INCREASING NECESSITY OF RURAL DIVERSIFICATION:

INTER-STATE VARIATIONS IN RURAL NON-AGRICULTURAL

EMPLOYMENT IN INDIA, 2004-05

A.Venkateswarlu*

Abstract
This paper examines the inter-state variations in the rural non-agricultural
employment (RNAE) for 2004-05. At the all-India level, the share of RNAE
among females is only half of that of males (the latter share being 33.5 percent).
Kerala dominates in the shares of RNAE among males, females and persons.
There has been a continuous increasing trend of the RNAE (among persons) for
most of the states over the period, 1983 to 2004-05. Within the NAE, dominant
sub-sectors are (i) manufacturing sector, (ii) trade, hotel and restaurant sector
and (iii) construction sector. Regression analysis shows that rural unemployment
rate determines the RNAE.

I. INTRODUCTION

Developed countries, two and half centuries ago, had lower shares of non-
agriculture in both national income and employment, when there was no differentiation
of ‘rich’ and ‘poor’ countries (Kaldor,1967, p.1). At that time, today’s third world
countries were better in their per capita income. In the pre-industrial revolution period,
the standards of living were not too far apart in different parts of the world. In 1750, per
capita income (in 1960 US dollars) was $188 for the countries that are called third world
today, against $182 in the developed countries then; and by 1990, the figures were $430
and $3490 respectively for these two sets of countries (Ghosh, 1997). But, at present , the
developed countries have the share of non-agricultural sector to the extent of more than
90.0 percent both in national income and employment.

In the era of post-World War-II period, most of the developing countries

adopted developmental policies based on planning. But, the shift in the share of non-
________________________
* Fellow, at Centre for Economic and Social Studies, Hyderabad. I am very grateful to
Prof. G.K.Chadha, who has drawn my attention to RNFE. I also thank Prof. S. Mahendra Dev,
Director, CESS, Hyderabad and Prof. S.Galab for their encouragement.

1
agricultural workforce has not progressed much, because of the colonial past and de-
indusrialisation policies of the colonial masters, on the one hand and the persistence of
the disincentive-ridden tenurial conditions in agricultural sector, on the other. In addition
to this, in the post-War era, the developing countries faced the problem of population
explosion. Because of the imbalance between the growth of population and growth
of non-agricultural employment, the former being greater than the latter, the shift has not
taken place in favour of non-agricultural employment (Dovring,1964).

Further, the modern industrial technology adopted by the developing countries, in

the post-independent phase, has the low labour absorptive capacity, because of imbibing
the ready-made technology from the developed countries. Maitra (1986, p.5), while
analysing the impact of population growth on employment and technology, aptly said that
the extensive phase of industrialisation (step-wise technology development) was skipped
in these countries and they entered directly into the intensive industrialisation phase
(importing the ready-made technology). Due to this technological upgradation, there has
developed a structural asymmetry between the share of non-agricultural income and the
share non-agricultural employment. For example in India, the share of non-agricultural
income has gone up to 75.0 to 80.0 percent in the national income, whereas the share of
non-agricultural employment (in the total employment) assumes 30.0 to 40.0 percent
only.

II. OBJECTIVE

The main objective of this paper is to look into the interstate variations in the rural
non-agricultural employment (RNAE) in India from the recent NSS data for 2004-05.
However, before going to that analysis, first we want to dwell upon the definition of
RURAL sector in India and then deal with the recent support for increasing rural non-
farm employment.

III. DEFINITION OF RURAL AREA

What constitutes rural area is an important question. Sometimes rural area is to

be understood as ‘non-urban area.’ In such a case, the definition of ‘urban area’ is very

2
crucial to decide what is ‘rural area.’ However, different countries apply different
definitions for rural area. Lanjouw and Feder (2001) have to say the following on what
settlements of populations are treated as rural areas in some countries:

Rural is most often defined to include settlements of about 5,000 or fewer inhabitants.
However, the definitions of a rural locality, based on population size and/or functions and
characteristics of the settlement such as whether it has a school or hospital, or happens to
be the seat of local government, do vary. For example, the two African countries of Mali
and Zimbabwe designate as rural only settlements with less than 3,000 and 2,500
inhabitants respectively. Mauritania on the other hand includes settlements with up to
10,000 in its definition of rural, and Taiwan excludes only cities over 250,000 and two
suburban counties surrounding Taipei. In India, whether or not a particular setting is
designated as rural or urban is based, in part, on composition of the work force in that
setting.

In India, it is the definition of ‘urban area’ that makes difference because ‘non-
urban’ is treated as ‘rural’ in the Census. Definitional change occurred in 1971, and
according this definition, urban area should have to fulfill three conditions: (i) an area
should exceed population of 5000, (ii) it should have three fourths of male workforce
engaged in non-agricultural pursuits, and (iii) its density of population should exceed
400 per sq. km. All those areas that are not governed by this definition should be treated
as rural areas in India.

In India, comparison of rural areas would not be problematic to some extent from
the 1971 Census onwards. But, even in these Censuses, strict adherence lacked. For
example in 1991 Census, the non-adherence of the definition led to the de-classification
of urban areas into rural areas. In 2001, declassified towns are 79 and new towns added
are only 35 (Ramachandraiah, 2003:580). Thus, inter-censual comparison becomes
difficult.

