The Indian Journal of Labour Economics, Vol. 50, No.

4, 2007

LIVELIHOOD DIVERSIFICATION:
A CASE STUDY IN RURAL TAMIL NADU

P.S. Sujithkumar*

This paper uses survey data to analyse livelihood diversification among rural
households in three villages of K.V. Kuppam Block in Vellore district of Tamil Nadu.
The Inverse Simpson Diversity Index has been used for measuring livelihood
diversity. The study highlights the recognition of livelihood diversity and the fact
that rural households are no longer generating income from agricultural sources
alone. It has been argued that there is a significant difference among different income
groups and different landholding groups with respect to livelihood diversity. It is
evident that livelihood diversification is the highest among the highest income group
and richer households derive a higher proportion of their incomes from non-farm
sources than poorer households.

I. INTRODUCTION
The traditional view of processes of economic change is that they involve a transition between
states of economic structure. An inverse relationship exists between economic progress and the
extent of dependence of the workforce on the primary sector (Kuznets, 1974). The shift in
occupational pattern from the primary sector to the secondary and tertiary sectors or a shift in
the origination of income from agriculture to industry and the tertiary sector is considered to be
a natural process of economic development. Thus, diversification is considered to be a movement
to a better state than the existing one. Livelihood diversification as an individual or household
level strategy does not fit well into the conventional picture. Diversification may be a strategy
for survival or accumulation (Hart, 1994). Livelihood diversification is the process by which
households construct a diverse portfolio of activities and social support capabilities for survival
and in order to improve their standard of living. It is an infinitely heterogeneous process
differentiated in its causes and effects (Ellis, 1998).
Evidence from studies across the world has shown that rural households are increasingly
engaging in a diverse set of activities to generate income. Rural households can generate income
from a wide range of non-agricultural activities apart from their farm and off-farm income
sources. Reardon, et al. (1998) find an average share of 42 per cent of non-farm income in the
total rural household income in Africa, 40 per cent in Latin America, and 32 per cent in Asia.
Each household has its’ own strategy of decision-making on the allocation of resources among
different income-generation activities. Household members can engage in different activities
to generate income. Sometimes, a member also finds multiple sources of income during a
particular time or different times of the year.
Rural livelihood diversification has far-reaching effects. A number of studies have reached
the conclusion that diversification helps the household have a higher income profile and improve

* Lecturer, Department of Economics, Bharathidasan Government College for Women (Autonomous), Pondicherry. The
author is grateful to. P. Govindarajan, formerly Professor and Head of the Department of Economics, Presidency College,
Chennai, for being primarily instrumental in the execution of this work. Without his moral and intellectual support, this
work may not have been possible.
716 THE INDIAN JOURNAL OF LABOUR ECONOMICS

livelihood security (Hart, 1994; Saleth, 1997) by making better use of the available resources
and skills. It is possible for diversification to improve the independent income-generating
capabilities of women and in doing so, influence gender relations in the household. The fact
that the relationship between diversification and rural inequality is not uniform in all the regions
makes generalisation difficult. On the one hand, studies by Chinna (1979), Haggblade and Hazell
(1989) and Adams (1994) have inferred that diversification has an equalising effect on rural
income. On the other hand, studies by Evans and Nagu (1991), and Reardon, Delgado and
Matlon (1992) have inferred that diversification has an un-equalising effect on rural income.
The present study measures livelihood diversification in the study area. It attempts to check the
relationship between diversification and the income level, on one hand, and between
diversification and landholdings, on the other. It analyses the number of activities undertaken
by the household and the income composition for different income groups and land groups.
This paper proceeds as follows: Section II presents the measurement of livelihood diversity.
Section III discusses the characteristics of sample villages and household data collected from
three villages of K.V. Kuppam Block of Vellore district of Tamil Nadu. Section IV analyses
the diversification in sample households, while Section V summarises the results.

