultivator 42.2 46.3 29.9 33.1 27.9 20.6 59.1 61.8
Agricultural labour 38.5 45.5 25.9 31.2 35.7 23.2 54.1 58.0
Agricultural worker 40.9 46.0 28.5 32.5 30.7 21.5 57.2 60.5
Non-farm 39.5 41.6 30.4 33.5 30.0 24.9 64.8 66.8
Rural worker 40.3 44.0 29.2 33.0 30.4 23.0 59.9 63.2
*Others include children of age 0–4 years, pensioners, disabled persons, beggars, prostitutes, etc.
Table 7: Trend in per Worker Productivity in Farm and Non-farm Sectors
Particulars Real Productivity (`/worker) Compound Growth Rate (%)
1970–71 1993–94 2004–05 2011–12 1970–71 to 1993–94 to 2004–05 to
1993–94 2004–05 2011–12
1 Farm 13,841 17,629 19,933 30,842 1.06 1.12 6.43
2 Non-farm 34,128 53,453 82,990 1,19,685 1.97 4.08 5.37
3 Ratio: 2/1 2.47 3.03 4.16 3.88 0.90 2.92 -1.00
Sector specific implicit price deflators (2004–05=100) were used to deflate NDP. REVIEW OF RURAL AFFAIRS
Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5269
jobs). Growth rate in manufacturing employment declined
from 3.55% in the fi rst period to 2.79% in the second period
and to 0.65% in the third period (Table 3).
The results further reveal that rural areas contributed 58%
of the incremental manufacturing sector output in the country
as compared to only 25% share in incremental employment
(5.3 million) between 2004–05 and 2011–12. This leads to the
inference that the manufacturing sector in the rural areas
used more capital intensive production technology as com-
pared to the urban areas. As the new industry in rural areas
relied much more on capital than labour, it failed to address
the goal of employment generation for rural labour force.
The employment scenario in the manufacturing sector is
totally in contrast with the construction sector where employ-
ment increased by more than 12% a year and at a higher rate
than growth in output (Table 3).
Within the manufacturing sector, wearing apparel, tobacco
products, textile, non-metallic mineral products, and food
products and beverages are the major employment generating
sub-sectors (Table 8). Most of these sub-sectors witnessed
either stagnation or fall in employment between 2004–05 and
2011–12.
The lack of skills and technical knowledge appear to be the
main barrier for rural workers from entering the manufactur-
ing sector. The NSSO surveys show a depressing picture of the
level of education and technical skills possessed by the rural
workers. More than three-fourths of the total rural workforce
of age group 15–59 years were not qualifi ed even up to sec-
ondary level in 2011–12 (Table 9). Further, only 1.3% of the
rural workforce of the age group 15–59 years possessed tech-
nical education.
6
Similarly, only 14.6% of the rural workforce
of this age group received vocational training
that aims to
develop compe tencies (knowledge, skills, and attitude) of
skilled or semi-skilled workers in various trades. Gender-wise
disaggregation reveals that female workers possess relatively
low level of education and technical training as compared to
male counterparts. These facts suggest that setting up of
industries and improvement in infrastructure are necessary
but not suffi cient conditions for increasing employment in
rural areas. Improvement in industrial infrastructure in rural
areas must be accompanied by effective human resources
development progra mmes to impart necessary skills and
training to rural youth to match the job requirement in the
manufacturing sector.
Service sector: Service sector was found to be the second
largest contributor of output and employment in rural areas
(Table 4). The sector contributed about 27% of the total rural
output and engaged 15.5% of the rural workforce in 2011–12.
According to National Accounts Statistics, services sector reg-
istered 5.94% and 6.1% annual growth in its real NDP during
the pre-reform period in urban and rural areas, respectively;
growth accelerated to 8.94% and 8.55%, respectively during
the post-reform period. Between 2004–05 and 2011–12, urban
areas maintained its growth in ser vices sector output at 8.42%,
but its growth in rural areas dropped to 3.48%.
Services sector has played a major role in the structural
transformation of the Indian economy, but its achievements
during the recent years were mainly concentrated in urban areas.
Wholesale and retail trade, and repair of motor vehicles
constituted 27% share in total service sector NDP in 1993–94.
This increased to 37% in 2004–05 on account of impressive
annual growth of 11.7% in this sub-sector (Table 9). This
along with the remarkable growth in other sub-sectors such
as hotel and restaurants, transport, storage and communica-
tion, and fi nancial services, resulted in 8.5% annual growth
in overall services sector in rural areas between 1993–94 and
2004–05.
During 2004–05 and 2011–12, NDP from trade and hotel and
restaurants activities declined by 4.8% and 2.5% per year,
respectively. Although the reduction in output of these sectors
was offset by the signifi cant growth in fi nancial services,
transport, storage and communication, and public administra-
tion and social security activities, the growth in overall
services sector output decelerated to 3.4% per annum between
2004–05 and 2011–12.
Table 9: Education Level (General and Technical) of Usually Employed Rural
Workers (Age Group 15–59 Years) (%)
Rural Workers Male Female Persons
2004–05 2011–12 2004–05 2011–12 2004–05 2011–12
Secondary education and above 19.7 27.1 6.8 11.8 14.9 22.3
With technical education 1.7 1.6 0.7 0.7 1.3 1.3
With vocational training 14.2 15.4 13.0 12.7 13.8 14.6
Source: Authors’ estimation based on unit level NSSO data on employment and
unemployment survey.
Table 8: Sub-sector wise Changes in Employment (Usual Status) in
Manufacturing and Services Sectors
Sub-sectors Employment: Compound Share in Total
Usual Status Growth Manufacturing
(million) Rate (%) Employment (%)
2004–05 2011–12 2004–05 2011–12
Wearing apparel 3.4 4.2 2.9 12.3 14.5
Tobacco products 3.4 3.6 0.8 12.3 12.5
Textile 4.5 3.6 -3.2 16.0 12.3
Non-metallic mineral products 3.4 3.6 0.8 12.3 12.5
Food products and beverages 3.4 3.4 0.0 12.3 11.8
Machinery, metal products
and transport equipment 2.1 3.0 5.7 7.4 10.4
Wood and wood products 4.1 2.8 -5.4 14.8 9.6
Furniture 1.7 1.5 -2.1 6.2 5.1
Chemical products 0.7 0.6 -2.6 2.5 2.0
Rubber and plastic products 0.3 0.4 1.1 1.2 1.3
Paper and printing, etc 0.3 0.3 -0.3 1.2 1.2
Leather and related products 0.3 0.3 -1.8 1.2 1.0
Others 0.0 1.7 - 0.0 5.8
Manufacturing sector: Subtotal 27.6 29.0 0.67 100 100
Wholesale and retail trade;
repair of motor vehicles 18.5 18.8 0.3 38.9 36.0
Transport, storage and communication 8.6 10.0 2.3 18.0 19.2
Education 5.5 7.0 3.4 11.5 13.3
Hotel and restaurants 2.4 2.9 2.9 5.0 5.6
Public administration, defence
and compulsory social security 2.7 2.7 -0.5 5.8 5.1
Health and social work 1.4 1.6 2.0 2.9 3.0
Financial intermediation 0.7 1.1 7.1 1.4 2.1
Others 7.8 8.2 0.7 16.4 15.7
Services sector: Subtotal 47.6 52.3 1.4 100 100 REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly70
One of the reasons for decline in output of some services in
rural areas could be the “shopping” behaviour of the rural
households towards urban centres. Improved road con-
nectivity and transport, and rise in ownership of private
vehicles have facilitated frequent visits to nearby urban
localities for shopping and other requirements for the rural
population. Although a consumer gets wider choices in ur-
ban localities, this adversely affects trade and other busi-
nesses in rural areas.