IV. INCREASING NECESSITY OF RURAL DIVERSIFICATION

Traditionally, rural non-farm activities have been treated as low-productivity

sector, producing low quality goods. From this point of view, the rural non-farm (RNF)
sector is expected to wither away as a country develops and incomes rise. As per this
view, there is no obvious rationale for governments to promote the sector (Lanjow,
2001). Similar views were expressed by the classical economists. Even as per Marx’s
analysis, the generalized commodity production, as capitalism develops in its full form,

3
grabs rural small-scale production, due to economies of scale (Marx,1971:35-36). The bi-
sector models of Lewis (1954) and Ranis and Fei (1964) elaborated the way in which the
traditional sector would be done away with by the modern sector, leading to progressive
urbanisation.

But, the shift of farm labour to non-farm sector, which situates in urban areas, has
not been realised in a big way. Thus, it has given rise to a thinking that rural workforce
has to be accommodated in rural sector itself. Even after green revolution, the
agricultural sector itself could not absorb rural population fully, as has been brought out
by study of employment and earnings in an agriculturally prosperous Indian state,
Punjab, where green revolution had been successful to a greater extent for 15 years by the
early 1980s. From their study, Bhalla and Chadha (1983, p.164) have the following to
say:

In the ultimate analysis, it is quite erroneous to believe that all problems of rural poverty
can be solved within agriculture. One of the main reasons for rural poverty is
overpopulation in agriculture combined with inequality in land distribution. It is,
therefore, essential to withdraw labour from agriculture into non-agricultural occupations
and industry.

Depending on such experiences, there has been change in the earlier view, that
caused the neglect of rural development. Lanjouw (2001) also says:

In recent years, opinion has been swinging away from this view, however, and there are a
number of arguments that suggest that the neglect of the sector is socially costly. For
example, it has been argued that the sector has a positive role in absorbing a growing
rural labour force, in slowing rural-urban migration, in contributing to national income
growth and in promoting a more equitable distribution of income.

Depending on the sustainable livelihoods approach, more focus on the

development of rural areas has been stressed by several writers, including World Bank
experts. In this connection, Chambers and Conway (1991), who are famous for their
definition of a livelihood, have given two reasons:

First, the needs of the rural poor are likely to get even less attention in the future. Visible
misery, articulate aspiration and political organisation and influence in the cities may
combine to concentrate resources in urban areas. Second, at the margin, the larger the
number of people who can live decently in rural areas, so the less will be the human
pressure and misery of the towns. There are shades, subtleties and exceptions but the
major empirical and normative equation from which we start is to seek ways for most
rural areas in developing countries to support many more people.

4
 Further, it has already been recognised in the developing countries that the
removal of rural poverty is not possible without providing rural employment on a
continuous basis, particularly in the RNF sector. The efforts of the governments in these
countries led to follow integrated rural development policies and they have yielded good
results. Start (2001) says:

Evidence from most continents over the last decade suggests that the share of household
income from non-farm sources is growing. Recent surveys suggest that nonfarm sources
account for 40-45 % of average rural household income in sub-Saharan Africa and Latin
America and 30-40 % in South Asia with the majority of this coming from local rural
sources rather than urban migration. Such patterns of diversification promise to transform
the structure of rural economies and societies.

The structural diversification within the rural economy itself has been stressed by
several theories. There are five sets of theories and they are delineated hereunder.
(i) Linkages with Non-Farm Activities running from Farm Sector: The interaction
between the agricultural sector and non-agricultural sector, in terms of labour, capital and
foreign exchange earnings, has been stressed in a cogent fashion by Johnston and Mellor
(1961). Mellor has also brought out the inter-linkages between agricultural and non-
agricultural sectors, that generate the opportunities for non-agricultural employment, as
referred by Eapen (1995b:29-30). These are forward and backward production linkages,
and also consumption linkages, running from agriculture to non-agriculture. Similar
view has been expressed by Start (2001). However, Papola (1987) from a study in India
concludes: “the hypothesis that agricultural growth by itself leads to industrialisation of
rural areas both in terms of diversification and improved performance thus seems only
partially validated in the India case.”
(ii) Linkages running from Non-Farm Activities to Farm and Non-Farm Sectors:
Eapen (1995b) brings out the interlinkages, that run from rural industrial activities,
whether related to agriculture or not, to the rural region. As per Eapen (1995b:27-29)
there are four types of linkages: (i) forward production linkages, (ii) backward
production linkages, (iii) consumption linkage effects and (iv) capital and labour
linkages. As regards forward linkages, demand is generated by (a) agricultural sector
(for agri-inputs), (b) small-scale industries (subcontracts from large rural industries) and
(c) simple intermediate goods industries (from rural tertiary sector services). In