II. MEASUREMENT OF LIVELIHOOD DIVERSITY

There are many problems one has to tackle with regard to the measurement of diversification.
The composition of rural household incomes is relatively poorly researched as compared to
other aspects of rural livelihood in many developing countries (Ravallion, 1992). The income
in rural households varies from year to year, depending on the availability of farm and off-farm
employment, the outcome of farm production and the output prices. Income also varies
seasonally, causing practical difficulties for the timing of sample surveys, and the accuracy of
recall of crop sales and prices.
Livelihood diversification has been defined in various ways. Among the prominent
definitions, diversification is seen as an increase in the number of income sources or the balance
among different sources (Ersado, 2003), or as a shifting from agricultural activities to non-
agricultural ones (Reardon, 1997; Escobal, 2001), or shifting from subsistence farming to
commercial farming (Delgado and Siamwalla, 1997). are the prominent ones. The present study
considers both an increase in the number of income sources as well as the balance among different
sources as diversification. A household with a higher number of income-generating sources
can be said to be more diversified than a household with fewer income-generating sources, and
a household that generates an equal amount of returns from each activity its members are involved
in is more diversified than a household with the same number of income-generating activity
but an unequal income share from each income source.
The Inverse Simpson Index of Diversity has been selected for measuring livelihood diversity.
According to the index, if there are n number of different income sources, and if P1, P2, ….Pn
denote the proportion of household income generated by different activities, diversity can be
measured by using the following index:
1 / S Pi 2, where i = 1 to n.
The index considers the number of income sources and the distribution of income among
the different sources. Households with higher diversified income will get the highest diversity
value. Households with only one source of income will get a value of 1, which is the minimum
value possible. The more uniformly distributed is the income from each source, the more closely
LIVELIHOOD DIVERSIFICATION IN RURAL TAMIL NADU 717

does the index come to measuring the number of income sources. The present research work
has classified household income sources into eight categories. Hence the index can have values
ranging between 1 and 8.

III. DATA AND SAMPLE VILLAGES

Three villages have been selected from Kilvazhithunayankuppam (popularly known as K.V.
Kuppam) Block in Vellore district of Tamil Nadu for the study. Kilvazhithunayankuppam Block
falls between latitudes 12o 55’ 25” N and 13o 3’45”N, and longitudes 78o 54’35”E and 79o 7’30”E,
and the area of the block is 180.92 sq km. K.V. Kuppam Block is a typical block representing a
rural area. This particular block has no urban centre, nor is there any town Panchayat or
Municipality. The Block is bounded partly by Chittoor district of Andhra Pradesh in the north,
Anaicut Block in the south, Katpadi Block in the east, and Gudiyattam block in the west and
north-west.
Primary data have been collected from 194 households, whose members are residents of
three villages named Cholamur, Sennankuppam and Maliyapattu in K.V. Kuppam Block. The
villages have been selected on the basis of the share of non-agricultural labour in the total
workforce as per the 1991 Census. While the percentage of non-agricultural labour in the rural
workforce is high in Cholamur, the share is relatively low in Maliyapattu, and in Sennankuppam,
the proportion of the non-agricultural labour force was close to the average figure of the block.
After the selection of the villages, the sample households have been selected at random using
the proportionate sampling method and taking into consideration the size of the landholdings.
Collecting information pertaining to income from rural households is a difficult task mainly
because of the seasonal nature of many of the activities they engage in. For tackling this problem,
the surveys were repeated three times between the months of June and December 2000. There
was a gap of two months between each round. Data related to income earned from different
activities during the week of the survey had been collected to calculate the annual income.
Agriculture occupies a dominant place in the economy of the block. Among the major crops
are paddy, groundnut, and sugarcane. These crops also support the agro-processing industry,
which is an important part of the manufacturing sector. Banana, coconut and mango are also
cultivated. The block receives rainfall due to the south-west and north-east monsoons. Canals,
tanks and wells are the main sources of irrigation.
The beedi industry is a prominent industry in the block. Cotton weaving and the match
industries are the other industries of importance. Beedi-making is mainly carried out in the house
and usually the work is spread among several members of the household including children. A
State highway runs for a distance of 23 kms. along the full length of the block (west to east) from
Gudiyattam to Katpadi, making the block well-connected with the towns, which plays a crucial
role in the development of the tertiary sector in the block. The block villages are fairly well-
connected with the all-weather roads, which facilitate effective passenger and commodity traffic.
Vellore and Gudiyattam are the marketing centres for the area. Farmers who can afford to take
their produce in a larger quantity make use of these major markets, while small farmers, who
have only small quantities of produce to sell, make use of village markets or weekly shandies.

