Drivers of rural income inequality in India:

Evidence from village surveys

Aparajita Bakshi

Assistant Professor

Tata Institute of Social Sciences

• What is the nature of income inequality

persisting in rural India?

• What are the major drivers of rural income

inequality?

Villages surveyed by Foundation for Agrarian Studies (FAS)

under Project on Agrarian Relations in India (PARI)

Village Block District State Agro-ecological type

Harevli Najibabad Bijnor Uttar Pradesh 100% canal-irrigated with supplementary

groundwater, wheat–sugarcane

Warwat Khanderao Sangrampur Buldhana Maharashtra Rainfed cotton region

25 F Gulabewala Karanpur Sri Ganganagar Rajasthan Canal and groundwater irrigation, with cotton,

wheat, and mustard cultivation

Alabujanahalli Maddur Mandya Karnataka Canal irrigation, Sugarcane, paddy and ragi

cultivation. Sericulture

Zhapur Gulbarga Gulbarga Karnataka Unirrigated. Cereals and oilseeds mixed

cropping. Stone quarrying.

Rewasi Sikar Sikar Rajasthan Tubewell and sprinkler irrigation. Pearl millet in

kharid, wheat, mustard, fenugreek, onion in

rabi. High remittance incomes

Nature of rural income inequality

1. Levels of inequality

2. Caste and income inequality

3. Class and income inequality

4. Gender dimensions

Inequality in per capital annual household income, PARI villages

Village Palma ratio Ratio Decile 10/9 Income share of top

decile

25F Gulabewala, Sri Ganganagar, Rajasthan 11.6 3.5 49.4

Harevli, Bijnor, Uttar Pradesh 6.4 3 39.2

Zhapur, Gulbarga, Karnataka 3.5 2.8 33.6

Albujanahalli, Mandya, Karnataka 2.7 2.6 37.5

Warwat, Buldhana, Maharashtra 2.6 1.8 36.4

Rewasi, Sikar, Rajasthan 2.6 2 30.2

Mean per capita household income, by caste/religious groups, PARI villages (in

rupees at current prices)

Village Dalit Adivasi Muslim All others Total

Harevli, Bijnor, Uttar Pradesh 4172 - 8137 19212 12372

Warwat Khanderao, Buldhana, Maharashtra 7025 - 7117 11954 10436

Nimshirgaon, Kolhapur, Maharashtra 8315 - 8680 16605 13410

25F Gulabewala, Sri Ganganagar, Rajasthan 5531 - - 63408 28512

Alabujanahalli, Mandya, Karnataka 9549 - - 19653 18221

Zhapur, Gulbarga, Karnataka 9415 10732 9526 11416 10458

Rewasi, Sikar, Rajasthan 21148 24836 - 23948 23705

Ratio of per capita mean incomes of Non-Dalit/Adivasi/Muslim households

to Dalit households, PARI villages

Village (State) Ratio of mean per capita

income of Others* to Dalit

households

Rewasi, Sikar, Rajasthan 1.1

Warwat, Buldhana, Maharashtra 1.7

Zhapur, Gulbarga, Karnataka 1.7

Alabujanahalli, Mandya, Karnataka 2

Harevli, Bijnor, Uttar Pradesh 4.6

25F Gulabewala, Sri Ganganagar, Rajasthan 11.7

Proportion of Dalit, Adivasi and Non Dalit/Adivasi/Muslim households in richest income

decile in PARI villages (as percentage of total population within group)

Top 10 per cent

Village Others* SC ST

Harevli, Bijnor, Uttar Pradesh 16.1 0 -

Warwat, Buldhana, Maharashtra 12.8 4 -

25F Gulabewala, Sri Ganganagar, Rajasthan 24.4 0 -

Alabujanahalli, Mandya, Karnataka 12 0 -

Zhapur, Gulbarga, Karnataka 16.7 0 14.3

Rewasi, Sikar, Rajasthan 10.2 14.3 0

Ratio of mean per capita household incomes of landlord and capitalist farmer/rich peasant

households to manual labour households, PARI villages

Village Landlord/capitalist

farmer: Manual

worker

Rich peasant:

Manual worker

25F Gulabewala, Sri Ganganagar, Rajasthan 28.7 8.6

Harevli, Bijnor, Uttar Pradesh 17.1 10.4

Warwat Khanderao, Buldhana, Maharashtra 15.0 4.8

Rewasi, Sikar, Rajasthan 5.3 1.9

Bukkacherla, Anantapur, Andhra Pradesh 4.6 1.8

Average wage earnings from agricultural wage employment, by sex, study

villages, 2006-2012 (in Rs. per day at December 2012 prices)

Village State Year of

survey

Agricultural wages Ratio of female

wage to male wage

Male Female

Ananthavaram Andhra Pradesh 2006 147 71 0.49

Bukkacherla Andhra Pradesh 2006 135 81 0.60

Kothapalle Andhra Pradesh 2006 135 64 0.47

Harevli Uttar Pradesh 2006 90 72 0.80

Mahatwar Uttar Pradesh 2006 90 54 0.60

Warwat Khanderao Maharashtra 2007 96 57 0.60

Nimshirgaon Maharashtra 2007 115 76 0.67

25 F Gulabewala Rajasthan 2007 108 72 0.67

Gharsondi Madhya Pradesh 2008 123 82 0.67

Alabujanahalli Karnataka 2009 195 90 0.46

Siresandra Karnataka 2009 187 106 0.57

Zhapur Karnataka 2009 163 65 0.40

Rewasi Rajasthan 2010 215 215 1.00

Drivers of rural income inequality – 1

Inequality in agricultural incomes and investments

• Even in the period characterized as ‘agrarian distress’, there was significant

private investment in agriculture. Using a rough end point estimate method, the growth of GCF was 10.45 per cent per annum in 1998/97 to 2004/5 and 9.28 per cent per annum in 2004/5 to 2007/8 (in 2000 prices).

