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Rural non-farm sector still in incubation mode
Posted on November 11, 2010 | Author: Nilabja Ghosh & Arup Mitra | View 218
What role the rural non-farm sector plays in the process of development of a country has been a serious question.
Its pattern of expansion has been so diverse across regions that it is difficult to be explained in terms of a single uncontested framework.
Apparently, each region has a different story to tell.
Three important stages of the rural non-farm sector transformation have been identified in literature.
Africa and south Asia are possibly in the first stage that have a production or expenditure linkage with agriculture, and not much of a rural-urban link.
A tendency towards a greater mix of situations is seen in Latin America where non-farm sector includes activities based on linkages with agriculture as well as separate ones, such as tourism, mining and service sector activities.
Also, east Asia is in the third stage where urban-rural links are stronger as manifested in terms of more advanced forms of business linkages, such as sub-contracting arrangements and labour commuting.
Unfortunately, the rural non-farm sector in several parts of India is characterised by low productivity and it does not seem to provide a sustainable livelihood.
On the other hand, the components that have grown in response to demand, do not tend to derive the growth stimulus from the rural sector itself.
In an attempt to reduce the diseconomies of scale and to take advantage of the positive externalities available within the large cities, the urban activities are spilling over rapidly to the rural hinterland of the big cities.
There is, thus, a tremendous change that is taking place in the land-use pattern, away from agriculture and towards commercial activity.
Besides, these urban activities relocated in the rural areas are less likely to provide job opportunities to the rural job seekers, as the skill mismatches are phenomenal.
From the policy point of view, productivity growth in the rural nonfarm sector deserves a special mention.
The poor income potential of agriculture has become a serious concern in a country where a large number of citizens are farmers and, more often, small farmers.
Nearly 40% of the farmers would be willing to quit farming, according to an NSSO survey.
Several studies have noticed relatively lower incidence of out-migration from the rural areas that showed improved performance of the non-farm sector.
This, in turn, reduces the excessive pressure on urban infrastructure.
Hence, if the urban areas, rather select cities, that draw much of the migrants from the rural areas have to become world class, development disparity across the space has to be reduced.
It is not just about providing urban services in the rural areas — more importantly, productive employment opportunities have to be created in a big way. A viable non-farm sector would be an important answer.
Usually, big farmers used to access productive avenues in the nonfarm sector.
However, education for rural households — as has been the case in the Philippines — has a major impact on non-farm employment. Besides, rural infrastructure is important.
Usually those who have access to capital in the rural areas experience a steady flow of income from non-farm activities.
In this context, microfinance can be critically important: while affordable interest rates are an essential, the lender’s risk in the rural setting needs to be recognised as well.
A balance between the two requires the regulators’ attention while not derailing the process, as is feared in the recent Andhra Pradesh incidents.
The implications of the nexus between traditional agriculture and its supplement in the form of non-farm sector and particularly the concern for food security loom large in the process.
Indeed, to an extent, there is a backward linkage and activities can be located on the supply chains of agro-goods the non-farm sector is likely to benefit agriculture and improve agricultural prices through the demand side.
However, there is a possibility of labour shortages arising at critical stages of farm activities, leading to wage increases. The net outcome is not totally clear.
While farm mechanisation and a search for efficient methods may be a response so that crop production is not hurt, adverse effects on production are possible when extension and research do not receive adequate attention.
In this context, the impact of NREGA on farm wages, food prices and production can deserve investigation as a starting point.
On the contrary, to the extent that the withdrawn labour is truly surplus in the Lewisian sense or non-farm activities are scheduled in line with farm timetables, the apprehension may be misplaced.
Probably of greater significance is the demand for land that is known as a scarce resource in rural India.
While not as demanding as agriculture, non-farm activities also require space.
This calls for rational planning of land use based on fertility, water endowment and logistical requirements.
Land distribution schemes for the poor and landless and ways to improve efficiency in resource use in agriculture are also considered effective in this direction.
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