5
backward linkages, demand is there for agricultural produce as inputs (for rural
industrial processing units) and for capital goods (from rural consumer goods industries).
The consumption linkages are reflected in the generation of demand for consumer goods
from both agricultural as also from non-agricultural households, due to increased incomes
in rural areas. The capital and labour linkages are important from the context of local
resources, such as rural capital, which otherwise may be siphoned off through financial
institutions; and unemployed and underemployed labour from agricultural or other
households. Here subcontracting, outsourcing and flexible specialisation may be of some
help.
(iii) Distress Diversification, and Pull and Push Factors: As regards the
motivation of the rural household members to enter the non-farm labour market, there are
several explanations. There are pull factors, such as earning higher incomes via better
returns in the non-farm sector relative to the farm sector, and push factors, such as risky
farming or land constraints, and missing insurance, consumption and input credit markets
(Reardon et al (2001)). The non-agricultural activities provide employment as ‘a last-
resort source of income’ or ‘a last resort safety-net function’ , which are common
among the very poor, particularly among women, with low labour productivity. Even this
may be opted by the well-off rural households (Lanjouw, 2001). ‘Distress
diversification hypothesis’ or ‘residual sector hypothesis’, which states that when labour
is not fully absorbed in the agricultural sector, the non-agricultural sector acts as a sponge
for the excess labour (Vaidyanathan, 1986 and Unni, 1991).
(iv) The Concept of Z-Goods: Hymer and Resnick (1969) introduced the concept
of z-goods, which was attributed to the goods and services produced by the people in
rural sector, engaging themselves in the remainder time, between the times spent on
agriculture and non-work (leisure). Reardon, et al (2001), from their Latin American
experience, have observed that there are zones where RNF activities never went beyond
the first stage of low productivity, ‘traditional non-traded Z-goods’ (which were used for
home consumption or traded only in rural local markets); while there are also zones
where the local RNF economy leapfrogs the first stage and goes directly to ‘the modern
Z-goods’ stage, using higher skills and physical and financial capital, with sources of
demand either in urban areas or export markets made accessible by better roads than

6
formerly, and from more dynamic local income growth than was possible when the
economy was mainly based on semi-subsistence agriculture. In this latter case, the
growth is thus driven by ‘external and local motors’ which can include but are not
limited to agriculture.
(v) Sustainable Livelihoods Approach: In the recent literature on ‘sustainable
livelihoods framework’, Scoones (1998) and Ellis (2000) and others have been stressing
the diversification in the rural economy of the developing countries. As per Ellis
(2000:4), the diversification may be posed in terms of the desirability of developing rural-
based non-farm industries, so that alternative full-time employment for the rural dwellers
in locations other than cities may be provided. However, diversification may also lead to
‘multiple activities’ or ‘pluriactivities’ of the individuals or households, particularly
among the farming communities of rural areas. For example, in a family, a farm family
worker may involve in non-agricultural activities in off-seasons, while working on the
own farm in seasons.

V. INTER-STATE VARIATIONS IN THE RURAL NON-AGRICULTURAL

EMPLOYMENT: 2004-05

Table-1 presents the shares of non-agricultural employment (NAE) in the total

employment for 2004-05 for the major states of India and all-India. The NAE among
males, females and persons are shown for the rural areas, the combined rural and urban
areas and the urban areas.

It is a fact that by definition the males among urban areas should have more than
75.00 percent of non-agricultural employment. Further, urban areas do not have
agricultural occupations even for females. From the Table, it is clear that at the all-India
level, in the urban areas, among males the share of NAE is as high as 93.90 percent and
among females also it is high with 81.90 percent; and as a concomitant, among persons
also it is as high as 91.20 percent. Across the states, the least share of NAE is among the
females of Bihar (53.30 percent) and the highest share is among the males of Himachal
Pradesh and West Bengal (97.40 and 97.30 percent respectively).

7
Table-1: Non-Agricultural Workers - State-wise, 2004-05 (% Shares from combined Usual Principal and Subsidiary Status)
RURAL RURAL + URBAN URBAN
S.No. States
M F P M F P M F P
1 Andhra Pradesh 33.60 21.50 28.20 49.15 30.51 41.45 93.10 82.30 90.00
2 Assam 30.40 11.70 25.70 39.60 17.69 34.04 95.70 92.70 95.20
3 Bihar 24.20 13.60 22.10 30.22 15.61 27.36 82.80 53.30 79.50
4 Jharkhand 38.50 14.70 30.00 50.12 20.41 40.23 93.30 68.00 88.20
5 Gujarat 30.70 10.90 22.70 56.03 23.78 45.13 95.90 84.40 93.80
6 Haryana 50.60 9.40 35.90 63.50 18.82 49.77 92.70 70.70 88.80
7 Himachal Pradesh 50.60 9.00 30.40 56.45 11.87 35.88 97.40 71.60 91.50
8 Jammu & Kashmir 46.20 13.40 36.10 57.68 19.08 46.81 90.60 61.30 85.90
9 Karnataka 22.30 14.50 19.00 46.56 26.62 39.34 94.00 84.00 91.80
10 Kerala 62.90 48.30 58.00 68.76 55.11 64.41 86.00 80.20 84.30
11 Madhya Pradesh 20.90 11.90 17.50 39.49 20.44 32.85 91.00 76.30 87.90
12 Chhattisgarh 19.70 6.70 13.80 34.65 12.66 25.59 91.80 70.10 86.70
13 Maharashtra 28.60 9.30 20.00 58.49 26.94 46.81 95.40 85.80 93.20
14 Orissa 34.10 25.40 31.00 42.07 28.90 37.66 89.90 71.70 86.10
15 Punjab 45.30 10.30 33.10 64.18 23.88 52.37 95.90 84.80 94.10
16 Rajasthan 39.80 10.50 27.10 52.50 17.11 38.32 92.90 66.10 86.10
17 Tamil Nadu 41.30 26.20 34.60 66.55 45.82 58.81 93.80 86.30 91.70
18 Uttar Pradesh 33.70 13.50 27.20 46.98 20.36 39.28 92.80 73.50 89.50
19 Uttaranchal 36.70 4.00 21.60 52.52 9.65 35.11 92.80 66.60 88.00
20 West Bengal 36.10 41.20 37.30 54.10 55.11 54.34 97.30 96.90 97.20
All-India 33.50 16.70 27.30 51.18 27.52 43.31 93.90 81.90 91.20
Source: Government of India (2006), Employment and Unemployment Situation in India, 2004-05 ( NSS Report No.515),
National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, September
Notes: 1. The combined ( Rural + Urban) figures have been computed by applying
the rural and urban percentages on the projected population of 2004-05
2. M=Males, F=Females and P=Persons

The NAE shares among rural areas are substantially lower than those of urban
areas, both at the all-India and at the state levels. As a result, the shares of NAE at
overall levels (the combined rural and urban areas) lie between the shares of rural areas
and urban areas for all-India and states, as these are the weighted averages.

