Rural Nonfarm Enterprises Diversification, Farm Income and Consumption Expenditure in different agroecological zones of India: Evidence from Longitudinal Farm Households

Please cite the paper as:
Zeeshan, Geetilaxmi Mohapatra, A K Giri, (2018), Rural Nonfarm Enterprises Diversification, Farm Income and Consumption Expenditure in different agroecological zones of India: Evidence from Longitudinal Farm Households, World Economics Association (WEA) Conferences, No. 2 2018, The 2008 Economic Crisis Ten Years On, 15th October to 30th November, 2018

Abstract

This paper examines the determinants of livelihood diversification of farm households in rural nonfarm enterprises (NFEs) and its effects on their farm income and consumption expenditure in different agroecological zones in rural India using panel probit analysis (random effect) and propensity score matching (PSM) techniques to account for potential selection bias on panel data from the Indian Human Development Survey (IHDS) conducted in 2005 and 2012. We found diversified farm households are statistically different from undiversified households in terms of number of farm equipment possessed, household size, adult members, land holding, education etc. In addition, by employing panel probit analysis (random effect), we found that NFE diversification decision significantly depends on farm and household characteristics such as dependency ratio, membership of cooperative association, number of loans, land holding and household size etc. The model also indicates that households residing in humid zone are more likely to diversify into NFE activities than those in semi-arid temperates, semi-arid tropics and arid zones. The NFE diversification seems more important for the households at lower end of land distribution. The poor households diversify more towards low-paid, low- return non-farm activities. Small landholdings, low agricultural productivity and surplus labour force the farm households to diversify their income portfolio towards non-farm activities. The non-farm income sources are accessible to a small proportion of farm households and have un- equalizing effect on income distribution.

Propensity score matching technique was used to access the impact of NFE diversification on farm income and consumption expenditure of farm households. The result reveals that NFE diversification has a significant and positive impact on farm income as well as in consumption expenditure in rural India, and different agroecological zones. In the light of growing urban sprawl, with its positive implications for rural economy by providing closer markets, better transportation services, awareness, and better rural-urban linkages, we recommend rural NFE diversification among farm household as a means of smoothing income and consumption.

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2 comments

  • mariaalejandramadi says:

    Hi,

    Thanks for your interesting paper that clearly shows the role of diversification within small farms in India. I have also showed this role in a research paper about the Brazilian small farms in the South of the country where the role of rural cooperatives has been decisive to encourage this diversificaiton.

    in this sense, I would like you to add some information about the trends and the role of rural cooperatives in India.

    Maria

    • Zeeshan says:

      Dear Maria,

      Thanks for your suggestion.
      We have taken a binary control variable of whether any person of the household has a membership of rural agricultural cooperatives or not in our every model.
      Though the trend of income diversification of farm households in non-farm enterprises in different agroecological zones of rural India is shown (table 1). A trend of rural cooperatives can also be shown and will make sense as well. Thanks for your valuable suggestion.

      Regards
      Zeeshan