IV. DIVERSIFICATION IN SAMPLE HOUSEHOLDS

In the present study, the household has been taken as a unit of empirical investigation.
‘Household’ is defined as a group of persons, who commonly live together and take their meals
from a common kitchen, unless the exigencies of work prevent any of them from doing so. The
718 THE INDIAN JOURNAL OF LABOUR ECONOMICS

present work has classified household income sources into the following eight categories: (1)
Cultivation (Cult), (2) Allied agriculture (AL ag.), (3) Agricultural labour (A la), (4)
Manufacturing (manu), (5) Trade (Trad), (6) Service (Serv), (7) Non-agricultural manual labour
(N ma), and (8) Transfer income (Tran). Agricultural income from one’s own land comes under
cultivation. Income from livestock, forestry, plantations and orchards comes under allied
agriculture. Income from works on another person’s land for wages comes under income from
agricultural labour. Income from transfer includes remittances made by members not residing
in the household and income from pension.
Table 1
Diversity in the Sample Villages
Village Households Minimum Maximum Mean Standard Deviation
Sennankuppam 69 1 3.83 1.78 0.71
Cholamur 83 1 4.14 1.91 0.67
Maliyapattu 42 1 4.14 2.10 0.72
Total 194 1 4.14 1.91 0.70

In the sample, the diversity index ranged from a low of 1 to a high of 4.14 with a mean
value of 1.91 and a standard deviation of 0.70. Livelihood diversification in the sample is very
small, considering the fact that the mean diversity index can go up to 8. The mean diversity
index is the highest in Maliyapattu (2.10), followed by Cholamur (1.91) and Sennankuppam
(1.78). But the difference in the mean diversity index among the sample villages is not statistically
significant at the 5 per cent level.
The index is sensitive to the number of income sources and the share of each income source
in the total income. The data regarding both these variables are given in Table 2.
Table 2
Number of Activities Involved and Income Composition in the Sample Villages

Village Activity Percentage of total household income from different sources

involved Cult. Al. ag. A. la. Manu Trad. Serv. N. ma. Tran.
Sennankuppam 2.29 19.25 14.11 19.00 9.24 2.00 17.28 7.08 12.03
Cholamur 2.48 17.82 5.85 22.78 34.32 3.29 7.50 2.59 5.84
Maliyapattu 2.55 22.08 9.11 35.34 6.15 12.08 2.32 5.32 7.61
Total 2.42 19.25 9.49 24.16 19.30 4.73 9.86 4.78 8.43

The mean number of activities undertaken by the sample household is 2.42. There is no
statistically significant difference in the number of activities undertaken among the sample
villages.
In the sample, the share of income from agricultural sources constitutes 52.90 per cent of
the total income, and is higher than the share of income from non- agricultural sources.
Agriculture labour is a major source of income for the sample villages, followed by
manufacturing and cultivation. The share of income from agricultural sources is as high as 66.53
per cent in Maliyapattu followed by 52.36 per cent in Sennankuppam and 46.45 per cent in
Cholamur. Cholamur is the only village where the share of non-agricultural income is more
than the agricultural income. In Cholamur, manufacturing alone contributes 35.34 per cent of
the total income. Beedi-making is a prominent industry here, and being a household industry,
every member of the house is usually involved in it.
LIVELIHOOD DIVERSIFICATION IN RURAL TAMIL NADU 719

1. Income and Livelihood Diversification

Diversification helps the household create a higher income profile by making better use of the
available resources and skills. This section verifies whether high-income households are more
diversified than the lower-income households.