Now we may examine the inter-state variations among the shares of rural non-
agricultural employment (RNAE). Table-2 gives the gist of performance of the RNAE.

1. Rural Non-Agricultural Employment (RNAE): 2004-05

We start with the shares among males. At the all-India, the share of RNAE is
33.50 percent among males. Kerala has the highest share (62.90 percent), followed by
Haryana and Himachal Pradesh (50.60 percent each), Jammu & Kashmir (46.20 percent)
and Punjab (45.30 percent). Totally 13 states have shown higher shares than that of all-

8
India. The other 8 states are Tamil Nadu, Rajasthan, Jharkhand, Uttaranchal, West
Bengal, Orissa, Uttar Pradesh and Andhra Pradesh; and their shares vary between 41.30
percent and 33.60 percent in that order. The least performing states are Chhattisgarh
(19.70 percent) and Madhya Pradesh (20.90 percent).

Among females, at the all-India level, the share of RNAE is nearly half of that of
males, with 16.70 percent. Again Kerala dominates the scene with 48.30 percent,
followed by West Bengal (41.20 percent), Tamil Nadu (26.20 percent), Orissa (25.40
percent) and Andhra Pradesh (21.50 percent). Only these 5 states have shown higher
shares than that of all-India. The states with the least performance are Uttaranchal (4.00
percent), Chhattisgarh (6.70 percent), Himachal Pradesh (9.00 percent), Maharashtra
(9.00 percent) and Haryana (9.40 percent).

Table-2: Gist of Performance of Rural Non-Agricultural Employment

Item Rural Males Rural Females Rural Persons
All-India share 33.50 16.70 27.30
Kerala, Haryana, Himachal Kerala West Bengal, Tamil Kerala, West Bengal,
Pradesh, Jammu & Kashmir, Nadu, Orissa and Andhra Jammu & Kashmnir,
> All-India Punjab, Tamil Nadu, Rajasthan, Pradesh (5) Haryana, Tamil Nadu,
Jharkhand, Uttaranchal, West Punjab, Orissa, Himachal
Bengal, Orissa, Uttar Pradesh and Pradesh, Jharkhand and
Andhra Pradesh (13) Andhra Pradesh (10)
Highest Kerala (62.70) Kerala (48.30) Kerala (58.00)
performance

Lowest Chhattisgarh (19.70 percent) Uttaranchal (4.00 percent ) Chhattisgarh (13.80 per
performance cent)

Now we may look at the shares of the RNAE among the persons of rural areas.
These shares show only a weighted average of the shares among males and females. At
the all-India, the share assumes 27.30 percent. Kerala has the highest share (58.00)
percent, followed by West Bengal (37.30 percent), Jammu & Kashmnir (36.10 percent)
and Haryana (35.90 percent). Nearly half of the states have shown higher shares than
that of all-India. The other states are Tamil Nadu, Punjab, Orissa, Himachal Pradesh,
Jharkhand and Andhra Pradesh; and the shares of these states vary between 34.60 percent
and 28.20 percent in that order. The states with the lowest shares are Chhattisgarh (13.80
percent), Madhya Pradesh (17.50 percent), Karnataka (19.00 percent) and Maharashtra
(20.00 percent).

9
(i) Rising Trend in the Shares of RNFE: 1983 to 2004-05

Table-3 shows the shares of NAE among persons of rural, urban and total areas
for the four NSS Rounds: 1983, 1993-94, 1999-00 and 2004-05. In regard to the share of
NAE, between 1999-00 and 2004-05, among urban persons, 9 states of 17 comparable
states show the down trend. It may partly be attributable to the non-adhrence of the
definition of ‘urban area’ strictly in the 1991 Census. But, the happy situation is that in
respect of the shares of rural NAE, except Assam all other 16 comparable states show
increasing trend between 1999-00 and 2004-05. Further, it is noteworthy that over the
four NSS Rounds, the rural NAE has been continuously on the rising trend in 12
comparable states (i.e., excluding Assam, Gujarat, Karnataka, Maharashtra and Orissa).

