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Agricultural Development and Rural Poverty in India

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Agricultural Development and Rural Poverty in India Ind. Jn. ofAgri. Econ. Vol. 51, No. 3, July-Sept. 1996 374 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS Agricultural Development and Rural Poverty in India Madhusudan Ghosh* INTRODUCTION Rural poverty in India has been a subject of extensive research and intense debate. In the early seventies, the researchers were mainly concerned with the conceptual basis of measurement of poverty and with empirical estimates of the magnitude of poverty. Several attempts were made to estimate the levels of rural and urban poverty on the basis of various norms on which the poverty line is based (see,for example, Ojha, 1970; Dandekar and Rath, 1971; Bardhan, 1973; Sen, 1973; Dandekar, 1981 and Tyagi, 1982). The issues which attracted considerable attention in the subsequent phase of the discussion involve three questions,namely, (a) whether improved agricultural performance has been associated with reductions in the incidence of rural poverty?(b) whether nominal prices of the commodities consumed by the rural poor have any adverse effect on the incidence of rural poverty? and (c) is there any discernible time trend in the incidence of rural poverty? It is after the publication of Ahluwalia's(1978) paper that the relationship between rural poverty and agricultural performance(measured by agricultural production per head of rural population) has been a subject of extensive empirical research. Ahluwalia (1978) observed an inverse relationship between the two variables and thereby asserted the existence of 'trickle-down' mechanisms in the Indian rural economy during 1956-57 to 1973-74. The existence of trickle-down mechanisms ha's been further reinforced by the results of his subsequent study (Ahluwalia, 1986) with expanded data set. Moreover, he observed no evidence of weakening of the relationship since the green revolution. Some other studies, however, reported far from uniform results about the existence of trickle-down process. While the results of Saith(1981), Gaiha (1989), Ghose (1989), Kakwani and Subbarao(1990 a, b), Bhattacharya et al. (1991) and Ghosh (1993, 1994)lent support to the trickle-down hypothesis, Mundle (1983) and Bardhan (1984, 1986) expressed reservations about the validity of the hypothesis in India. While Mundle (1983) did not observe any strong or decisive effect of per capita foodgrains production on the incidence of rural poverty, the results of Bardhan's (1984, 1986) studies vindicated the possibility of growth-induced pauperisation of the agricultural labour and primarily cultivator households. Bardhan concluded: "Agricultural growth and productivity improvements in general tend to help raise incomes all around, but certain types of growth processes generate negative forces for the poor, particularly in an institutional setting of highly unequal distribution of assets and access to resources"(Bardhan, 1986, pp. 90-91). In an unfinished research work,Dharm Narainl emphasised the need for considering the * Senior Lecturer, Department of Economics and Politics, Visva-Bharati, Santiniketan - 731 235, Birbhum (West Bengal),and Ford Foundation Post-Doctoral Fellow, Department of Agricultural and Resource Economics, University of California, Berkeley, CA 94720, U.S.A. The paper has been revised when the author was a post-doctoral fellow in the Department of Agricultural and Resource Economics, University of California, Berkeley. The award of the fellowship from the Ford Foundation is gratefully acknowledged. RESEARCH NOTES 375 changes in the nominal prices of the commodities consumed by the poor along with the changes in agricultural production per head of rural population and time (representing the influence of other forces) to explain the dynamic behaviour of rural poverty. In doing so, it was observed that while agricultural production per head of rural population is inversely related, the consumer price index for agricultural labourers and the index number of wholesale prices of foodgrains are positively related to, the incidence of rural poverty. Moreover,after allowance is made for the changes in the incidence ofrural poverty associated with agricultural production per head of rural population and nominal prices of the com- modities consumed by the poor, there has been a definite downward trend in the incidence of rural poverty during 1956-57 to 1970-71. The results of the studies by Saith (1981), Ahluwalia(1986), Gaiha (1989)and Ghose(1989) extended support to the findings of Dharm Narain. Gaiha(1989) and Ghose(1989) additionally reported that fluctuations in the relative prices of the commodities consumed by the poor have more powerful effect on rural poverty than the changes in agricultural output per rural person. What is more perplexing is the conflicting results about the time trend in the incidence of rural poverty. Whereas Ahluwalia (1978, 1986) and Mundle (1983) observed no dis- cernible time trend in the incidence of rural poverty, and Ghose(1989) observed a declining trend, Griffin and Ghose (1979) and Saith (1981) reported, in fact, a rising