The slowdown in output of the service sector after 2004–05
caused deceleration in employment growth. Employment in
the service sector increased only by 1.35% per year between
2004–05 and 2011–12 as compared to growth rate of 3.25% dur-
ing the previous period (Table 3). The service sector, which of-
fers relatively decent and comfortable jobs, constituted merely
15% share in 27 million new jobs created in the non-farm sectors
between 2004–05 and 2011–12. As in the case of output, wholesale
and retail trade including repair services for motor vehicles was
the largest sub-sector and accounted for 36.2% of employment
in services in 2011–12 (Table 8). But this sub-sector witnessed
stagnation in job creation from 2004–05 to 2011–12, resulting
in deceleration in overall service sector employment. Notwith-
standing other sub-sectors such as fi na ncial services, hotels and
restaurants, education, and transport, storage and communica-
tion services gained momentum in creating employment in ru-
ral areas during the same period. Between 2004–05 and 2011–
12, two sub-sectors, namely education, and transport, storage
and communication constituted 62% of the about 5 million jobs
created in services sector in the rural areas.
Construction: Rural areas are characterised by poor infra-
structure and civic amenities. Similarly, a large percentage of
houses are in need of upgradation. These facts indicate con-
siderable scope for the growth of the construction sector in
rural areas.
The real NDP of construction sector increased at the annual
rate of 3.94% between 1970–71 and 1993–94. During the suc-
cessive periods, 1993–94 to 2004–05 and 2004–05 to 2011–12,
growth rate in the sector’s output accelerated to 7.92% and
11.49%, respectively (Table 3). Consequently, the share of the
construction sector in rural output increased from 3.5% in
1970–71 to 10.5% in 2011–12 (Table 4).
Employment in the construction sector increased 13 times
during the past four decades, leading to a signifi cant increase
in its share in total rural employment from 1.4% in 1972–73 to
10.7% in 2011–12. It is interesting to note that this sector
absorbed 74% of the new jobs created in non-farm sectors in
rural areas between 2004–05 and 2011–12.
These trends indicate that rural areas witnessed a construc-
tion boom after 2004–05, which is desirable in terms of creation
of necessary infrastructure for economic development. Fur-
ther, growth in employment in the construction sector was
higher than output growth during both the periods under con-
sideration. One of the reasons for the much higher growth in
rural workers in construction over manufacturing or services
sectors is lesser requirement of skills and education in con-
struction activities.
Conclusions and Policy Lessons
Despite fast expansion of cities and towns, and much better
amenities and economic opportunities in urban areas, more
than two-thirds of the population in India still resides in rural
areas. Based on population projections, it is estimated that
even in 2050, more than half of India will be living in rural
Regional Political Economy
Novmber 18, 2017
Possibilities of Seeing the ‘Region’ Differently —Arjun Jayadev, Vamsi Vakulabharanam
Constructing Regions Inside the Nation:
Economic and Social Structure of Space in Agrarian and Cultural Regions —Barbara Harriss-White
Three Planes of Space: Examining Regions Theoretically in India —Sudipta Kaviraj
Delhi’s ‘Regional’ Capitalism —Rana Dasgupta
The Agrarian Question amidst Populist Welfare:
Interpreting Tamil Nadu’s Emerging Rural Economy —M Vijayabaskar
First Nature and the State: Non-emergence of Regional Capital in Mandya —Narendar Pani
Regional Economies and Small Farmers in Karnataka —Seema Purushothaman, Sheetal Patil
Space and Time through an Urban-Industrial Hinterland —Atreyee Majumder
For copies write to: Circulation Manager,
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Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5271
notes
1 Except for the years 1972–73 and 1983 where out-
put data corresponds to 1970–71 and 1980–81,
respectively.
2 From 1972–73 to 1993–94, rural employment
increased only by 53% (from 191 million to 293
million) as compared to 132% increase in real
rural NDP. Subsequently, during the post-re-
form period, the increase in rural employment
was only 17% (293 million in 1993–94 to 343
million in 2004–05) as compared to 72% in-
crease in real rural NDP. The recent period of
economic acceleration witnessed a decline in
rural workforce by 7 million (from 343 million
in 2004–05 to 336 million in 2011–12) despite
65% increase in real rural NDP.
3 Indicates the proportion of population who do
not offer themselves for any economic activity.
4 It is estimated that 38.3% of agricultural labour
households in rural areas were under poverty
in 2011–12.
5 According to Chand et al (2015), income per
cultivator and agricultural labour in this period
increased by 63.6% and 75.86%, respectively
which are 2.6–3.3 times the rate of increase
during earlier period of 1993–94 to 2004–05.
6 Post-secondary courses of study and practical
training aimed at preparation of technicians to
work as supervisory staff.
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areas. Therefore, transformation of the rural economy is
essential for overall and inclusive development of the Indian
society. The main concern about rural India is the low level of
per capita income due to high dependence on low productivi-
ty and low-paying employment in agriculture. A worker in
rural India generated less than one-third of the income gener-
ated by an urban worker. As a consequence, wide disparity
persisted in per capita income in rural and urban areas. What
is more worrying is that rural–urban disparity did not show
signifi cant change despite much higher growth in the indus-
try and construction sectors in rural areas as compared to
urban areas.
Rural economy has now turned more non-agricultural with
the share of agriculture in rural income reducing to less than
39%. The second major change witnessed in rural economy is
that its share in manufacturing sector output doubled between
1970–71 and 2011–12, and exceeded that of urban areas. How-
ever, this change was not accompanied by a similar change in
employment, and rural share in manufacturing employment
declined. The period 2004–05 to 2011–12 turned out to be the
best for growth in rural NDP but the worst in terms of growth
in rural employment. Manufacturing sector has shown the
worst performance in rural employment. An annual growth
rate of 15% in manufacturing output failed to increase employ-
ment even by 1% making this period a classic case of jobless
growth. Further, employment in manufacturing sector in rural
India reveals strong bias against women.
For various reasons, female workers withdrew from agricul-
ture work in large numbers and most of them are staying back
in households. The withdrawal from farm work is highest in
the case of labour households where incidence of poverty is
high. Some evidences indicate that non-availability of suitable
employment rather than a lack of willingness for outside work
is the reason for de-feminisation of rural workforce.
Workers who moved out of agriculture and those who
entered the rural labour force largely got absorbed in con-
struction activity, as employment growth in manufacturing
and service sector in rural areas decelerated sharply after
2004–05. Rural manufacturing adopted more capital intensive
production as compared to the urban manufacturing and it
failed to address the goal of employment generation for rural
labour force.