Table-3: Non-Agricultural Workers - State-wise: 1983 to 2004-05 (% Shares from the combined Usual and Principal Status)
Rural Persons Urban Persons Total Persons
S.No. States
1983 93-94 99-00 2004-05 1983 93-94 99-00 2004-05 1983 93-94 99-00 2004-05
1 Andhra Pradesh 19.90 20.80 21.20 28.20 84.30 83.50 90.40 90.00 30.70 32.90 34.50 41.45
2 Assam 20.70 21.10 32.40 25.70 92.60 97.00 94.10 95.20 27.70 29.50 39.80 34.04
3 Bihar 16.50 15.80 19.40 22.10 85.70 88.10 88.90 79.50 23.50 23.40 26.90 27.36
4 Jharkhand - - - 30.00 - - - 88.20 - - - 40.23
5 Gujarat 15.00 21.20 20.00 22.70 82.00 92.00 90.20 93.80 31.30 41.10 40.30 45.13
6 Haryana 22.90 28.30 31.60 35.90 84.00 88.40 89.40 88.80 35.90 43.10 47.00 49.77
7 Himachal Pradesh 13.00 20.40 26.20 30.40 87.60 82.20 89.60 91.50 17.20 24.10 30.40 35.88
8 Jammu & Kashmir 20.30 24.90 26.30 36.10 83.90 86.20 87.20 85.90 31.10 36.10 37.10 46.81
9 Karnataka 15.60 18.10 17.90 19.00 80.10 83.40 89.10 91.80 30.40 34.30 37.50 39.34
10 Kerala 37.20 44.00 51.50 58.00 72.30 74.60 90.40 84.30 43.70 51.90 61.30 64.41
11 Madhya Pradesh 9.70 10.10 12.80 17.50 84.60 83.60 84.50 87.90 20.50 22.30 26.10 32.85
12 Chhattisgarh - - - 13.80 - - - 86.70 - - - 25.59
13 Maharashtra 14.20 17.40 17.30 20.00 87.40 90.80 94.30 93.20 33.80 40.60 43.60 46.81
14 Orissa 20.80 19.00 21.50 31.00 83.80 84.20 86.70 86.10 26.70 26.70 29.00 37.66
15 Punjab 17.50 25.50 27.50 33.10 86.00 90.80 91.10 94.10 33.20 43.60 46.60 52.37
16 Rajasthan 13.30 20.20 22.40 27.10 72.70 83.70 86.90 86.10 22.40 30.80 34.10 38.32
17 Tamil Nadu 25.70 29.80 31.70 34.60 84.60 88.10 91.00 91.70 41.10 47.50 53.20 58.81
18 Uttar Pradesh 18.00 20.00 23.90 27.20 87.80 85.00 90.60 89.50 28.30 31.00 36.40 39.28
19 Uttaranchal - - - 21.60 - - - 88.00 - - - 35.11
20 West Bengal 26.40 36.40 37.00 37.30 95.20 94.30 97.00 97.20 43.60 51.90 53.90 54.34
All-India 18.70 21.60 23.70 27.30 85.40 87.70 91.20 91.20 31.40 36.00 39.70 43.31
Source: Government of India (2006), Employment and Unemployment Situation in India, 2004-05 ( NSS Report No.515),
National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, September
Notes: 1. The combined ( Rural + Urban) figures have been computed by applying
the rural and urban percentages on the projected population of 2004-05
2. M=Males, F=Females and P=Persons
3. For 1983, 1993-94 and 1999-00, the figures are taken from Tables 6 and 7 of Chadha and Sahu (2002)

10
2 Composition of Non-Agricultural Sectors in the RNAE: 2004-05

As seen from Table-4, in the RNAE among males, at the all-India level, the three
sectors that dominate in the total RNAE among males (33.5 percent) are : (i) trade, hotel
and restaurants (TH) sector (8.3 percent), (ii) manufacturing (MF) sector (7.9 percent)
and (iii) construction (CT) sector (6.8 percent). Across the states also, these three sectors
dominate in the RNAE among males. Only 5 states in the trade, hotel and restaurant
sector, 10 states in the manufacturing sector and 9 states in the construction sector have
showed higher shares than the respective all-India shares. The states that have shown
highest shares in the TH, MF and CT sectors are Kerala (15.6 percent), Tamilnadu (13.5
percent) and Himachal Pradesh (18.3 percent) respectively. At the all-India level, within
the RNAE among males, tertiary sector assumes dominance with 18.0 percent while the
secondary sector gets the share of 15.5 percent. Across the states, nearly half them
assume dominance in the tertiary sector and other half of them in secondary sector.

