Non Farm Opportunities for Smallholder Agriculture Vijay Mahajan and Rajeev Kumar Gupta

Session 5Breakout session 12

Non Farm Opportunities for Smallholder Agriculture1

Vijay Mahajan and Rajeev Kumar Gupta2

Paper presented at the IFAD Conference on New Directions for Smallholder Agriculture24-25 January, 2011

International Fund for Agricultural DevelopmentVia paolo Di Dono, 44, Rome 00142, Italy

1 Copyright of the paper is reserved by IFAD. The paper may not be reproduced in part or in full and in any form without written permission of the Conference Organisers at IFAD (e-mail: at.rahman@ifad.org)

2 The authors respectively are Chairman and the Associate Vice President at BASIX Group, India

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Non Farm Opportunities for Smallholder Agriculture

SUMMARY

The share of agriculture to overall GDP in India has come down to 15 percent, while 66.2 percent of rural males and 81.6 percent of rural females are engaged in agriculture as cultivators or labourers. It is increasingly difficult to subsist as a smallholder in Indian agriculture. A combination of uneconomic holding size, rising input costs, high variability in yields and in output prices, leads to this situation.

The most dramatic consequence of this has been the rise in the number of suicides by small farmers. There is a need to enhance income of smallholders and for this they need to diversify into non-farm occupations as an additional livelihood opportunity. With growth, the non-farm sector has been growing, but for smallholder households, it‘s an issue of access to these opportunities.

To improve access, several successful models have been tried, but few have been replicated on the scale that is needed to address the crisis. This paper offers an approach to identifying, pilot testing and scaling up such approaches, based on the experience of a number of innovative projects in the non-governmental, cooperative and the private sectors.

These cover a range of interventions and sub-sectors – from processing of agricultural, horticultural, livestock and non-timber forest produce; to traditional household manufacturing like handloom and handicrafts; to non-traditional rural manufacturing; and on to services – storage, warehousing, wholesale and retail trading; and business, social and recreational services. The paper identifies skills and financial services as the ruling constraits and calls for action to overcome these.

1

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CONTENTS Abstract .................................................................................................................................................................. 1

1. Why Smallholder Agriculture in India needs to Diversify into Non-Farm Activity? .......................................... 3

1.1 The Smallholder in the Indian Agriculture Scenario .................................................................................... 3

1.2 Migration as a response to inadequate rural non-farm opportunities ........................................................ 5

1.3 The current and the next generation .................................................................................................... 6

2. What Are the Potential Opportunities of Non-Farm Growth ............................................................................ 7

2.1 Some Examples of Non-Farm Growth Opportunities ........................................................................... 8

2.1.1 Agro- Food processing .................................................................................................................. 9

2.1.2 Dairy and Poultry ........................................................................................................................ 10

2.1.3 Handicrafts ................................................................................................................................. 11

2.1.4 Non Traditional Rural Enterprises .............................................................................................. 11

2.1.5 Warehousing and Transport ...................................................................................................... 12

2.1.6 Wholesale and retail trading ...................................................................................................... 12

2.1.7 Business services ....................................................................................................................... 13

2.1.8 Social Services ............................................................................................................................ 14

2.1.9 Recreational Services ................................................................................................................. 14

2.1.10 What do the above examples show? ............................................................................................... 15

3. How can Smallholders Diversify into Non-farm Activities........................................................................... 15

3. 1 The determinants of diversification by a smallholder .............................................................................. 16

3.2 Skills ..................................................................................................................................................... 18

3.3 Financial Services ....................................................................................................................................... 18

4. Conclusion: ....................................................................................................................................................... 19

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1. WHY SMALLHOLDER AGRICULTURE IN INDIA NEEDS TO DIVERSIFY INTO

NON-FARM ACTIVITY?

1.1 THE SMALLHOLDER IN THE INDIAN AGRICULTURE SCENARIO

The share of agriculture as a percentage of the country's gross domestic product (GDP) has

declined monotonically for the last two decades, and it now accounts for only 14.6 percent of

the GDP in 2009-10. The sector, however, provided employment to 55 per cent of the work

force. It is for that reason that the Government is giving priority to agriculture and allied

sectors.

The total geographical area of India is 328.7 million hectares of which 140.3 million hectares

is net sown area, while 193.7 million hectares is the gross cropped area, according to the

Annual Report 2009-10 of the Ministry of Agriculture. While the distribution of this by size

of holding is not available for 2009-10, we do have data for 2000-01, shown in the Table 1

below. It clearly shows that over 82 percent of the 121 million operational holdings were

below 2 hectares, but accounted for only 39 percent of the 160 million hectares of area under

cultivation.