The lack of required skills and technical knowledge are the
main barriers for rural workers to enter the manufacturing
sector. Setting up of industries and improvement in infrastruc-
ture are the necessary but not suffi cient conditions for increas-
ing rural employment that require effective human resources
development programmes to impart necessary skills and
training to rural youth to match the job requirement in the
manufacturing sector.
Services sector in rural areas witnessed deceleration in
output as well as employment after 2004–05. An important
reason for this is the increased reliance of rural consumers on
service providers located in urban areas. Rural areas have com-
parative advantage in services like post-harvest value addition
on farm storage, primary processing, grading, and so on.
Linking processing to production through effi cient value
chain, contract farming, and direct linkage between the
factory and the farm offers considerable scope for rural
employment generation as well as raising farmers’ income.
Transformation of rural economy must include strong meas-
ures for employment generation and shifting workers out of
agricultural sector towards non-farm sectors. As conventional
manufacturing has failed to generate rural jobs, despite high
growth in output, India needs to look for a different type of
manufacturing in rural areas. Labour-intensive, micro, small
and medium enterprises seem to be an appropriate alternative
for rural employment generation.
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly64
Changes in Rural Economy of India, 1971 to 2012
Lessons for Job-led Growth
Ramesh Chand, S K Srivastava, Jaspal Singh
Views expressed are personal.
Ramesh Chand (rc.niti@gov.in), S K Srivastava (shivendraiari@gmail.
com) and Jaspal Singh (jaspal.singh82@nic.in) are with the NITI Aayog,
New Delhi.
The transition in the rural economy in the last four
decades is examined based on the analysis of growth
and composition of output and employment.
A reduction in the share of agriculture, and a dominance
of non-farm activities in the rural economy is noted from
2004–05 onwards. However, agriculture continues to be
the predominant source of employment. Employment
in the construction sector increased substantially, but
was not large enough to absorb workers leaving
agriculture, resulting in a decline in rural employment
after 2004–05. A serious imbalance has emerged in
output and employment in different sectors in rural
areas requiring urgent attention to create jobs in
manufacturing, services, and construction. Creation of
jobs in rural areas requires a complete rethink of rural
industrialisation.
I
ndia is predominantly a rural country. As per the 2011
Census, 68.8% of the country’s population and 72.4% of
the workforce reside in rural areas. However, steady transi-
tion to urbanisation over the years is leading to the decline in
the share of population residing in the rural areas. Between
2001 and 2011, India’s urban population increased by 31.8% as
compared to 12.18% increase in the rural population. Over
50% of the increase in urban population during this period
was attributed to rural–urban migration and reclassifi cation
of rural settlements into urban (Pradhan 2013). Population
projections indicate that India will continue to be predominantly
rural till 2050, after which, urban population is estimated to
overtake rural population (United Nations 2012).
It is often felt that unplanned rural to urban migration,
particularly in search of better economic opportunities, is
putting severe pressure on urban amenities and forcing a large
number of low wage migrants from rural areas to live in
unhygienic and deprived conditions. Thus, to check unplanned
migration from rural to urban areas and to improve socio-
economic conditions of a vast majority of the population in the
country, there is a need to make rural economy stronger and
create employment opportunities in rural economic activities.
The improvement in economic conditions of rural households
is also essential for reducing the disparity in per capita rural
and urban income that has remained persistently high. This
requires signifi cantly higher growth in rural economy.
Traditionally, agriculture is the prime sector of rural economy
and rural employment. The transformation in the composition
of output and occupation from agriculture to more productive
non-farm sectors is considered to be an important source of
economic growth and transformation in rural economy. Several
scholars have observed that such transition is taking place in
the Indian economy (Aggarwal and Kumar 2012; Maurya and
Vaishampayan 2012; Papola 2012). This paper examines the
nature of growth in rural economy and analyses its effect on
job creation and occupation structure spanning over a period
of the last four decades. An attempt is made to identify the
reasons for mismatch in growth in output and employment in
various non-farm activities. The fi ndings are used to suggest
pro-employment rural growth strategy.
The paper discusses the changing contribution of rural areas
in India’s total output and employment since 1970–71. It exam-
ines the trend in rural–urban disparity in worker productivity
and documents the changes in rural–urban distribution of
output and employment in various economic activities. Then it REVIEW OF RURAL AFFAIRS
Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5265
provides empirical evidence on the performance and changing
composition of rural output and employment during the past
four decades. After 2004–05, the rural areas have witnessed
negative growth in employment in spite of high growth in
output. We then explore the reasons for growth in jobs not
keeping pace with the growth in output, and dissect the per-
formance of different sectors and explain the asymmetric
changes between output and employment.
Data Sources
The data on rural and urban net domestic product (NDP) is
available for the years 1970–71, 1980–81, 1993–94, 1999–2000,
2004–05 and 2011–12 at current prices. For estimating growth
rates, nominal values of NDP were expressed in real terms
using sector-specifi c implicit price defl ators (2004–05=1) for
national output. The information on different aspects of em-
ployment in the country was extracted from the unit level data
of quinquennial employment and unemployment surveys
(EUS) conducted by National Sample Survey Offi ce (NSSO). The
fi rst quinquennial NSSO-EUS was carried out during 1972–73 to
assess the volume and structure of employment and unemploy-
ment in the country. Thereafter, these surveys were repeated
in 1983, 1993–94, 1999–2000, 2004–05, 2009–10, and 2011–12.
The performance of rural economy in terms of output and
employment was studied during three distinct periods chosen
on the basis of the major changes in the Indian economy
during the past four decades. These periods are 1970–71 to
1993–94, 1993–94 to 2004–05, and 2004–05 to 2011–12, which
can be termed as the pre-reform period, the post-reform
period, and the period of economic acceleration, respectively.
Contribution of Rural Areas in Indian Economy
The contribution of the rural areas in economy of India for the
period 1970–71 to 2011–12 is seen from its share in national
output and employment (Table 1). The rural areas engaged
84.1% of the total workforce and produced 62.4% of the total
NDP in 1970–71. Subsequently, rural share in the national
income declined sharply till 1999–2000. Rural share in total
employment also witnessed decline but its pace did not match
with the changes in its share in national output or income. The
declining contribution of rural areas in national output
without a commensurate reduction in its share in employment
implies that a major portion of the overall economic growth in
the country came from the capital intensive sectors in urban
areas without generating signifi cant employment in the period
under consideration. Notwithstanding, the difference bet-
ween the rural share in output and employment increased
from 22 percentage points in 1970–71 to 28 percentage points
in 1999–2000.
The asymmetry between the output and employment shares
of rural areas in national economy is refl ected in the persistent
disparity in per worker productivity in rural and urban areas.
As can be seen from Table 1, an urban worker continued to
earn around three times or more the income of a rural worker.
After 1999–2000, growth rate of rural economy picked up
pace and was at par with the growth rate of urban economy.
This led to stabilisation in rural contribution in total NDP at
around 48%. The rural share in national NDP dropped slightly
from 2004–05 to 2011–12 despite acceleration in growth rate.