Table-4: Sectoral Distributuion of Usual PS and SS Workers, Statewise, 2004-05 (RURAL MALE)
Agric- Mining, Manufa- Electri- Cons- Trade, Services
ulture, quarry- cturing city, truction hotel & Trans- Fin. Pub. Non-Agri-
Seco- Tert-
etc. ing water, rest- port, Inter, admin. cultural
S.No. States All ndary iary
etc. aurant etc. business educn. Work-
Sector Sector
ers
act.etc comm..
serv.etc.
1 Andhra Pradesh 66.4 1.5 7.8 0.2 5.1 8.0 4.6 0.7 5.9 100.0 14.6 19.2 33.8
2 Assam 69.6 0.3 2.9 0.2 3.0 11.6 3.2 0.2 8.8 100.0 6.4 23.8 30.2
3 Bihar 75.8 0.1 5.0 0.1 3.2 8.7 2.8 0.3 4.0 100.0 8.4 15.8 24.2
4 Jharkhand 61.5 1.7 7.9 0.1 14.5 6.7 3.5 0.7 3.3 100.0 24.2 14.2 38.4
5 Gujarat 69.3 0.6 10.1 0.2 3.7 6.9 4.5 0.5 4.3 100.0 14.6 16.2 30.8
6 Haryana 49.4 0.2 11.8 0.8 12.6 11.1 6.2 1.2 6.7 100.0 25.4 25.2 50.6
7 Himachal Pradesh 49.4 0.2 7.2 2.6 18.3 7.7 5.8 0.8 7.9 100.0 28.3 22.2 50.5
8 Jammu & Kashmir 53.8 0.4 9.9 1.6 10.2 7.1 5.8 0.4 10.8 100.0 22.1 24.1 46.2
9 Karnataka 77.7 0.5 5.3 0.1 3.1 5.9 3.3 0.4 3.7 100.0 9.0 13.3 22.3
10 Kerala 37.1 1.9 10.1 0.3 15.1 15.6 9.9 2.9 7.1 100.0 27.4 35.5 62.9
11 Madhya Pradesh 79.1 0.7 4.5 0.2 4.6 5.3 1.2 0.4 4.2 100.0 10.0 11.1 21.1
12 Chhattisgarh 80.3 0.7 4.1 0.1 4.7 4.4 1.3 0.3 4.0 100.0 9.6 10.0 19.6
13 Maharashtra 71.4 0.4 7.6 0.2 4.2 6.6 4.0 0.8 4.8 100.0 12.4 16.2 28.6
14 Orissa 65.9 0.8 8.5 0.2 6.7 9.1 3.0 0.7 5.1 100.0 16.2 17.9 34.1
15 Punjab 54.7 0.1 9.4 1.1 13.5 9.3 5.2 1.1 5.5 100.0 24.1 21.1 45.2
16 Rajasthan 60.2 1.9 7.5 0.3 14.1 6.5 3.6 0.5 5.3 100.0 23.8 15.9 39.7
17 Tamil Nadu 58.7 0.5 13.5 0.2 8.6 8.0 4.7 1.2 4.7 100.0 22.8 18.6 41.4
18 Uttar Pradesh 66.3 0.2 9.6 0.1 7.4 8.2 3.0 0.6 4.5 100.0 17.3 16.3 33.6
19 Uttaranchal 63.3 0.0 5.2 0.4 10.9 8.1 3.7 1.0 7.4 100.0 16.5 20.2 36.7
20 West Bengal 63.9 0.3 8.9 0.1 5.0 11.4 4.6 1.1 4.8 100.0 14.3 21.9 36.2
All-India 66.5 0.6 7.9 0.2 6.8 8.3 3.8 0.7 5.2 100.0 15.5 18.0 33.5
Source: Government of India (2006), Employment and Unemployment Situation in India, 2004-05 ( NSS Report No.515),
National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, September

11
 If we look at the RNAE among females (Table-5), at the all-India level, the three
sectors that dominate in the total RNAE among females (16.8 percent) are : (i)
manufacturing (MF) sector (8.4 percent), (ii) public administration (PA) sector (3.8
percent) and (iii) trade, hotel and restaurants (TH) sector (2.5 percent). Across the states,
6 states in the MF sector and 7 states each in the PA sector and the CT sector have
showed higher shares than the respective all-India shares. Kerala alone assumes
dominance in shares of the MF, PA and TH sectors with 20.9, 17.1 and 5.2 percent
respectively. At the all-India level, within the RNAE among females, secondary sector
assumes dominance with 10.2 percent while the tertiary sector occupies only 6.6 percent.
Across the states, 14 have showed dominance in the secondary sector and other 6 of
them in the tertiary sector.

Table-5: Sectoral Distributuion of Usual PS and SS Workers, Statewise, 2004-05 (RURAL FEMALE)
Agric- Mining, Manufa- Electri- Cons- Trade, Services
ulture, quarry- cturing city, truction hotel & Trans- Fin. Inter, Pub. Non-Agri-
Seco- Tert-
etc. ing water, rest- port, business admin. cultural
S.No. States All ndary iary
etc. aurant etc. act.etc educn. Work-
Sector Sector
ers
comm..
serv.etc
1 Andhra Pradesh 78.5 0.8 9.7 0.0 1.1 4.9 0.1 0.1 4.9 100.0 11.6 10.0 21.6
2 Assam 88.3 0.0 3.7 0.0 0.8 1.1 0.2 0.1 5.7 100.0 4.5 7.1 11.6
3 Bihar 86.4 0.0 8.1 0.0 0.0 2.6 0.0 0.0 2.8 100.0 8.1 5.4 13.5
4 Jharkhand 85.3 0.3 8.1 0.0 2.9 1.3 0.2 0.0 2.0 100.0 11.3 3.5 14.8
5 Gujarat 89.1 0.3 4.4 0.0 1.9 1.5 0.0 0.0 2.8 100.0 6.6 4.3 10.9
6 Haryana 90.6 0.0 3.6 0.1 0.5 1.1 0.2 0.1 3.8 100.0 4.2 5.2 9.4
7 Himachal Pradesh 91.0 0.0 2.4 0.2 0.9 0.7 0.5 0.0 4.4 100.0 3.5 5.6 9.1
8 Jammu & Kashmir 86.6 0.0 9.7 0.0 0.1 0.3 0.0 0.0 3.3 100.0 9.8 3.6 13.4
9 Karnataka 85.5 0.3 7.6 0.0 0.6 2.5 0.2 0.0 3.1 100.0 8.5 5.8 14.3
10 Kerala 51.7 0.2 20.9 0.2 1.7 5.2 1.4 1.6 17.1 100.0 23.0 25.3 48.3
11 Madhya Pradesh 88.1 0.7 5.8 0.0 2.0 1.8 0.0 0.0 1.5 100.0 8.5 3.3 11.8
12 Chhattisgarh 93.3 0.2 2.6 0.0 1.3 1.2 0.0 0.0 1.3 100.0 4.1 2.5 6.6
13 Maharashtra 90.7 0.1 3.1 0.0 1.3 2.3 0.1 0.1 2.4 100.0 4.5 4.9 9.4
14 Orissa 74.6 0.7 15.7 0.0 3.4 2.6 0.1 0.0 3.1 100.0 19.8 5.8 25.6
15 Punjab 89.7 0.0 3.7 0.0 0.1 1.0 0.3 0.0 5.1 100.0 3.8 6.4 10.2
16 Rajasthan 89.5 0.2 3.6 0.0 3.8 0.8 0.0 0.0 2.1 100.0 7.6 2.9 10.5
17 Tamil Nadu 73.8 0.0 14.6 0.0 2.0 4.4 0.4 0.2 4.8 100.0 16.6 9.8 26.4
18 Uttar Pradesh 86.5 0.2 7.4 0.0 0.6 1.8 0.1 0.0 3.2 100.0 8.2 5.1 13.3
19 Uttaranchal 96.0 0.0 1.3 0.0 0.5 0.0 0.1 0.0 2.0 100.0 1.8 2.1 3.9
20 West Bengal 58.8 0.1 28.9 0.0 0.5 3.4 0.1 0.1 8.2 100.0 29.5 11.8 41.3
All-India 83.3 0.3 8.4 0.0 1.5 2.5 0.2 0.1 3.8 100.0 10.2 6.6 16.8
Source: Government of India (2006), Employment and Unemployment Situation in India, 2004-05 ( NSS Report No.515),
National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, September

