Ind. Jn. ofAgri. Econ. Vol. 51, No. 3, July-Sept. 1996

374 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS Agricultural Development and Rural in

Madhusudan Ghosh*

INTRODUCTION 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 (),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 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. This suggests that improved agricultural performance(measured as an increase in SDPAR)has been associated with reductions in the incidence of rural poverty and thus asserts the existence of trickle-clown mechanisms in rural India.5 The results obtained by estimating equation(1) with individual year data provide further insights into the trickle-clown process. The estimated results are: RESEARCII NOTES 377

1972-73: RPOV = 89.46 - 0.090 SDPAR ; R2 = 0.696. (0.017)* 1977-78: RPOV = 83.11 - 0.069 SDPAR ; R2= 0.586. (0.017)* 1983: RPOV = 68.33 - 0.055 SDPAR ; R2 = 0.547. (0.014)* 1986-87: RPOV = 52.33 - 0.031 SDPAR ; R2 = 0.473. (0.009)* (Figures in parentheses are standard errors; * Significant at 1 per cent level; n = 14 in all the equations). Although rural poverty is found to be inversely associated with agricultural production per head of rural population in all the time points, the strength of the relationship(measured by the absolute value of the coefficient ofSDPAR) and the explanatory power of the equation (measured by R2)are found to have declined considerably; the value of the coefficient of SDPAR has declined consistently from -0.09 in 1972-73 to -0.031 in 1986-87, and the estimated value ofR 2has declined from 0.696 to 0.473.These results are sufficient to indicate that trickle-down mechanisms have weakened considerably in the later time points.6 The observed low and declining absolute values of the coefficient of SDPAR suggest that growth in agricultural production alone will not bring about a large reduction in the incidence of rural poverty. This underscores the increasing importance of the rural devel- opment programmes that directly influence the living conditions of the rural poor. This directs us to examine the effects of the specificfactors on rural poverty. The estimated results of equation(2) show that the specific factors together explain more than 63 per cent of the variations in rural poverty and these are also significant individually. Since land is the most important income-generating asset of the primarily cultivator poor households(viz., the marginal and small farmers), the incidence of rural poverty is expected to vary inversely with the average size of their operational holdings. This is established by the observed significantly negative coefficient of AVMSH.Moreover, the high value of the coefficient of this variable indicates that a small increase in the average size of the marginal and small operational holdings would reduce the incidence of rural poverty substantially. These results suggest that effective implementation of redistributive land reforms in favour of the marginal and small holdings would reduce rural poverty. However, in a situation of growing population in agriculture with a relatively lower and declining rate of growth of cultivated area and thus a declining land-man ratio, the feasibility of increasing the average size of the marginal and small operational holdings through redistribution of land appears to be very limited. Under such conditions, provision of credit and other agricultural inputs at subsidised rates for the marginal and small farmers which enables them to use high- yielding variety(HYV) technology and achieve higher productivity seems to be an alter- native feasible policy measure for reducing the incidence of rural poverty. Moreover, the observed significantly negative coefficient of RWAL and significantly positive coefficient ofCDURM suggest that rural poverty can be reduced by ensuring employment to the landless agricultural labourers at real wage rate sufficient to maintain their basic needs. In stressing the need for increasing employment opportunities for reducing rural poverty, it may, however, be noted that employment generation must be accompanied by propor- tionate increase in labour productivity. The observed relatively low value of the coefficient of CDURM may be construed to be an indication that employment generation programmes that have been launched in rural India have not possibly had any substantial effect on rural 378 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

poverty. Needless to say, labour absorption in agriculture without having any significantly positive impact on agricultural productivity cannot be expected to reduce rural poverty substantially and sustainably. The results of a study by Bhalla (1987) amply demonstrated that labour productivity has not increased proportionately with the increase in labour absorption in agriculture during 1971-72 to 1983-84. She reported that total employment has increased in all the major states except and . However, whereas six states, viz., , , , Punjab, and have made substantial improvements in per worker productivity, seven states, viz., , West Bengal, , Orissa (all have positive and generally significant growth rates in total man-days employment),, Madhya Pradesh and Tamil Nadu(those suffer from negative or negligible growth rates in total employment)have much lower rates of growth in labour productivity. Moreover, in Bihar, Madhya Pradesh, Tamil Nadu and West Bengal, growth rates of labour productivity have been either negative or very negli- gible. And these are some of the states where the incidence of rural poverty is found to be relatively high. What is, therefore, necessary for sustainable reduction in rural poverty is that employment generation must be accompanied by proportionate increase in labour productivity.

ifi

SUMMARY AND POLICY IMPLICATIONS Using statewise cross-section data at four points of time, the paper examines the effects of agricultural development and some other selected variables on rural poverty in India.The incidence of rural poverty is found to be inversely related to agricultural production per head of rural population. This asserts the existence of trickle-down mechanisms in India. How- ever, the power of the trickle-down process has been found to be very limited and at the same time weakening overtime.This underscores the importance of some specific measures in the alleviation of rural poverty. The results of the estimated relationship between rural poverty and the specific factors suggest that the incidence of rural poverty can be reduced significantly by increasing productive employment in the rural areas and by maintaining the real wage rate at a reasonable level. Its incidence can also be reduced by increasing the average size of the marginal and small operational holdings through redistributive land reforms. Alternatively, this can be achieved by increasing their land productivity by pro- viding agricultural inputs including credit at subsidised rates.