Based on these evidences, we can conclude that the urban
economy has overtaken rural economy in terms of output but
urban employment is less than half of the rural employment.
Higher dependency for employment in rural areas has serious
implications such as wide disparities in worker productivities
between rural and urban areas. The gap in per worker produc-
tivity was
`36.63 thousand in 1970–71, and it crossed `1.11 lakh
during 2011–12 at 2004–05 prices. In relative terms, the
disparity in productivity of urban and rural workers narrowed
down after 1999–2000, but still an urban worker produces 2.8
times the output of rural worker.
Share in output and employment across sectors: The
sector-wise disaggregation shows signifi cant changes in the
contribution of rural areas in the national economy. Besides
producing almost all agricultural produce, rural areas contrib-
uted around one-third of non-farm output and 46% of total
employment in the country (Table 2). The contribution of rural
areas in different sectors of non-farm economy revealed large
variation and interesting patterns.
The most striking change in rural share was observed in the
case of manufacturing sector. Between 1970–71 and 2011–12, the
share of rural areas in output of the manufacturing sector
doubled and exceeded the manufacturing production in urban
areas. Rural areas contributed 51.3% of manufac-
tured output in 2011–12. However, this sharp in-
crease in share in output did not fetch any in-
crease in employment share. On the contrary,
rural share in total manufacturing employment in
the country declined by 4.1 percentage points
during the 40 years preceding 2011–12. Clearly,
manufacturing sector was shifting to rural areas
but without commensurate increase in the employ-
ment. In the same period, the share of rural areas
Table 1: Share of Rural Areas in Total NDP and Workforce, and Rural–Urban
Disparity in Worker Productivity
Year Economy Workforce Worker Productivity at 2004–05 Prices (`/worker)
Rural Urban Disparity
1970–71 62.4 84.1 16,779 53,415 3.2
1980–81 58.9 80.8 17,935 52,702 2.9
1993–94 54.3 77.8 25,351 76,234 3.0
1999–2000 48.1 76.1 30,763 1,08,094 3.5
2004–05 48.1 74.6 37,273 1,20,419 3.2
2011–12 46.9 70.9 62,859 1,74,525 2.8
Source: As mentioned in “Data sources”.
Table 2: Share of Rural Areas in Total NDP and Workforce across Different Sectors (%)
Year Agriculture Manufacturing Construction Services Non-agriculture
NDP Employment NDP Employment NDP Employment NDP Employment NDP Employment
1970–71 96.2 96.8 25.8 51.5 43.2 64.6 32.8 42.1 32.4 47.3
1980–81 94.9 95.9 31.8 48.1 45.6 58.8 34.0 41.7 35.0 44.9
1993–94 93.9 95.8 29.8 51.3 45.1 57.2 33.6 42.3 34.8 46.6
1999–2000 93.2 96.6 41.6 51.5 43.3 57.6 27.1 40.7 31.8 45.8
2004–05 94.1 96.1 42.5 49.6 45.5 64.4 32.7 41.9 36.7 47.2
2011–12 95.1 95.9 51.3 47.4 48.7 74.6 25.9 39.6 35.3 48.7
Non-agriculture includes manufacturing, construction, services, and other sectors.
Source: Same as Table 1. REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly66
in construction sector output increased by 5.5 percentage
points, while employment share increased by 10.0 percentage
points. In the case of services sector, rural areas lost to urban
areas in a big way after 2004–05 and accounted for 35% of
services output in the country in 2011–12. These changes indi-
cate that rural employment has risen at a much faster rate in
relatively low paid construction activities. The underlying rea-
sons and implications of these changes are discussed in the
later sections of the paper.
Structural Changes in Rural Economy
From 1970–71 to 2011–12, India’s rural economy expanded
from
`229 billion to `34,167 billion at current prices and from
`3,199 billon to `21,107 billion at 2004–05 prices. In the same
period, employment expanded from 191 million to 336 million.
Thus, despite almost seven times increase in output in rural
India, employment could not even double in this long period of
four decades.
The growth rates in output and employment show large
variations across sectors and over different periods, which is
useful in understanding the transition in rural economy in the
country. The sector-wise growth rate in NDP and employment
during the three sub-periods are presented in Table 3, and
sectoral composition is presented in Table 4.
The period 1970–71 to 1993–94 witnessed 2.57% annual
growth in the NDP of agriculture sector as compared to 5.7%
annual growth in non-farm sectors (Table 3). As a consequence,
the share of agriculture in the rural NDP declined from 72.4%
to 57% by 1993–94 (Table 4). Among the non-farm sectors,
manufacturing, construction, and services sectors experienced
5.18%, 3.94%, and 6.1% annual growth respectively, and their
share in rural NDP increased by 2, 2 and 10 percentage points
during the pre-reforms period, respectively.
During the post-reform period (1993–94 to 2004–05),
growth in the agricultural sector decelerated to 1.87%, whereas
growth rate in non-farm economy accelerated to 7.93%. The
effect of the slowdown in agriculture on rural economy was
offset by signifi cantly higher growth in non-farm sectors
which accelerated growth rate in rural economy to above 5%
as compared to 3.72% during the pre-reforms period. These
changes further reduced the share of agriculture in rural
economy from 57% in 1993–94 to 39% in 2004–05. Thus, the
rural economy became more non-agricultural than agricultural
by 2004–05. Among the non-farm sectors, services, manufac-
turing, and construction sectors constituted 37.3%, 11.5% and
7.8% share in rural output in 2004–05, respectively (Table 4).
During 2004–05 to 2011–12, the agriculture sector wit-
nessed revival and registered impressive annual growth rate
of 4.27%. Similarly, non-farm sectors growth accelerated to
9.21%. Based on acceleration in growth in both agriculture
and non-farm sectors, this period is termed as the “period of
economic acceleration.” Annual growth in the overall rural
economy during this period was 7.45%. It is worth pointing
that this witnessed a much higher increase in agricultural
prices as compared to non-agricultural prices, and growth rate
in agriculture and non-farm sectors at current prices was al-
most the same. Therefore, the share of agriculture in rural NDP
did not decline further and stood at a marginally higher level
of 39.2% in 2011–12 over 2004–05.
Within non-farm sectors the growth in services sector out-
put decelerated to 3.48% after 2004–05 as compared to 8.55%
during the preceding decade. Manufacturing and construction
sectors witnessed impressive growth of 15.87% and 11.49%
respectively between 2004–05 and 2011–12. Consequently, in
these seven years, the share of services sector declined from
37.3% to 27% whereas the share of manufacturing in rural
economy increased from 11.4% to 18.4% and construction
sector share increased from 7.8% to 10.5%.
Growth pattern in various sectors reveal a sizeable diversifi -
cation of the rural economy towards non-farm sectors. From
the economic development point of view, a similar trend and
pattern should be refl ected in employment. This was exam-
ined from employment data in successive NSSO rounds corre-
sponding to the years for which rural–urban distribution of
national income was provided.