12
 Now, we may turn towards RNAE among persons as shown in Table-6. At the all-
India level, there are four sectors that dominate in the total RNAE among persons (27.3
percent. They are : (i) manufacturing (MF) sector (8.1 percent), (ii) trade, hotel and
restaurants (TH) sector (6.1 percent), (iii) construction (CT) sector (4.9 percent) and (iv)
public administration sector (PA) sector (4.5 percent). Across the states, 8 states in the
MF sector, 10 states in TH sector, and 11 states each in the CT and the PA sectors
have showed higher shares than the respective all-India shares. Here also, Kerala
assumes dominance in shares of the MF, TH, CT and PA sectors with 13.7, 12.2, 10.6
and 10.5 percent respectively. At the all-India level, within the RNAE among persons,
secondary and tertiary sectors assume dominance with 13.6-13.7 percent. Across the
states, 10 have showed dominance in the secondary sector and 9 of them in the tertiary
sector; whereas 1 state (Gujarat) has equal shares for both of these major sectors of the
RNAE.

Table-6: Sectoral Distributuion of Usual PS and SS Workers, Statewise, 2004-05 (RURAL PERSONS)
Agric- Mining, Manufa- Electri- Cons- Trade, Services
ulture, quarry- cturing city, truction hotel & Trans- Fin. Pub. Non-Agri-
Seco- Tert-
etc. ing water, rest- port, Inter, admin. cultural
S.No. States All ndary iary
etc. aurant etc. business educn. Work-
Sector Sector
ers
act.etc comm..
serv.etc
1 Andhra Pradesh 71.8 1.2 8.6 0.1 3.3 6.6 2.6 0.4 5.4 100.0 13.2 15.0 28.2
2 Assam 74.3 0.3 3.1 0.1 2.5 9.0 2.4 0.2 8.1 100.0 6.0 19.7 25.7
3 Bihar 77.9 0.1 5.7 0.1 2.5 7.5 2.2 0.2 3.7 100.0 8.4 13.6 22.0
4 Jharkhand 70.0 1.2 8.0 0.1 10.3 4.8 2.3 0.5 2.8 100.0 19.6 10.4 30.0
5 Gujarat 77.3 0.5 7.8 0.1 3.0 4.7 2.7 0.3 3.7 100.0 11.4 11.4 22.8
6 Haryana 64.1 0.1 8.9 0.5 8.3 7.5 4.0 0.8 5.7 100.0 17.8 18.0 35.8
7 Himachal Pradesh 69.6 0.1 4.9 1.4 9.8 4.3 3.2 0.4 6.2 100.0 16.2 14.1 30.3
8 Jammu & Kashmir 63.9 0.3 9.8 1.1 7.1 5.0 4.0 0.2 8.5 100.0 18.3 17.7 36.0
9 Karnataka 81.0 0.4 6.2 0.0 2.1 4.5 2.0 0.2 3.5 100.0 8.7 10.2 18.9
10 Kerala 42.0 1.3 13.7 0.2 10.6 12.2 7.0 2.5 10.5 100.0 25.8 32.2 58.0
11 Madhya Pradesh 82.5 0.7 5.0 0.1 3.6 4.0 0.7 0.2 3.2 100.0 9.4 8.1 17.5
12 Chhattisgarh 86.2 0.5 3.5 0.1 3.2 2.9 0.7 0.2 2.8 100.0 7.3 6.6 13.9
13 Maharashtra 80.0 0.3 5.6 0.1 2.9 4.7 2.3 0.5 3.7 100.0 8.9 11.2 20.1
14 Orissa 69.0 0.8 11.1 0.1 5.5 6.7 2.0 0.4 4.5 100.0 17.5 13.6 31.1
15 Punjab 66.9 0.1 7.4 0.7 8.8 6.4 3.5 0.8 5.3 100.0 17.0 16.0 33.0
16 Rajasthan 72.9 1.2 5.8 0.2 9.6 4.1 2.1 0.2 3.9 100.0 16.8 10.3 27.1
17 Tamil Nadu 65.4 0.3 14.0 0.1 5.7 6.4 2.8 0.8 4.7 100.0 20.1 14.7 34.8
18 Uttar Pradesh 72.8 0.2 8.9 0.1 5.3 6.2 2.1 0.4 4.1 100.0 14.5 12.8 27.3
19 Uttaranchal 78.4 0.0 3.4 0.2 6.1 4.4 2.0 0.5 5.0 100.0 9.7 11.9 21.6
20 West Bengal 62.7 0.2 13.5 0.1 3.9 9.5 3.6 0.9 5.5 100.0 17.7 19.5 37.2
All-India 72.7 0.5 8.1 0.2 4.9 6.1 2.5 0.5 4.5 100.0 13.7 13.6 27.3
Source: Government of India (2006), Employment and Unemployment Situation in India, 2004-05 ( NSS Report No.515),
National Sample Survey Organisation, Ministry of Statistics & Programme Implementation, September

