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

374 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

Agricultural Development and Rural Poverty in India

Madhusudan Ghosh*

INTRODUCTION

Rural poverty 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 ofrural
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 ofSaith(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 (West
Bengal),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 madefor 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 Productin agriculture per head ofthe 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 below poverty line 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 ofthe 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 ofR2has 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 employmentto 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 Madhya Pradesh and Tamil Nadu. However,
whereas six states, viz., Andhra Pradesh, Gujarat, Maharashtra, Punjab, Haryana and Uttar
Pradesh have made substantial improvements in per worker productivity, seven states, viz.,
Karnataka, West Bengal, Rajasthan, Orissa (all have positive and generally significant
growth rates in total man-days employment),Bihar,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 ofsome 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, Kerala,
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 ofthe 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).

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Desai(Eds.)(1986),op. cit.
Bhalla, S. (1987), "Trends in Employment in Indian Agriculture, Land and Asset Distribution", Indian Journal of
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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.
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Desai(Eds.)(1986), op. cit.
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ofAgricultural Economics, Vol. 43, No. 1, January-March.
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ofEconomics, Vol. 13, No. 2.
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Ghosh,M.(1993),"Test ofTrickle-Down Hypothesis in Rural West Bengal",Indian Journal ofAgricultural Economics,
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Ghosh,M.(1994),"Rural Poverty,Foodgrains Productivity and Some Related Aspects in India", Agricultural Situation
in India, Vol. 49, No. 2,May.
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New Delhi.
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Kakwani, N.and K.Subbarao (1990 b),"Rural Poverty in India, 1973-86",July,(Unpublished paper).
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 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 3.68 4.23
335
Haryana 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 0
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 2.49
2.33 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.