1
A perusal of Table 3 shows that growth in rural employment
and output followed different patterns. Rural employment
sho wed 2.16% annual growth rate during the pre-reform peri-
od, which decelerated in post-reform period to 1.45% and
turned negative (-0.28%) in the period of economic accelera-
tion. The output growth rate in the same sub-periods acceler-
ated.
2
Thus, employment increased at a much lower rate
compared to output and even declined in the wake of high
growth in output post 2004–05.
The main reason for this sluggish growth followed by
negative growth in employment in rural areas is that the
Table 3: Growth Rates of NDP at 2004–05 Prices and Employment in
Rural Areas (%)
Period Agriculture Manufacturing Construction Services Non-agriculture Total
Net domestic product (at constant prices)
1971–94 2.57 5.18 3.94 6.10 5.70 3.72
1994–05 1.87 8.38 7.92 8.55 7.93 5.06
2005–12 4.27 15.87 11.49 3.48 9.21 7.45
Employment (usual status)
1973–94 1.72 3.55 4.82 4.51 4.22 2.16
1994–05 0.74 2.79 8.32 3.25 3.70 1.45
2005–12 -2.04 0.67 12.09 1.35 3.65 -0.28
Source: Same as Table 1.
Table 4: Sectoral Share in NDP and Employment in Rural Areas, 1970 to 2012 (%)
Year Agriculture Manufacturing Construction Services
Share in rural NDP (at current prices)
1970–71 72.4 5.9 3.5 17.1
1980–81 64.4 9.2 4.1 20.6
1993–94 57.0 8.2 4.6 26.8
1999–00 51.4 11.1 5.6 28.6
2004–05 38.9 11.5 7.8 37.3
2011–12 39.2 18.4 10.5 27.0
Share in rural employment
1972–73 85.5 5.3 1.4 7.3
1983 83.6 6.2 1.3 8.8
1993–94 78.4 7.0 2.4 11.4
1999–00 76.3 7.4 3.3 12.5
2004–05 72.6 8.1 4.9 13.9
2011–12 64.1 8.6 10.7 15.5
Shares do not sum up to 100 as some minor sectors are not included in the sectoral
classification. REVIEW OF RURAL AFFAIRS
Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5267
non-farm sectors could not absorb the labour force leaving
agriculture. The results presented in Table 3 also imply that
employment elasticity in rural areas declined over time and
have turned negative after 2004–05. The employment insensitive
growth raises serious concerns over the capacity of the rural
economy to provide productive jobs to the rising population
and workforce moving out of agriculture. Among non-farm
sectors, deceleration in employment growth was experienced
in manufacturing and services sector; but construction sector
witnessed sharp acceleration in employment expansion with
the passage of time.
Changes in Rural Employment after 2004–05
After 2004–05, rural areas witnessed negative growth in em p-
l oyment despite 7.45% annual increase in output. It is pertinent
to explore whether the decline in rural workforce between
2004–05 and 2011–12 was on account of rising unemployment
or due to change in the labour force itself. It would also be inter-
esting to know the status of the persons who left the workforce,
and the sectors where these changes took place. These aspects
are analysed by examining household-type and gender-wise
changes in labour force participation and workforce distribu-
tion across sectors, and by tracking the activity status of “not
in labour force” population between 2004–05 and 2011–12.
During the period of high output growth and falling
employment (2004–05 to 2011–12), rural population increased
by 62 million, distributed equally between male and female
(Table 5). As indicated by labour force participation rate
(LFPR), the proportion of male population joining the labour
force remained almost unchanged (55%) and 16 million out of
31 million incremental male population joined the labour force
between 2004–05 and 2011–12. However, female labour force
participation declined signifi cantly from 33% in 2004–05 to
25% in 2011–12, resulting in decline in the female labour force
by 22 million. This led to a net decline of about 7 million in
rural labour force (male + female) between 2004–05 and
2011–12. Interestingly, NSSO data did not show any change in
unemployment (based on usual status) during this period, and
it showed that workforce in rural areas reduced by a similar
magnitude as in the labour force. These evidences imply that
the decline in labour force and in its subset (workforce) was
primarily due to the withdrawal of female workers during the
period under consideration.
It is worth noting that the withdrawal of female workers
from the labour force happened across all types of households
in the rural areas. This is clearly visible from the increase in
“not in labour force” to population ratio
3
for female workers;
this ratio in agricultural labour, cultivator, and non-farm
households, increased by 8.49, 6.05 and 4.63 percentage points
between 2004–05 and 2011–12 respectively (Table 6). These
evidences also show that withdrawal of female workers from
the labour force was highest among agricultural labour house-
holds followed by cultivators and non-farm households both in
percentage and absolute terms. In the case of male workers,
withdrawal from work force was found only among the agri-
cultural labour households.
Many scholars have provided plausible reasons for the with-
drawal of women from the labour force (Mazumdar and Nee-
tha 2011; Rangarajan et al 2011; Kannan and Raveendran 2012;
Abraham 2013; Rangarajan et al 2013; Chand and Srivastava
2014). One of the reasons for the fall in female LFPR is reported
to be the increased participation in educational activities
(Rangarajan et al 2011). The rising enrolment of female in edu-
cation is seen from the increasing share of “not in labour force”
female population in the category of education across all
household types between 2004–05 and 2011–12 (Table 6).
Among the household-types, the increase in the share of
education in total “not in labour force” female population was
3 percentage points for agricultural workers as compared to
1.4 percentage points for non-farm households. Similarly, male
“not in labour force” population in education witnessed sub-
stantial increase across all household types during the period
under consideration.
Increasing enrolment for education is a desirable trend in
terms of improvement in education level and skills of the persons.
But the real challenge will be to create employment opportuni-
ties for those educated persons who join the labour force after
acquiring education in the near future. Most of the employ-
ment opportunities have to be created in non-farm sector as
the natural choice of the educated youth would be to join the
more productive non-farm sectors instead of agriculture.
It is interesting to note that education accounted for one-third
of the entire reduction in female labour force whereas the
withdrawal of male counterparts from labour force (from agri-
culture) was same as the increase in education. A large number
of female, withdrawn from labour force, confi ned themselves
to household activities as shown by the increasing share of
“not in labour force” female population in the category of
domestic activities during the period under consideration
(Table 6). The highest increase in the proportion of females
withdrawing from farm work and staying back at home is
reported in the case of agricultural labour households. Further,
increase in proportion of females in domestic activities is also
noticed in the case of non-farm rural households. This is a
puzzle as to why women of labour households, whose economic
conditions are not very good,
4
chose to withdraw from work-
force, and stay back in households.