Table 1: Category-wise Distribution of Operational Holdings in India, (2000-

2001)*

Category of Holdings

No. of Operational

Holdings ('000

Number)

Area Operated

('000 Hectares)

Average Size of

Operational

Holdings(Hectares)

Marginal 76122 30088 0.40

(Less than 1 hectare) (63.0) (18.82)

Small 22814 32260 1.41

(1.0 to 2.0 hectare) (18.9) (20.18)

Semi-medium 14087 38305 2.72

(2.0 to 4.0 hectare) (11.7) (23.96)

Medium 6568 38125 5.80

(4.0 to 10.0 hectare) (5.4) (23.84)

Large 1230 (1.02) 21124 17.18

(10.0 ha and above) (13.21)

4

All Holdings 120822

(100.0)

159903 1.32

(100.0)

Note : Figures in parentheses indicate the percentage of respective column total. Compiled from the statistics

released by : Ministry of Agriculture, Govt. of India * : Excluding Jharkhand.

Though population growth has slowed down in the last fifteen years from 2.2 percent per

annum to 1.6 percent per annum, yet, due to the lagged effect of population growth, the

labour force continues to grow at about 2.1 percent per annum, to the point where it is

estimated to be close to 550 million in 2010, as seen in Table 2 below:

Table 2: Population and Labour Force Growth in India

Year

Population Labour Force

Million

%

Growth Million

%

Growth

1978 637.6 - 255.8 -

1983 718.2 2.2 286.6 2.1

1994 895 2.1 368.5 2.4

1997 951.2 1.9 397.2 2.3

2002 1028.9 1.6 449.6 2.5

2007 1112.9 1.6 507.9 2.4

2012 1196.4 1.5 562.9 2.1

Source : Rural Development Statistics, National Institute of Rural Development, Govt. of India .

At the same time, as the Table 3 below shows, inadequate diversification has taken place in

rural occupations, with as many 66.2 percent of rural males and 81.6 percent of rural females,

reporting agriculture (as cultivators or labourers) as their principal economic activity. While

this is a decline as compared to 80.4 percent for rural males and 86.8 percent for rural

females in 1977-78 respectively, it is still very high, given that the GDP share of agriculture

is down to about 15 percent.

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Table 3

1.2 MIGRATION AS A RESPONSE TO INADEQUATE RURAL NON-FARM OPPORTUNITIES

As per NSSO data, 78 percent of the migrant households in rural areas and 72 per cent of the

migrant households in the urban areas had last usual place of residence within the State.

Migration of households in both the rural and urban areas was dominated by the migration of

households from rural areas. Nearly 57 per cent of urban migrant households migrated from

rural areas whereas 29 per cent of rural migrant households migrated from urban areas. 2Nearly 55 per cent of the households in rural areas and 67 per cent of the households in the

urban areas had migrated for employment related reasons. For rural male, migration rate was

lowest (nearly 4 per cent) among the ‗not literates’, and it was nearly 14 per cent among

those with educational level ‘graduate and above’.

Among the migrants in the rural areas, nearly 91 per cent had migrated from the rural areas

and 8 per cent had migrated from the urban areas, whereas among the migrants in the urban

areas, nearly 59 per cent migrated from the rural areas and 40 per cent from urban areas.

Nearly 60 per cent of urban male migrants and 59 per cent of urban female migrants had

migrated from rural areas. For rural males, self-employment had emerged as main recourse to

employment after migration. The share of self-employment in total migrants increased from

16 per cent before migration to 27 per cent after migration, while the shares of regular

employees and casual labourers remained almost stable, in both before and after migration.

In Rajasthan the poor people from the rural regions migrate in groups in search of work to

relatively prosperous rural areas, towns and big cities in states like Punjab, Haryana, Gujarat,

Maharashtra and Delhi. Migration to other countries is also common. These areas serve as

2 From NSSO data

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reservoir of cheap labour supply for agricultural works, for work in the Bt cotton field, in

brick kilns, in tobacco industry and in construction industry etc. An ARAVALI-UNDP study

put the figure at almost 50% and estimates that almost 60% of tribal household income comes

from migration based wage labour. Migration to places other than the place of native

residence, however, is not smooth and heavy social costs are involved in the process. The

uncertainty of finding work; accident including fatal accident, sickness, duping, abuses,

extortion; problem of housing, water and sanitation; apathy of the local administration; added

problems of education and safety for women and children; hard labour and long working

hours; low wages, illegal deductions, and cheatings by the contractors are just to list a few. 3

Migrants have traditionally found work as labourers, masons or security guards in the cities.