• A section of capitalist farmers and rich peasants in the villages who receive significantly higher incomes than the manual workers and poorer sections of the peasantry. These households own larger than average land holdings, own and use modern agricultural machinery and inputs and make substantial investments in agricultural production. They are able to diversify agricultural production, and cultivate high value crops, within the limitations imposed by agro-climatic conditions.

• Richer farmers have been able to take advantage of globalised market conditions and have continued to accumulate in the post liberalization period, while marginal, small and medium farmers have not been able to cope adequately with the increased input prices and price volatilities in the open market.

Drivers of rural income inequality – 2

The rural non-farm sector

• More than 85 per cent of households in the villages were

engaged in primary sector activities. In addition, more than 50

per cent of households were engaged in secondary and tertiary

sector activities. On an average, a rural household obtained

income from three to four sources.

• The share of primary sector in total household incomes ranged

from 81 per cent to 24 per cent.

Income composition of richest 10 per cent and poorest 40 per cent households,

PARI villages (as percentage of total household incomes)

Village

Richest 10 % households Poorest 40 % households

Agricultural

incomes

Non-

agricultural

wage incomes

Non-

agricultural

other incomes

Agricultural

incomes

Non-

agricultural

wage incomes

Non-

agricultural

other incomes

Gulabewala 63.2 0.0 36.8 68.5 17.4 14.1

Harevli 86.2 0.0 13.8 79.8 11.6 8.7

Nimshirgaon 39.8 0.9 59.2 62.3 29.4 8.3

Rewasi 19.0 1.2 79.8 43.7 17.7 38.5

Warwat

Khanderao

52.8 0.1 47.1 72.3 10.5 17.3

• Village data shows that large landowning households not only

invested in agriculture but made substantial investments and

gains from non-agricultural activities within the village, or nearby

urban and semi-urban areas. They have been able to take

advantage of growing non-agricultural opportunities and

diversify their income portfolios. This has accentuated income

inequalities, since all households do not have equal access to the

non-agricultural sources of incomes.

• Poorer households have also gained from the expansion of the

non-farm sector. However, their participation remain limited to

unskilled and semi-skilled wage employment.

• Women are at particular disadvantage in gaining access to non-

farm employment.

Drivers of rural income inequality – 3

Disparities in income from labour and other factors of production

Distribution of factor incomes, India (as percentage of Net Domestic Product)

Factor income 1980-81 1990-91 1999-

2000

2011-12

Compensation of employees 38.5 39.8 38.8 40.5

Operating Surplus 7.8 11.1 15.9 20.1

Mixed Income 53.7 49.1 45.3 44.5

Distribution of factor incomes in agriculture, forestry and fishing,

India (as percentage of Net Domestic Product in

Agriculture, Forestry and Fishing)

Factor income 1990-91 1999-2000 2011-12

Compensation of employees 20.3 18.1 16.4

Operating Surplus 2.3 2.3 1.6

Mixed Income 77.2 79.6 82.0

Agricultural NDP 100.0 100.0 100.0

Functional distribution of household incomes, PARI villages (in per cent)

Village Wage Salaries Rent Mixed

income

Transfers

and other

sources

Total household

income

Harevli 10.4 6.9 7.1 71.8 4.2 100

Warwat 13.5 7.2 3.3 73.1 2.9 100

Gulabewala 7.6 5.8 6.1 63.4 17.2 100

Alabujanahalli 15.1 9.0 11.1 61.8 3.1 100

Zhapur 41.6 9.4 6.6 38.2 4.2 100

Rewasi 6.6 6.2 2.3 56.9 28.0 100

Association between Share of wages and mixed income of small and medium

farmers and manual worker households and income inequality, PARI villages

Village Wages Mixed income

of small &

medium

farmers and

manual

workers

Total Gini Palma ratio

Gulabewala 7.6 4.7 12.3 0.71 11.6

Gharsondhi 6.2 14.9 21.1 0.73 10.6

Harevli 10.4 21.7 32.1 0.64 6.4

Ananthavaram 13.2 19.8 33.1 0.52 6.2

Rewasi 6.6 27.4 34.0 0.47 2.6

Kothapalle 14.3 21.3 35.5 0.49 4.9

Mahatwar 22.8 13.7 36.4 0.48 2.8

Bukkacherla 13.7 27.3 41.0 0.53 4.5

Warwat 13.5 29.0 42.5 0.47 2.6

Nimshirgaon 19.4 23.2 42.6 0.51 2.6

• The disparity in returns from labour vis-à-vis other factors of production is an important driver of economic inequality in rural India. The functional distribution of income in these villages is of a piece with India’s growth experience post liberalization, where wages and labour employment have been kept low and incomes have soared for a minority with access to land and capital. High income inequality is inevitable in such a process of income generation. Ensuring equal access to land and other productive assets through redistributive policies, minimum wages, and labour-augmenting technical progress will remain central to any solution to the problem of income inequality in rural India.

• Low wages and underemployment at the core of the problem of poverty and inequality in rural India. Dhar and Dixit (2014) showed using FAS PARI data that given the existing wage rates, “hired manual worker households, which constitute the largest single class in many of the villages, can stay above the official poverty line only if they work additional days, ranging from 78 days in Ananthavaram to 344 days in Gharsondi.”

Thank you

aparajitab@tiss.edu