One of the themes that I have often explored in my columns and discuss in detail in my book India’s Big Government, is that India has way too many people working in agriculture. Or as economists like to put it, we have huge disguised unemployment in agriculture.
A new discussion paper titled Changing Structure of Rural Economy of India Implications for Employment and Growth, authored by Ramesh Chand, SK Srivastava and Jaspal Singh, and published by the NITI Aayog, makes a few interesting points on this front.
As per this discussion paper, the rural economy in 2011-2012, formed 46.9 per cent of India’s economy, though it employed 70.9 per cent of its workforce.
Most people tend to believe that India’s rural economy is primarily concerned only with agriculture. Agriculture contributes around 12-13 per cent of the overall Indian economy.
Given that, the rural economy contributes 46.9 per cent to the overall Indian economy, it basically means that there are other areas that the rural economy is contributing to as well. And some of the findings of this discussion paper may surprise many people. Let’s look at them one by one.
1) One of the misconceptions that prevails is that rural India is totally dependent on agriculture. The discussion paper sets this right. As it points out: “Contrary to the common perception about predominance of agriculture in rural economy, about two third of rural income is now generated in non-agricultural activities.” This was clearly not the case earlier.
2) This is primarily because agriculture as a profession is nowhere as rewarding as it used to be. As the discussion paper points out: “In year 2011-12 per worker income varied from Rs. 33,937 for agricultural labour to Rs.1,71,836 for rural non-farm workers.” The ratio of rural non-farm rural income to income of agricultural labour has increased over the years, though it has fallen in the recent past.
Take a look at Figure 1. It plots the ratio of non-farm rural income to income of agricultural labour over the decades.
Take a look at Figure 2. It plots the ratio of average urban income to that of average income of an agricultural labour.
Figure 2 clearly explains why people migrate from rural areas to urban areas. As the discussion paper clearly points out: “Between 2001 and 2011, India’s urban population increased by 31.8 per cent as compared to 12.18 per cent increase in the rural population.
Over fifty per cent of the increase in urban population during this period was attributed to the rural-urban migration and re-classification of rural settlements into urban.” There is a clear economic incentive for people to move from rural areas to urban areas.
3) With two-thirds of rural income now being generated from non-agriculture activities, the rural economy as a whole when it comes to income is moving away from agriculture, but that is not true when it comes to employment. This is something that I have been talking about for a while. Indian agriculture employs way too many people in comparison to what it needs.
The discussion paper points out that in 1970-1971, agriculture formed 72.4 per cent of India’s rural economy, and employed 85.5 per cent of the rural workforce. By 2011-2012, the size of agriculture had nearly halved, and it formed 39.2 per cent of India’s rural economy, but it still employed 64.1 per cent of the rural workforce. This data points shows that agriculture continues to employ many more people than it should.
4) Having said that, there is another point that needs to be made here. While, the overall employment in agriculture given its share in the rural economy remains high, it has fallen dramatically between 2004-2005 and 2011-2012. In 2004-2005, agriculture formed 38.9 per cent of India’s rural economy, while employing 72.6 per cent of the country’s rural workforce. By 2011-2012, agriculture formed 39.2 per cent of India’s rural economy, and at the same time employed 64.1 per cent of the rural workforce.
Hence, there has been a fall in the total number of people dependent on agriculture. But is this goods news?
5) As the discussion paper points out: “Sizable occupational shifts in workforce were also observed between 2004-05 and 2011-12. Out of 33 million workers who left agriculture 27 million (81%) were female and 6 million (19%) were male. Further, outgoing workforce from agriculture comprised both cultivators and agricultural labours with their respective shares of 56 per cent and 44 per cent. It is worth mentioning that out of 27 million female workers who left agriculture, only 5 million joined non-farm sectors and rest withdrew from labour-force itself.”
So, the point is that while lesser proportion of the workforce is now dependent on agriculture than was the case in the past, many of the women who have dropped out of agriculture, have stopped working all together. Indeed, this de-feminisation of the workforce, is a very disturbing trend.
6) The takeaway from the NITI Aayog discussion paper is that in 2011-2012, agriculture employed 64 per cent of the rural workforce and produced only around 39 per cent of its economic output. In an ideal world, a sector producing 39 per cent of output, should employ 39 per cent of the workforce.
For something like this to happen, nearly 8.4 crore agricultural workers need to be shifted to sectors other than agriculture. As the discussion paper points out: “This amounted to almost 70 per cent increase in non-farm employment, which looks quite challenging.” It also amounts to around one-fourth of the rural workforce of 34.2 crore as of 2011-2012. Chances are the 8.4 crore number would have grown between 2011-2012 and now.
Over and above this, the bigger challenge is the agriculture workforce lacks skills to do anything else. As per the discussion paper: “Only 1.3 per cent of the rural workforce of the age group 15-59 years possessed technical education. Similarly, only 14.6 per cent of the rural workforce of age group 15-59 years received vocational trainings, which aim to develop competencies (knowledge, skills and attitude) of skilled or semi-skilled workers in various trades.”
These skills cannot be improved overnight and jobs be created. Hence, the fear is that the current generation of Indians still largely dependent on agriculture, are going to lose out in the process. As time goes by, this looks more and more likely.
7) One area which has added to employment is construction. Construction formed 3.5 per cent of the rural economy in 1970-1971. This increased to 10.5 per cent by 2011-2012. The share of the sector in rural employment in 1972-1973 was at 1.4 per cent. This jumped to 10.7 per cent in 2011-2012.
One area where agricultural workers can be nudged towards is construction. As the discussion paper points out: “Rural areas are characterised by poor infrastructure and civic amenities. Similarly, a large per cent of houses are in need of upgradation. These facts indicate considerable scope for growth of construction sector in rural areas.”
Over and above this, the real estate sector in urban areas can be a huge employment generator. But for that to happen, the prices need to fall, and more than a few real estate companies need to go bust.
While the role of the government in India to be able to achieve anything significant is limited, this is something where both the state governments and the central government, can have a major role to play. Road construction is one area where many jobs can be generated. This can then act as a multiplier for the services sector as well. As people earn more they are likely to spend more.
To conclude, the fact that India has way too many people employed in agriculture, is probably the country’s biggest social and economic challenge. The trouble is no one really is even talking about it, let alone working towards a solution. The first step towards solving any problem is acknowledging that it exists.
The column originally appeared in Equitymaster on Dec 13, 2017.