Received June 1995. Revision accepted February 1996.

NOTES

1. The results of the unfinished research of Dharm Narain are reported by Desai(1986). 2. The data set relates to fourteen major States, viz., Andhra Pradesh, Bihar, Gujarat, Haryana, Kamataka, , Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal. 3.These are the reference years ofthe variable,rural poverty.The corresponding reference years of the other variables considered in this study are indicated in the Appendix presenting the data base. 4. Since agricultural performance measured by SDPAR affects rural poverty via its effect on income and wage employment in crop production as well as in local off-farm activities related with crop production,inclusion of both the set of factors in a single equation would create multicollinearity problem. In order to avoid this problem, we have estimated two equations involving each set of factors as independent variables separately. 5. While asserting the existence of trickle-down process and the importance of agricultural production growth in alleviating rural poverty, the limited power of the 'process' as indicated by the very low value of the coefficient of RESEARCH NOTES 379

SDPAR may be noted. This suggests that reliance solely on growth in agricultural production for achieving a desired reduction in the incidence of rural poverty would take an inordinately long time. Moreover, since the rate of growth of cultivated area has been declining in India, the burden of accelerating agricultural production falls increasingly on the growth of productivity of land which requires appropriate technological change. 6. These results, while extending support to Ahluwalia's assertion that trickle-down mechanisms exist in India, contradict his other observation that there is no evidence of weakening of the trickle-down mechanisms in the later period (since the green revolution).

REFERENCES

Acharya,S. (1989), "Agricultural Wages in India: A Disaggregated Analysis",Indian Journal ofAgriculturalEconomics, Vol. 44, No. 2, April-June. Ahluwalia, M.S.(1978), "Rural Poverty and Agricultural Performance in India",Journal ofDevelopment Studies, Vol. 14, No. 2, April. • Ahluwalia, M.S. (1986),"Rural Poverty, Agricultural Production and Prices: A Re-examination", in J.W. Mellor and G.M. Desai (Eds.)(1986), Agricultural Change and Rural Poverty: Variations on a Theme by Dharm Narain, Oxford University Press, . Bardhan,P.K. (1973), "On the Incidence of Poverty in Rural India of the Sixties", Economic and Political Weekly, Vol. 8, Nos. 4-6, Annual Number, February. Bardhan,P.K. (1984), Land, Labour and Rural Poverty, Oxford University Press, Delhi. Bardhan,P.K. (1986), "Poverty and Trickle-Down in Rural India: A Quantitative Analysis", in J.W. Mellor and G.M. Desai(Eds.) (1986), op. cit. Bhalla, S. (1987), "Trends in Employment in Indian Agriculture, Land and Asset Distribution", Indian Journal of Agricultural Economics, Vol. 42, No. 4, October-December. Bhattacharya, N.; Dipankar Coondoo; Pradip Maiti and Robin Mukherjee (1991); Poverty, Inequality and Prices in Rural India, Sage Publications India Pvt. Ltd., New Delhi. Chandhok, H.L. and The Policy Group (1990),India Database - The Economy (Vol. 1), Living Media India Ltd., New Delhi. Dandekar, V.M.(1981), "On Measurement of Poverty",Economic and Political Weekly, Vol. 16, No. 30, July 25. Dandekar, V.M. and N. Rath (1971),Poverty in India, Indian School of Political Economy,Pune. Desai, G.M.(1986), "Trends in Rural Poverty in India: An Interpretation of Dharm Narain", in J.W. Mellor and G.M. Desai(Eds.) (1986), op. cit. Dev,S. Mahendra(1988), "Poverty of Agricultural Labour Households in India: A State Level Analysis",Indian Journal ofAgricultural Economics, Vol. 43, No. 1, January-March. Gaiha, R.(1989), "Poverty, Agricultural Production and Prices in Rural India: A Reformulation", Cambridge Journal ofEconomics, Vol. 13, No. 2. Ghose, A.K.(1989), "Rural Poverty and Relative Prices in India", Cambridge Journal ofEconomics, Vol. 13, No.2. Ghosh,M. (1993), "Test of Trickle-Down Hypothesis in Rural West Bengal",Indian Journal ofAgricultural Economics, Vol. 48, No. 2, April-June. Ghosh,M. (1994), "Rural Poverty,Foodgrains Productivity and Some Related Aspects in India", Agricultural Situation in India, Vol. 49, No. 2, May. (1975), All India Report on Agricultural Census 1970-71, Ministry of Agriculture and Irrigation, New Delhi. Griffin,K. and A.K. Ghose (1979),"Growth and Impoverishment in the Rural Areas of Asia," World Development, Vol. 7, April-May. Kakwani, N. and K. Subbarao (1990 a),"Rural Poverty and Its Alleviation in India", Economic and Political Weekly, Vol. 25, No. 13, March 31. Kakwani, N. and K.Subbarao (1990 b),"Rural Poverty in India, 1973-86", July,(Unpublished paper). Mellor,J.W. and G.M. Desai(Eds.) (1986), Agricultural Change and Rural Poverty: Variations on a Theme by Dharm Narain, Oxford University Press, Delhi. Mundlc,S. (1983), "Effects of Agricultural Production and Prices on Incidence of Rural Poverty: A Tentative Analysis of Inter-State Variations", Economic and Political Weekly, Vol. 18, No. 26, June 25. Ojha,P.D. (1970), "A Configuration ofIndian Poverty:Inequality and Levels of Living",Reserve Bank oflndia Bulletin, Vol. 24, No. 1, January. Saith, A. (1981), "Production, Prices and Poverty in Rural India", Journal of Development Studies, Vol. 17, No. 2, January. Sen, A.K.(1973), "Poverty, Inequality and Unemployment: Some Conceptual Issues in Measurement",Economic and Political Weekly, Vol. 8, Nos. 31-33, Special Number, August. Tyagi, D.S.(1982), "How Valid are the Estimates of Trends in Rural Poverty?", Economic and Political Weekly, Vol. 17, No. 26, June 26. 00