One argument is that high growth in agricultural output
and resulting terms of trade for agriculture during 2004–05 to
2011–12 resulted in high rate of increase in income of farmers
and agricultural labour
5
in this period, which in turn, led to
Table 5: Changes in Population and Economically Active Persons in Rural
Areas between 2004–05 and 2011–12 (million)
Particulars Male Female Persons
2004–05 2011–12 2004–05 2011–12 2004–05 2011–12
1 Population 401 432 379 410 780 842
2 LFPR (%) 56 55 33 25 45 41
3 Labour force 223 239 126 104 349 342
4 Workforce 219 235 124 102 343 336
4.1 Agriculture 146 139 103 76 249 216
4.1.1 Cultivators 93 92 67 49 160 141
4.1.2 Agriculture labour 53 48 37 27 89 75
4.2 Non-farm 73 95 21 26 94 121 REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly68
withdrawal from farm work. This seems to be a part explana-
tion which can hold in the case of some households who real-
ised substantial increase in their income. Some scholars argue
that the female withdrawal from the labour force might be due
to the reversal of an exceptional increase in female labour
force caused by agrarian distress from 1999–2000 to 2004–05
(Abraham 2009; Thomas 2012). However, empirical evidences
refute such arguments because the reduction in female LFPR
was not confi ned to only agricultural households but was
across all household types in rural areas.
Some other reasons for reduction in workforce seem to be:
(i) rising mechanisation of farm operations; (ii) increase in
reservation wage and non-availability of suitable work at that
wage rate; (iii) manufacturing jobs away from the place of the
habitation, discouraging females to go for it; (iv) lack of skill to
get well-paid non-farm jobs; and (v) rising tension between
labour and employer in agriculture due to changing social
relationship between them (Chand and Srivastava 2014).
Apart from withdrawal of labour force/workforce, sizeable
shifts in workforce across sectors was also observed between
2004–05 and 2011–12. Out of the 33 million workers who left
agriculture, 27 million (81%) were female and 6 million (19%)
were male (Table 5). Further, outgoing workforce from agri-
culture comprised both cultivators and agricultural labours
with their respective shares of 56% and 44%. It is worth
mentioning that out of 27 million female workers who left
agriculture, only 5 million joined non-farm sectors and the rest
withdrew from labour force itself. On the other hand, 6 million
male workers who left agriculture as well as the 16 million
incremental labour force, joined non-farm sectors bet ween
2004–05 and 2011–12. Based on these evidences
it can be concluded that from 2004–05 to 2011–
12, (i) rural workforce witnessed defeminisation;
and (ii) employment diversifi cation tow a rds non-
farm sectors was biased against females.
Sector-wise Changes in Rural Economy
Agriculture: The results presented in the earli-
er sections show that contribution of agriculture
in rural output gradually declined. This is con-
sidered a desirable change for the progress in
economic development. However, overdepend-
ence on agriculture for employment emerged as
a major challenge. Between 2004–05 and 2011–
12, India for the fi rst time witnessed a reduction
in the workforce in agriculture. The rate of de-
cline was 2.04%. Despite this, agriculture em-
ployed 64% of the total rural workforce who
produced only 39% of the total rural output in
2011–12. It is estimated that for bringing convergence bet-
ween the share of agriculture in total output and employ-
ment, 84 million agricultural workers were required to be
shifted to non-farm sectors in rural areas in 2011–12. This
amounts to almost 70% increase in non-farm employment,
which looks quite challenging.
The overdependence on agriculture is the cause for the large
difference in worker productivity between farm and non-farm
sectors. Per worker productivity (at 2004–05 prices) in the
farm sector was only
`30,912 as compared to `1,19,512 in non-
farm sectors in 2011–12 (Table 7). This shows that non-farm
sectors in rural areas provided 2.88 times more productive em-
ployment than the farm sector. Due to decline in agricultural
workforce after 2004–05, disparity in per worker productivity
between farm and non-farm sectors declined by 1% per annum.
Manufacturing: Manufacturing output in rural areas regis-
tered annual growth rate of 5.18% between 1970–71 and 1993–
94. The post-reform period (1993–94 to 2004–05) witnessed
higher growth rate of 8.38%, which further accelerated sharp-
ly to 15.87% during 2004–05 to 2011–12 (Table 3). Signifi cantly
higher growth in manufacturing compared to other sectors
raised its share in rural NDP from 5.9% in 1970–71 to 18.4% in
2011–12 (Table 4) pointing to a clear trend towards industriali-
sation in rural areas.
However, the signs of industrialisation were not visible
through the changes in the employment structure. Between
1972–73 and 1993–94, manufacturing sector added 10.29 mil-
lion jobs (29% of incremental non-farm jobs) and its share in
total rural employment increased from 5.3% in 1972–73 to 7%
in 1993–94. During the next decade (post-reform period) the
sector added 7 million jobs (23.4% of incremental non-farm
jobs) and its share in total rural employment increased only by
1 percentage point to 8.1% in 2004–05. Between 2004–05 and
2011–12, employment in the manufacturing sector increased
merely by 1.2 million (4.9% share in incremental non-farm
Table 6: Reason-wise Distribution of ‘Not in Labour Force’ Population in Rural Areas (%)
Household Type Education Domestic Activities Others* Not in Labour Force (%)
2004–05 2011–12 2004–05 2011–12 2004–05 2011–12 2004–05 2011–12
Male
Cultivator 62.9 71.3 0.8 0.8 36.3 27.9 44.3 44.1
Agricultural labour 53.7 67.9 1.1 0.9 45.2 31.2 43.2 42.5
Agricultural worker 59.5 70.2 0.9 0.9 39.6 29.0 43.9 43.5
Non-farm 58.9 63.4 0.9 1.0 40.2 35.6 48.1 47.8
Rural worker 59.3 67.1 0.9 0.9 39.8 32.0 45.4 45.3
Female
Cultivator 29.1 31.5 48.3 52.2 22.7 16.3 74.9 80.9
Agricultural labour 28.1 32.5 42.7 49.0 29.2 18.6 65.3 73.8
Agricultural worker 28.8 31.8 46.3 51.1 25.0 17.0 71.2 78.5
Non-farm 27.9 29.3 48.1 51.9 24.0 18.8 81.7 86.3
Rural worker 28.4 30.7 47.0 51.5 24.6 17.8 75.1 81.9
Person
Cultivator 42.2 46.3 29.9 33.1 27.9 20.6 59.1 61.8
Agricultural labour 38.5 45.5 25.9 31.2 35.7 23.2 54.1 58.0
Agricultural worker 40.9 46.0 28.5 32.5 30.7 21.5 57.2 60.5
Non-farm 39.5 41.6 30.4 33.5 30.0 24.9 64.8 66.8
Rural worker 40.3 44.0 29.2 33.0 30.4 23.0 59.9 63.2
*Others include children of age 0–4 years, pensioners, disabled persons, beggars, prostitutes, etc.
Table 7: Trend in per Worker Productivity in Farm and Non-farm Sectors
Particulars Real Productivity (`/worker) Compound Growth Rate (%)
1970–71 1993–94 2004–05 2011–12 1970–71 to 1993–94 to 2004–05 to
1993–94 2004–05 2011–12
1 Farm 13,841 17,629 19,933 30,842 1.06 1.12 6.43
2 Non-farm 34,128 53,453 82,990 1,19,685 1.97 4.08 5.37
3 Ratio: 2/1 2.47 3.03 4.16 3.88 0.90 2.92 -1.00
Sector specific implicit price deflators (2004–05=100) were used to deflate NDP. REVIEW OF RURAL AFFAIRS
Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5269
jobs). Growth rate in manufacturing employment declined
from 3.55% in the fi rst period to 2.79% in the second period
and to 0.65% in the third period (Table 3).