trend. The diverging results about the time trend in rural poverty may be attributed to differences in the procedure of estimating poverty incidence and also in the choice of the time period. The present study, using statcwise cross-section data2 at four points of time, 1972-73, 1977-78, 1983 and 1986-87,3 examines the effects of agricultural development and some other variables on rural poverty in India. It specifically examines whether the benefits of agricultural development have trickled down to the rural poor. The rest of the paper is organised as follows. The effects of agricultural development and other selected variables on rural poverty arc examined in Section II. Section III summarises the main findings and indicates some policy implications. The data used in this study are taken from diverse sources which are cited in the Appendix. II AGRICULTURAL PERFORMANCE AND RURAL POVERTY Since the rural people derive their livelihood primarily from agriculture, their living conditions depend to a significant extent upon the performance of this sector. We have used State Domestic Product in agriculture per head of the rural population(SDPAR) as a measure of agricultural performance. Since improved agricultural performance is supposed to affect all sections of the rural population including the rural poor, SDPAR may be considered as the generalfactor influencing the incidence of rural poverty. The factors that significantly influence the living conditions of the rural poor specifically may now be identified. The agricultural labour households and the primarily cultivator households consisting of marginal and small farmers are identified as the rural poor. The 32nd Round (1977-78)of the National Sample Survey(NSS) Report revealed that about 56 per cent of the agricultural labour households and 31.7 per cent of the households self- employed in agriculture (a large section of whom are marginal and small farmers) were living below poverty line in India. The two groups of households together constituted 79.32 per cent of the rural poor. The report also revealed that casual labourers are among the 376 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS poorest segment of the total workforce in agriculture; whereas 58.2 per cent of the casual workers and 49.3 per cent of the regular wage workers were living below poverty line, 31.7 per cent of the self-employed households in agriculture were found to be living in poverty (see Dev, 1988). Identification of the households living below poverty line makes it relatively easy to identify the specificfactors determining the living conditions of the rural poor.The primarily cultivator households earn their livelihood primarily from their most important income generating asset, viz., land. Naturally, it is the average size of the marginal and small operational holdings(AVMSH) which may be taken as one of the important specific factors determining the level of living of this section of the rural poor. The level of income of the agricultural labour households depends upon the availability of wage employment and the wage rate. Again,since the purchasing power of the wage labourers depends upon the prices of the commodities consumed by them vis-a-vis the money wage rate they receive, it is the real wage rate(RWAL) which may be considered as the important factor determining their living conditions. Moreover,since one cannot expect any wage income without having any employment, we need to consider a factor which may reflect employment opportunities. This is done by considering the data on current-day status unemployment rate among rural males(CDURM). Thus while state domestic product in agriculture per head of rural pop- ulation(SDPAR) has been considered here as the generalfactor , the following three factors have been considered as the specificfactors influencing the incidence of rural poverty:(a) Average size of marginal and small operational holdings(AVMSH), (b) Real wage rate for male labourers(RWAL), and (c)Current -day status unemployment rate among rural males (CDURM).The incidence ofrural poverty(RPOV) measured by headcount ratio is expected to vary inversely with SDPAR, AVMSH and RWAL,but directly with CDURM. In order to examine the effects of these factors on rural poverty, we have estimated two equations for rural poverty:,one involving the general factor, and the other involving the specific factors as explanatory variables.4 RPOV = o + a, SDPAR .... (1) RPOV = po + 13, AVMSH 132 RWAL + 0.3 CDURM ....(2) The equations are estimated by Ordinary Least Squares (OLS) method with pooled statewise cross-section data corresponding to four time points, 1972-73, 1977-78, 1983 and 1986-87. The results of the estimated equations are: RPOV = 70.88 - 0.054 SDPAR ; R2 = 0.466. (0.008)* RPOV = 94.30 - 24.328 AVMSH - 9.436 RWAL + 1.041 CDURM ; R2 = 0.631. (9.479)* (1.066)* (0.564)** (Figures in parentheses are standard errors; ** and * Significant at 5 and 1 per cent level respectively; Number of observations(n) = 56). The coefficient of SDPAR turns out to be significantly negative, indicating thereby an inverse relationship between rural poverty and agricultural production per head of rural population.
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