APPENDIX DATA BASE

Rural poverty (headcount SDPAR (at 1970-71 ratio)(RPOV) prices)(Rs.) CDURM (per cent) AVMSH (hectare) RWAL(Rs. per day) 1972- 1977- 1983 1986- 1972- 1977- 1983- 1986- 1972- 1977- 1983 1987- 1970-1976-1980-1985- 1972-1977-1983-1984- 73 78 87 73 78 84 87 73 78 88 71 77 81 86 73 78 84 85 (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) (20) (21)

Andhra Pradesh 56.40 41.90 2930 27.10 343.06 391.91 454.43 36833 6.90 5.67 539 4.90 0.74 0.77 0.75 0.73 2.32 /68 3.26 3.69 Bihar 67.30 67.10 68.00 53.30 244.81 252.85 238.42 251.84 5.67 5.73 4.24 3.70 037 030 0.47 0.44 2.63 3.39 3.09 3.67 Gujarat 53.80 44.60 29.20 32.20 293.31 503.62 493.23 329.48 3.48 4.49 3.02 4.70 0.94 0.94 0.97 0.93 2.76 335 3.68 4.23 Haryana 0 23.20 30.30 2530 22.60 60833 692.41 693.63 777.64 2.25 3.99 3.41 8.30 0.88 0.82 0.92 0.80 532 5.68 6.84 6.32 Karnataka 52.50 50.80 38.70 39.50 365.89 477.91 457.99 481.85 4.65 4.48 4.69 2.50 0.64 0.91 0.89 0.89 2.38 3.14 2.44 2.40 Kerala 63.60 52.50 40.10 35.00 332.89 303.56 260.62 263.86 12.84 13.70 13.39 16.70 0.42 0.32 0.29 0.25 5.17 5.10 5.95 7.18 Madhya Pradesh 64.70 64.30 51.00 49.30 30132 325.33 35838 288.17 2.19 1.94 136 2.30 0.79 0.81 0.82 0.82 2.07 2.39 2.83 3.02 Maharashtra 75.40 66.40 47.70 4630 223.22 417.90 402.84 284.95 5.60 3.44 3.99 2.90 0.88 0.90 0.90 0.95 2.16 2.34 2.70 2.86 Orissa 68.50 74.60 58.40 56.70 323.92 347.18 387.23 358.73 6.31 432 5.09 5.00 0.96 0.85 0.82 0.79 2.11 2.33 2.49 2.83 Punjab 22.60 18.40 15.40 15.30 812.87 952.92 1,046.23 1,255.88 2.89 2.94 4.08 3.80 0.77 0.72 1.01 0.97 5.98 5.8.7 5.86 6.30 Rajasthan 40.90 38.60 36.00 31.70 337.87 421.18 510.69 392.79 3.25 2.65 3.09 5.90 0.90 0.82 0.87 0.86 3.02 336 4.16 333 0 Tamil Nadu 61.60 6030 55.80 44.80 323.73 354.28 220.90 254.21 7.19 8.36 12.00 8:40 0.68 0.63 Oi8 036 2.61 2.64 2.71 3.10 0 Uttar Pradesh 58.30 51.30 49.00 38.60 308.90 342.04 359.74 353.67 1.95 2.46 2.16 3.00 038 036 036 035 2.77 2.68 3.17 3.44 West Bengal 75.60 71.30 65.00 50.80 365.78 459.19 472.54 470.70 7.23 5.70 8.80 4.60 0.69 0.63 0.64 0.65 3.31 3.69 3.27 3.57

Sources: RPOV: Kakwani and Subbarao(1990 a, b). SDPAR: Calculated from Chandhok and Vie Policy Group(1990). CDURM:Sarvekshana Vol. 9, No.4, April 1986; and Special Number,September 1990. RWAL: Acharya (1989). AVMSH: Government of India(1975) Agricuhural Situation in India, Vol. 40, No.5, August 1985 and April 1988 onwards.