Reducing Rural Poverty Through Non-farm Job Creation in India

The Indian Journal of Labour Economics https://doi.org/10.1007/s41027-022-00359-9 ARTICLE Reducing Rural Poverty Through Non‑farm Job Creation in India Shiba Shankar Pattayat1 · Jajati Keshari Parida1 · I. C. Awasthi2 Accepted: 8 February 2022 © The Author(s), under exclusive licence to Indian Society of Labour Economics 2022 Abstract Based on secondary data, this paper estimates the incidence of poverty by sectoral employment status of individuals and it explores the factors determining individual’s joint probabilities of being poor and being engaged in the non-farm sector jobs (at micro-level). It also finds the impact (at macro-level) of rural non-farm sector employment on the incidence of rural poverty, and it identifies the subsectors of the non-farm sector, which help reduce the incidence of rural poverty in India. Using bivariate probit, recursive bivariate probit regression models, it finds that individual’s human capabilities owing to better education and training and higher occupations of their head of the family significantly determine their probability of being employed in the non-farm sectors, which in turn help reduce their chance of being poor. The panel system generalized methods of moment result suggest that the provincial states of India, which have achieved higher level of non-farm sector NSDP growth along with the creation of jobs through an improved level of infrastructure (roads, railways, banking, and industries) base, have succeeded to reduce the incidence of rural poverty to substantially low levels. Based on these findings, it is argued that the incidence of rural poverty can be reduced on a sustainable basis through the development of rural manufacturing, and by promoting growth of modern service sectors like education, health, communication, real estate, and finance and insurance, along with the infrastructural development. Keywords Non-farm employment · Income poverty · Bi-variate probit regression · India * Jajati Keshari Parida 1 Department of Economic Studies, Central University of Punjab, Bathinda, Punjab 151001, India 2 Institute for Human Development, New Delhi, India 13 Vol.:(0123456789) ISLE The Indian Journal of Labour Economics 1 Introduction In India, the incidence of poverty reduced substantially with a fall in absolute number of poor during 2004–2005 and 2011–2012 (Chauhan et al. 2016; Mehrotra et al. 2014; Planning Commission 2013). During this period, Indian economy had also experienced a phase of structural transformation in employment, in which both the share and number of workers in non-farm sectors increased (about 7.5 million per annum increase) with corresponding decline (about 5 million per annum decline) of jobs in the agriculture and allied sectors (Himanshu 2011; Kannan and Raveendran 2019; Mehrotra et al. 2014; Mehrotra and Parida 2019, 2021). Both the reduction in number of poor and the decline of agricultural workforce were unprecedented trends in India. Hence, it is important to know whether there exists any connectivity between growth of non-farm sector jobs and income poverty reduction in rural India. This is an important question, because not only a major share (about 65% and 0.9 billion, as per the World Bank data, 2019) of Indian population live rural areas, but also most of them (about 58%, as per 2018–2019 PLFS data) still earn their livelihood1 from agriculture and allied sectors. This is perhaps one of the main reasons, for a relatively higher incidence of poverty in rural areas as compared to the urban neighbourhoods in India (Planning Commission 2013). Moreover, mechanization in agriculture is growing rapidly since 2004–2005, for which the landless and marginalized poor are losing their jobs in agriculture, and both educated youth unemployment (Bairagya 2018; Mitra 2019; Mehrotra and Parida 2019, 2021) and the size of discourage labour force are at the rise due to rising mean years of schooling (Mehrotra and Parida 2019, 2021); a relatively slow growth of non-farm sector jobs during the post 2011–2012 periods (Mehrotra and Parida 2021) should be a matter of great concern, because it has implications on the likely increase in the incidence and depth of rural poverty in India. A review of cross-country studies like Nassar and Biltagy (2017) in Egypt; Awoniyi and Salman (2011) in Nigeria; Ersado (2006) in Zimbabwe; Hoang et al. (2014) and Imai et al. (2015) in Vietnam; Owusu et al (2011) and Zereyesus et al. (2017) in Ghana; Arif et al. (2000) in Pakistan; Woldehanna and Zerfu (2002) in Ethiopia; and Hossain and Al-Amin (2019) in Bangladesh has argued that development of non-farm sector has greater potential to reduce poverty in rural areas. But according to Haggblade et al. (2010), although rural non-farm employment is a potential pathway out of poverty for rural poor, it does not happen automatically. For this to happen, policy makers must stimulate buoyant rural economies, with robust non-farm income growth along with productive non-farm employment opportunities in rural areas. In India, earlier studies like Lal (1976), Ahluwalia (1978), Omvedt (1981), Dev (1988), Ghosh (1996), Ghosh (2002), and Mehta and Shah (2003) have noted that predominance of agriculture, agricultural backwardness, and low labour 1 This fact is clearly revealed during the COVID-19 lockdown periods, as a large number of return or reverse migrants (low skilled) are found working in agriculture and allied activities (as per PLFS, 2019– 2020 data). 13 ISLE The Indian Journal of Labour Economics productivity were among the major reasons for the high incidence of poverty in India during 1980s. Hence, an increased labour productivity during the 1990s due to technological advancement in agriculture and rising agriculture wages caused a substantial reduction in the incidence of poverty in rural India (Singh and Pandey 1990; Datt and Ravallion 1998; Sundaram 2001; Sen and Himanshu 2004). But according to Unni (1998), Jayaraman and Lanjouw (1999), Lanjouw (1999), Lanjouw and Shariff (2004), Pradhan (2006), Sundaram (2007), Lanjouw and Murgai (2009a, b), Jha et al. (2009), Himanshu et al. (2013), and Binswanger-Mkhize (2013), non-farm sector could play a crucial role in the process of rural poverty reduction in India. Because the wages/earnings levels in non-agriculture activities are often higher than agriculture wages and earnings, rural non-farm sector employment growth is expected to have positive impact on both real wages and aggregate consumption in rural India (Islam 1987; Saith 1992; Papola 1992; Chadha 1993; Bhalla 1998; Mehrotra et al. 2014). But in India, there is a limited number of studies, which estimates incidence of poverty by the sectoral employment status of individuals. Hence, the main objectives of this paper are: (1) to estimate the poverty head count ratio by sectoral employment status of individuals; (2) to explore the individual- and family-level factors that determine individual’s probabilities (...truncated)