Table 3
Income Status and Diversity
Number of Diversity index
Income group households Minimum Maximum Mean F Value Sig.
Lowest 48 1 2.88 1.60
Second 49 1 3.83 1.83
6.85 0.00
Third 48 1 3.34 1.98
Highest 49 1 4.14 2.20

The households have been ranked in terms of their annual income and they are divided into
four quartiles. All the income quartiles have the same minimum diversity index. The maximum
diversity value for the lowest income group is 2.88, while for the highest income group, it is
4.14. The difference in the mean diversity index among income groups is statistically significant
at the 1 per cent level. The lowest income group has the lowest level of diversity, and the index
increases along with the income group. Three homogeneous sub-sets have been identified in
the Tukey test. The lowest two income groups and the highest two income groups form different
sub-sets. There is a significant correlation (r = .33) between household diversity and household
income. All this evidence points to the fact that rich households are maintain a more diversified
income portfolio than their poor counterparts.
The diversity index is influenced by the number of sources and the composition of income.
For a better understanding of diversity, both the variables are checked for different income
groups.

Table 4
Income Status and Number of Activities Involved
Number of No. of activities involved
Income group households Minimum Maximum Mean F Value Sig.
Lowest 48 1 3 1.90
Second 49 1 5 2.31 14.24 0.00
Third 48 1 4 2.52
Highest 49 1 5 2.98

The higher the income group, the higher is the number of activities undertaken by the
household. Households in the lowest income group were involved in only an average of 1.90
activities as against 2.98 activities among the highest income group. The mean difference is
statistically significant at the 1 per cent level. The Tukey test formed three homogenous sub-
sets. The lowest and second lowest income groups are included in one sub group while the
highest income group is in a different group. There is a statistically significant correlation (0.46)
between the income level of a household and the number of activities in which the household is
involved. It can be concluded that there is a positive association between the incomes of the
households and the number of their source incomes.
720 THE INDIAN JOURNAL OF LABOUR ECONOMICS

Table 5
Income Status and Composition of Income
Percentage of total household income from different sources
Income
group Cult. Al. ag. A. la. Manu. Trad. Serv. N. ma. Tran.
Lowest 10.20 10.64 39.10 17.74 1.04 5.35 3.65 12.28
Second 16.10 5.83 34.92 17.35 4.99 6.37 8.99 5.45
Third 16.88 8.54 16.19 26.84 5.12 16.60 5.23 4.60
Highest 33.60 12.96 6.55 15.40 7.72 11.16 1.23 11.37

The origin of income for different income groups is analysed in Table 5. Barring the third
highest income group, all income groups generate major portions of their income from non-
agricultural sources. Even the rural rich, who are more diversified than other income groups
are still obtaining a major portion of their income (53.11 per cent) from agricultural sources.
However, richer households derive a higher proportion of their incomes from non- farm sources
as compared to poorer households. Cultivation is a major source of income for the highest income
group, whose income from sources like agricultural labour and non-agricultural manual work
is minimal. The major source of income for the lowest income group is agricultural labour.
However, since income from agricultural labour is uncertain and seasonal in nature, and wages
for agricultural labour are relatively low in this region, the households here are confined to a
low-income profile.
It can be stated that the better-off households show greater ability to diversify in more
favourable labour markets than the poor households. The important reasons for this effect are
the lack of assets of the poor and their exclusion from the more highly remunerative labour
markets due to skill-related and educational constraints.

2. Land and Livelihood Diversification

The relationship between landholdings and the diversity of income sources is both empirically
and theoretically vague. Theory does not provide a straightforward hypothesis concerning the
size of the land and income diversity. Hart (1994) pointed out that larger landowners diversify
to accumulate, while the landless and near landless diversify to survive. Since land is a very
important asset for rural households, an attempt has been made here to identify the relation
between land status and diversity.
Table 6
Land Status and Diversity

Number of Diversity index

Land group households Minimum Maximum Mean F Value Sig.
Landless 87 1 2.99 1.59
<1 acre 59 1 4.14 2.14 12.52 0.00
1-2 acres 26 1 3.61 2.22
> 2 acres 22 1 4.14 2.16