13
VI. DETERMINANTS OF RNAE: 2004-05

For the analysis of determinants of the RNAE, the two important variables, viz:
unemployment rate and literacy rate, have been taken as independent variables. These
are available by gender (among males females and persons), and they are expected to
show significant positive correlation with the respective shares of RNAE. Another
independent variable, percentage of rural landless households (owning land up to 1.00
acre) has been taken, as this also contributes to the supply of labour force in the NAE.
This variable is only the general for all three types of RNAE (i.e., among males, females
and persons), and it is also expected to have positive correlation with each of these
RNAE. Thus, the variables may be set as follows:
1. Share of RNAE among males (MN)
2. Unemployment rate among rural males (MU)
3. Literacy rate among rural males (ML)
4. Share of RNAE among females (FN)
5. Unemployment rate among rural females (FU)
6. Literacy rate among rural females (FL)
7. Share of RNAE among persons (PN)
8. Unemployment rate among rural persons (PU)
9. Literacy rate among rural persons (PL)
10. Percentage of rural landless households or owning up to 1.00 acre (LL)

The MN, the share of rural male non-agricultural employment, shows significant
positive correlation with the variables MU, ML and LL (the correlations being 0.693,
0.576 and 0.492 respectively). Similarly, the FN, the share of rural female non-
agricultural employment, also maintains significant positive relation with FU, FL and LL
(the correlations being 0.734, 0.491 and 0.642 respectively). Further, the PN, the share
of non-agricultural employment among rural persons, exhibits significant positive
correlation with PU, PL and LL (the correlations being 0.802, 0.611 and 0.641). Now, we
may look at the three respective regression equations, as presented in Table-7.
As per equation-1, the rural male unemployment rate and rural male literacy has
shown statistically significant positive impact on the male rural non-agricultural
employment. The equation-2 shows that the female rural non-agricultural employment
has been significantly influenced by rural female unemployment rate and rural landless
households. Finally the equation-3 also has the similar result as in equation-2. Thus, the

14
main weight of the regression analysis falls on the rural unemployment rates among
males, females and person to determine the respective rural non-agricultural
employment, though rural landlessness also causes high NAE among females and
persons.

Table-7: Regression Equations

No. of
S. No. Equation Adjusted R2
Observations

ML = -9.402 + 4.677** MU + 0.458** ML + 0.117 LL

1 (2.285) (1.846) (0.749)
0.509 20

FL = -0.802 + 1.490* FU - 0.091 FL + 0.310** LL

2 (2.780) (-0.473) (2.167)
0.577 20

PL = 3.665 + 2.251* PU + 0.150 PL + 0.203** LL

3 (2.901) (0.899) (1.835)
0.667 20

* Significant at 1 percent level

** Significant at 5 percent level

Ultimately, these regression results again extend more support for ‘distress
diversification hypothesis’ or ‘residual sector hypothesis’, which states that when labour
is not fully absorbed in the agricultural sector (leading to high rural unemployment rate),
the non-agricultural sector acts as a sponge for the excess labour (Vaidyanathan, 1986
and Unni, 1991).

VI. CONCLUSION

The paper has brought out the issue of ambiguities in the definition of rural
area, which is treated as non-urban area, derived from the definition of urban area. It
also has dealt with the increasing necessity of rural diversification from the view point of
the theories: (i) linkages with non-farm activities running from farm sector, (ii) linkages
running from non-farm activities to farm and non-farm sectors, (iii) distress
diversification, and pull and push factors, (iv) the concept of z-goods and (v)
sustainable livelihoods approach.

15
 As regards inter-state variations in the rural non-agricultural employment (RNAE)
for 2004-05, the findings are summarized.

(i) At the all-India level, the share of RNAE among females is only half of
that of males (the latter share being 33.5 percent). Kerala dominates in
the shares of RNAE among males, females and persons. The states, that
have showed higher shares than those of all-India among the three types of
RNAE (i.e., among males, females and persons), are Kerala, West
Bengal, Tamil Nadu, Orissa and Andhra Pradesh. Uttaranchal shows the
lowest share of RNAE among females (as low as 4.0 percent).
(ii) There has been a continuous increasing trend of the RNAE (among
persons) for most of the states over the period, 1983 to 2004-05.
(iii) From the sectoral distribution within the NAE sectors, the three sectors,
that dominate among males and females, are (i) manufacturing sector,
(ii) trade, hotel and restaurant sector and (iii) construction sector. Kerala
assumes dominant shares among females and persons for these three
sectors, though among males also it has high shares.
(iv) From the regression analysis, it follows that rural unemployment rates
among males, females and persons determine the respective rural non-
agricultural employment, though rural landlessness also causes high NAE
among females and persons. Thus, ultimately the regression results again
extend more support for ‘distress diversification hypothesis’ or ‘residual
sector hypothesis.’

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