The results further reveal that rural areas contributed 58%
of the incremental manufacturing sector output in the country
as compared to only 25% share in incremental employment
(5.3 million) between 2004–05 and 2011–12. This leads to the
inference that the manufacturing sector in the rural areas
used more capital intensive production technology as com-
pared to the urban areas. As the new industry in rural areas
relied much more on capital than labour, it failed to address
the goal of employment generation for rural labour force.
The employment scenario in the manufacturing sector is
totally in contrast with the construction sector where employ-
ment increased by more than 12% a year and at a higher rate
than growth in output (Table 3).
Within the manufacturing sector, wearing apparel, tobacco
products, textile, non-metallic mineral products, and food
products and beverages are the major employment generating
sub-sectors (Table 8). Most of these sub-sectors witnessed
either stagnation or fall in employment between 2004–05 and
2011–12.
The lack of skills and technical knowledge appear to be the
main barrier for rural workers from entering the manufactur-
ing sector. The NSSO surveys show a depressing picture of the
level of education and technical skills possessed by the rural
workers. More than three-fourths of the total rural workforce
of age group 15–59 years were not qualifi ed even up to sec-
ondary level in 2011–12 (Table 9). Further, only 1.3% of the
rural workforce of the age group 15–59 years possessed tech-
nical education.
6
Similarly, only 14.6% of the rural workforce
of this age group received vocational training
that aims to
develop compe tencies (knowledge, skills, and attitude) of
skilled or semi-skilled workers in various trades. Gender-wise
disaggregation reveals that female workers possess relatively
low level of education and technical training as compared to
male counterparts. These facts suggest that setting up of
industries and improvement in infrastructure are necessary
but not suffi cient conditions for increasing employment in
rural areas. Improvement in industrial infrastructure in rural
areas must be accompanied by effective human resources
development progra mmes to impart necessary skills and
training to rural youth to match the job requirement in the
manufacturing sector.
Service sector: Service sector was found to be the second
largest contributor of output and employment in rural areas
(Table 4). The sector contributed about 27% of the total rural
output and engaged 15.5% of the rural workforce in 2011–12.
According to National Accounts Statistics, services sector reg-
istered 5.94% and 6.1% annual growth in its real NDP during
the pre-reform period in urban and rural areas, respectively;
growth accelerated to 8.94% and 8.55%, respectively during
the post-reform period. Between 2004–05 and 2011–12, urban
areas maintained its growth in ser vices sector output at 8.42%,
but its growth in rural areas dropped to 3.48%.
Services sector has played a major role in the structural
transformation of the Indian economy, but its achievements
during the recent years were mainly concentrated in urban areas.
Wholesale and retail trade, and repair of motor vehicles
constituted 27% share in total service sector NDP in 1993–94.
This increased to 37% in 2004–05 on account of impressive
annual growth of 11.7% in this sub-sector (Table 9). This
along with the remarkable growth in other sub-sectors such
as hotel and restaurants, transport, storage and communica-
tion, and fi nancial services, resulted in 8.5% annual growth
in overall services sector in rural areas between 1993–94 and
2004–05.
During 2004–05 and 2011–12, NDP from trade and hotel and
restaurants activities declined by 4.8% and 2.5% per year,
respectively. Although the reduction in output of these sectors
was offset by the signifi cant growth in fi nancial services,
transport, storage and communication, and public administra-
tion and social security activities, the growth in overall
services sector output decelerated to 3.4% per annum between
2004–05 and 2011–12.
Table 9: Education Level (General and Technical) of Usually Employed Rural
Workers (Age Group 15–59 Years) (%)
Rural Workers Male Female Persons
2004–05 2011–12 2004–05 2011–12 2004–05 2011–12
Secondary education and above 19.7 27.1 6.8 11.8 14.9 22.3
With technical education 1.7 1.6 0.7 0.7 1.3 1.3
With vocational training 14.2 15.4 13.0 12.7 13.8 14.6
Source: Authors’ estimation based on unit level NSSO data on employment and
unemployment survey.
Table 8: Sub-sector wise Changes in Employment (Usual Status) in
Manufacturing and Services Sectors
Sub-sectors Employment: Compound Share in Total
Usual Status Growth Manufacturing
(million) Rate (%) Employment (%)
2004–05 2011–12 2004–05 2011–12
Wearing apparel 3.4 4.2 2.9 12.3 14.5
Tobacco products 3.4 3.6 0.8 12.3 12.5
Textile 4.5 3.6 -3.2 16.0 12.3
Non-metallic mineral products 3.4 3.6 0.8 12.3 12.5
Food products and beverages 3.4 3.4 0.0 12.3 11.8
Machinery, metal products
and transport equipment 2.1 3.0 5.7 7.4 10.4
Wood and wood products 4.1 2.8 -5.4 14.8 9.6
Furniture 1.7 1.5 -2.1 6.2 5.1
Chemical products 0.7 0.6 -2.6 2.5 2.0
Rubber and plastic products 0.3 0.4 1.1 1.2 1.3
Paper and printing, etc 0.3 0.3 -0.3 1.2 1.2
Leather and related products 0.3 0.3 -1.8 1.2 1.0
Others 0.0 1.7 - 0.0 5.8
Manufacturing sector: Subtotal 27.6 29.0 0.67 100 100
Wholesale and retail trade;
repair of motor vehicles 18.5 18.8 0.3 38.9 36.0
Transport, storage and communication 8.6 10.0 2.3 18.0 19.2
Education 5.5 7.0 3.4 11.5 13.3
Hotel and restaurants 2.4 2.9 2.9 5.0 5.6
Public administration, defence
and compulsory social security 2.7 2.7 -0.5 5.8 5.1
Health and social work 1.4 1.6 2.0 2.9 3.0
Financial intermediation 0.7 1.1 7.1 1.4 2.1
Others 7.8 8.2 0.7 16.4 15.7
Services sector: Subtotal 47.6 52.3 1.4 100 100 REVIEW OF RURAL AFFAIRS
DECEMBER 30, 2017 vol liI no 52 EPW Economic & Political Weekly70
One of the reasons for decline in output of some services in
rural areas could be the “shopping” behaviour of the rural
households towards urban centres. Improved road con-
nectivity and transport, and rise in ownership of private
vehicles have facilitated frequent visits to nearby urban
localities for shopping and other requirements for the rural
population. Although a consumer gets wider choices in ur-
ban localities, this adversely affects trade and other busi-
nesses in rural areas.
The slowdown in output of the service sector after 2004–05
caused deceleration in employment growth. Employment in
the service sector increased only by 1.35% per year between
2004–05 and 2011–12 as compared to growth rate of 3.25% dur-
ing the previous period (Table 3). The service sector, which of-
fers relatively decent and comfortable jobs, constituted merely
15% share in 27 million new jobs created in the non-farm sectors
between 2004–05 and 2011–12. As in the case of output, wholesale
and retail trade including repair services for motor vehicles was
the largest sub-sector and accounted for 36.2% of employment
in services in 2011–12 (Table 8). But this sub-sector witnessed
stagnation in job creation from 2004–05 to 2011–12, resulting
in deceleration in overall service sector employment. Notwith-
standing other sub-sectors such as fi na ncial services, hotels and
restaurants, education, and transport, storage and communica-
tion services gained momentum in creating employment in ru-
ral areas during the same period. Between 2004–05 and 2011–
12, two sub-sectors, namely education, and transport, storage
and communication constituted 62% of the about 5 million jobs
created in services sector in the rural areas.