In Table 6, the households are classified by the size of landholdings. There is a significant
difference in diversity among land groups. The group that has the lowest level of diversity is
that which includes the landless. Diversity is highest among the 1-2 acres of landed households
followed by the highest land owner households and less than 1 acre of landed households. Tukey
generated two homogenous sub-groups, wherein he classified landless households in one group,
and all other categories into another group. Even though the group comprising the landless is
LIVELIHOOD DIVERSIFICATION IN RURAL TAMIL NADU 721

less diversified than the landed households, it is seen that diversity in income level is not
increasing along with an increase in the landholding level.
Table 7
Land Status and Number of Activities Involved
Number of Number of activities involved
Land group households Minimum Maximum Mean F Value Sig.
Landless 87 1 4 1.93
<1 acre 59 1 5 2.88
20.39 0.00
1-2 acres 26 1 4 2.81
> 2 acres 22 1 5 2.73

There is a significant difference in the number of activities undertaken by the land groups.
The mean number of activities undertaken is lowest among the landless. The landless households
do not earn any income from cultivation and most of them may not even earn any income from
allied agriculture. The highest landed households are not those involved in a higher number of
activities and their diversity index is also not the highest among all land groups. Two
homogeneous groups have been generated in the Tukey test, with the landless included in one
group and all the other categories in the other group.
Table 8
Land Status and Composition of Income
Land Percentage of total household income from different sources
Group Cult. Al. ag. A. la. Manu. Trad. Serv. N. ma. Tran.
Land less 0.00 7.14 34.65 26.15 1.98 13.41 7.81 8.86
<1 23.55 8.89 22.34 18.39 8.95 6.50 2.14 9.25
1-2 42.24 14.44 11.75 9.53 4.65 6.36 4.67 6.37
>2 56.71 14.59 2.20 6.20 4.45 8.93 0.00 6.93

The share of non-agricultural income in the total income decreases along with an increase
in the landholding status. The share of non-agricultural income in the total income is 58.21 per
cent among the landless whereas it is only 26.5 per cent for the highest landholding group. The
latter generates a major portion of its income from agriculture followed by allied agriculture,
and for it, the services sector and transfer income are important sources of non-agricultural
income. The group comprising the landless generates 34.65 per cent of its income from
agricultural labour, followed by manufacturing and service. Thus, it can be inferred that landless
households are less diversified than their landed counterparts, but diversity is not increasing
with an increase in the landholding status. The share of non-agricultural income is decreasing
with an increase in the landholding status.

V. CONCLUSION
This study has used survey data from three villages of K.V. Kuppam Block in Vellore district
of Tamil Nadu to examine the livelihood diversity of the rural households.
The extent of livelihood diversification in terms of the Inverse Simpson Index is very small
in the study area. The mean diversity index in the area is only 1.9 as against the maximum
possible value of 8. The difference in mean diversity index among sample villages is not
statistically significant. There is no significant difference in the number of activity involved by
the households among sample villages and the mean number of activities undertaken by the
722 THE INDIAN JOURNAL OF LABOUR ECONOMICS

sample is 2.42 on an 8- point scale. The share of income from agricultural sources constitutes
52.90 per cent of the total income in the sample and barring one village, in all the other villages,
the share of agricultural income is higher than that of non-agricultural income.
Diversity is high among the higher income households and low among the low-income
households. The higher income group is involved in a greater number of activities than the
lower income group. The share of non-agricultural income in the total income is less in the
entire income group except in the second highest income group. Richer households derive a
higher proportion of their income from non-farm sources than do poorer households. The major
portion of the income for rich households comes from cultivation whereas for the poor, it comes
from agricultural labour
There is a significant difference in the diversity index among land groups and the landless
form a homogenous sub-set with low levels of diversity index. Landless households diversified
less than the landed households but diversity does not increase with an increase in the landholding
status. There is a significant difference in the number of activities undertaken by different land
groups and the landless form a homogenous sub-set by being involved in the lowest number of
activities. The share of non-agricultural income in the total income decreases along with an the
increase in the landholding status.
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