Economic diversification and poverty in rural India

This paper analyses National Sample Survey data for 1987-88, 1993-94 and 1999-00 to explore the relationship between rural diversification and poverty. While there is little consensus regarding the rate of poverty decline during the 1990s, the region-level estimates provided here suggest that aggregate rural poverty fell slowly. Unlike earlier estimates, the estimates here correlate well with region-level NSS data on changes in agricultural wage rates. The paper shows that agricultural wage employment has grown over time, and that a growing fraction of agricultural labourers are uneducated and have low caste status. On aggregate the non-farm sector has not grown appreciably during the 1990s. Non-farm employment is generally associated with education levels and social status that are rare among the poor. Econometric estimates confirm that poverty reduction is more closely associated with agricultural wages and employment levels than with non-farm employment growth. However, expansion of non-farm employment influences poverty indirectly, via an impact on agricultural wages.