Construction: Rural areas are characterised by poor infra-
structure and civic amenities. Similarly, a large percentage of
houses are in need of upgradation. These facts indicate con-
siderable scope for the growth of the construction sector in
rural areas.
The real NDP of construction sector increased at the annual
rate of 3.94% between 1970–71 and 1993–94. During the suc-
cessive periods, 1993–94 to 2004–05 and 2004–05 to 2011–12,
growth rate in the sector’s output accelerated to 7.92% and
11.49%, respectively (Table 3). Consequently, the share of the
construction sector in rural output increased from 3.5% in
1970–71 to 10.5% in 2011–12 (Table 4).
Employment in the construction sector increased 13 times
during the past four decades, leading to a signifi cant increase
in its share in total rural employment from 1.4% in 1972–73 to
10.7% in 2011–12. It is interesting to note that this sector
absorbed 74% of the new jobs created in non-farm sectors in
rural areas between 2004–05 and 2011–12.
These trends indicate that rural areas witnessed a construc-
tion boom after 2004–05, which is desirable in terms of creation
of necessary infrastructure for economic development. Fur-
ther, growth in employment in the construction sector was
higher than output growth during both the periods under con-
sideration. One of the reasons for the much higher growth in
rural workers in construction over manufacturing or services
sectors is lesser requirement of skills and education in con-
struction activities.
Conclusions and Policy Lessons
Despite fast expansion of cities and towns, and much better
amenities and economic opportunities in urban areas, more
than two-thirds of the population in India still resides in rural
areas. Based on population projections, it is estimated that
even in 2050, more than half of India will be living in rural
Regional Political Economy
Novmber 18, 2017
Possibilities of Seeing the ‘Region’ Differently —Arjun Jayadev, Vamsi Vakulabharanam
Constructing Regions Inside the Nation:
Economic and Social Structure of Space in Agrarian and Cultural Regions —Barbara Harriss-White
Three Planes of Space: Examining Regions Theoretically in India —Sudipta Kaviraj
Delhi’s ‘Regional’ Capitalism —Rana Dasgupta
The Agrarian Question amidst Populist Welfare:
Interpreting Tamil Nadu’s Emerging Rural Economy —M Vijayabaskar
First Nature and the State: Non-emergence of Regional Capital in Mandya —Narendar Pani
Regional Economies and Small Farmers in Karnataka —Seema Purushothaman, Sheetal Patil
Space and Time through an Urban-Industrial Hinterland —Atreyee Majumder
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Economic & Political Weekly EPW DECEMBER 30, 2017 vol liI no 5271
notes
1 Except for the years 1972–73 and 1983 where out-
put data corresponds to 1970–71 and 1980–81,
respectively.
2 From 1972–73 to 1993–94, rural employment
increased only by 53% (from 191 million to 293
million) as compared to 132% increase in real
rural NDP. Subsequently, during the post-re-
form period, the increase in rural employment
was only 17% (293 million in 1993–94 to 343
million in 2004–05) as compared to 72% in-
crease in real rural NDP. The recent period of
economic acceleration witnessed a decline in
rural workforce by 7 million (from 343 million
in 2004–05 to 336 million in 2011–12) despite
65% increase in real rural NDP.
3 Indicates the proportion of population who do
not offer themselves for any economic activity.
4 It is estimated that 38.3% of agricultural labour
households in rural areas were under poverty
in 2011–12.
5 According to Chand et al (2015), income per
cultivator and agricultural labour in this period
increased by 63.6% and 75.86%, respectively
which are 2.6–3.3 times the rate of increase
during earlier period of 1993–94 to 2004–05.
6 Post-secondary courses of study and practical
training aimed at preparation of technicians to
work as supervisory staff.
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areas. Therefore, transformation of the rural economy is
essential for overall and inclusive development of the Indian
society. The main concern about rural India is the low level of
per capita income due to high dependence on low productivi-
ty and low-paying employment in agriculture. A worker in
rural India generated less than one-third of the income gener-
ated by an urban worker. As a consequence, wide disparity
persisted in per capita income in rural and urban areas. What
is more worrying is that rural–urban disparity did not show
signifi cant change despite much higher growth in the indus-
try and construction sectors in rural areas as compared to
urban areas.
Rural economy has now turned more non-agricultural with
the share of agriculture in rural income reducing to less than
39%. The second major change witnessed in rural economy is
that its share in manufacturing sector output doubled between
1970–71 and 2011–12, and exceeded that of urban areas. How-
ever, this change was not accompanied by a similar change in
employment, and rural share in manufacturing employment
declined. The period 2004–05 to 2011–12 turned out to be the
best for growth in rural NDP but the worst in terms of growth
in rural employment. Manufacturing sector has shown the
worst performance in rural employment. An annual growth
rate of 15% in manufacturing output failed to increase employ-
ment even by 1% making this period a classic case of jobless
growth. Further, employment in manufacturing sector in rural
India reveals strong bias against women.
For various reasons, female workers withdrew from agricul-
ture work in large numbers and most of them are staying back
in households. The withdrawal from farm work is highest in
the case of labour households where incidence of poverty is
high. Some evidences indicate that non-availability of suitable
employment rather than a lack of willingness for outside work
is the reason for de-feminisation of rural workforce.
Workers who moved out of agriculture and those who
entered the rural labour force largely got absorbed in con-
struction activity, as employment growth in manufacturing
and service sector in rural areas decelerated sharply after
2004–05. Rural manufacturing adopted more capital intensive
production as compared to the urban manufacturing and it
failed to address the goal of employment generation for rural
labour force.
The lack of required skills and technical knowledge are the
main barriers for rural workers to enter the manufacturing
sector. Setting up of industries and improvement in infrastruc-
ture are the necessary but not suffi cient conditions for increas-
ing rural employment that require effective human resources
development programmes to impart necessary skills and
training to rural youth to match the job requirement in the
manufacturing sector.
Services sector in rural areas witnessed deceleration in
output as well as employment after 2004–05. An important
reason for this is the increased reliance of rural consumers on
service providers located in urban areas. Rural areas have com-
parative advantage in services like post-harvest value addition
on farm storage, primary processing, grading, and so on.
Linking processing to production through effi cient value
chain, contract farming, and direct linkage between the
factory and the farm offers considerable scope for rural
employment generation as well as raising farmers’ income.
Transformation of rural economy must include strong meas-
ures for employment generation and shifting workers out of
agricultural sector towards non-farm sectors. As conventional
manufacturing has failed to generate rural jobs, despite high
growth in output, India needs to look for a different type of
manufacturing in rural areas. Labour-intensive, micro, small
and medium enterprises seem to be an appropriate alternative
for rural employment generation.