For example, 80% of the 5.5 million workforce of security firms hail from villages. Some

migrants find better roles with FMCG and consumer durables companies (as upcountry

salesmen) or with the government. At this rate, estimates McKinsey Global Institute, 590

million people will be living in cities by 2030, putting enormous pressure on urban India's

physical and social infrastructure. 4

1.3 THE CURRENT AND THE NEXT GENERATION

Mishra5 documents the plight of farmers in the Maharashtra state of India.

“Suicide Mortality Rate (SMR), or suicide death per 100,000 population for males in India in 2001

was 14.0, while age-adjusted SMR for females was 9.5 at the all India level. SMR for male farmers in

Maharashtra trebled from 17 in 1995 to 53 in 2004, whereas for the overall population, the age-

adjusted SMR for males in Maharashtra has stabilized in the range of 20-21 from 2001.”

Small-holders are under continuous pressure to increase production from their limited land

resource. Thus, the sub-marginal- and marginal-size farms cannot remain ―subsistence-

oriented‖. Policies and strategies - existing and new - must help diversify on-farm and off-

farm activities and thereby enhance sustainability and productivity. The income from off-

farm and non-farm employment assists the small-farm households to become or remain

hunger-free. Through effectively-managed ―monetization‖, small farm households could

benefit from globalization and avoid poverty.

Amartya Sen (1999) demonstrated that during years when non-agricultural rural employment

increases, rural poverty declines, and that the converse also holds. Thus, on-farm, off-farm,

and on-off-farm rural employment is essential to combat rural poverty and to secure adequate

livelihood within the households of small-holders and land-less agricultural labourers.

3 Rajasthan Mission on Skills and Livelihoods Study document

4http://economictimes.indiatimes.com/news/news-by-industry/jobs/Companies-in-new-sectors-creating-

rural-jobs-rush/articleshow/6944824.cms 5 Srijit Mishra, Suicides of Farmers in Maharashtra, Indira Gandhi Institute of Development Research, Mumbai,

2006

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In a more recent study, Sharma and Bhaduri6 find that the ―tipping point‖ for structural

transformation of India‘s rural economy may have arrived:

Recent trends suggest that India might very well be at the "tipping point" of the transition in

its agriculture dependent population. A large proportion of youth in the countryside is on

their way out of agriculture. Rising disenchantment with the profession pushes them out of

agriculture while opportunities in other sectors of the booming economy pull them out of

agriculture. The regression results suggest that youth who possess non-farm skills are 1.4

times more likely to move out of agriculture. Age has a significant role as the odds ratio in

favor of shifting out of agriculture is high among farmers below 30 years of age. Further, this

study found that availability of irrigation did not have any significant impact on withdrawal

behavior. The small and marginal farmers expressed a great desire to quit farming possibly

because of the low viability of smallholder agriculture.

A large number of youth (30 percent) commuted to nearby towns/villages. Most of them

worked as agricultural labor, construction workers and contractual workers at agricultural

produce markets (mandis), factories, bus stops and railway stations. These jobs were low-

paying and irregular in nature. Most of the people interviewed had education up to secondary

level (37 per cent), followed by primary education (32 per cent). 16 per cent of the youth

interviewed were illiterate and a negligible one per cent had professional education from

technical training institutions such as Industrial Training Institutes (ITIs). A very small

number of youth (24 per cent) possessed any kind of non-farm skills reflecting the poor skill-

set of India‘s rural youth. This prevented them from gaining entry into remunerative

occupations.

The most common skills found among the youth were driving, electrical and mechanical

repair work, and masonry. A small percentage possessed knowledge in computer applications

as reported. There was a visible sign of aging of the farmer population. Along with the details

of the youth being interviewed we also took some relevant family details. The average age of

a person farming was found to be 36 (for an effective sample of 8500 plus in the working age

group). Among the youth also there was a difference in age of part-time and full involvement

farmers. Though the mean age is not much different, it clearly shows that the age of the full-

time farmers is skewed towards the higher age group.

2. WHAT ARE THE POTENTIAL OPPORTUNITIES OF NON-FARM GROWTH

An amount of US$ 19 billion has been allocated for the Ministry of Agriculture during the

Eleventh Five Year Plan. The public and private sector investment in agriculture have been

steadily increasing since 2004-05. While public sector investments in agriculture have

6 Amrita Sharma and Anik Bhaduri, THE “TIPPING POINT” IN INDIAN AGRICULTURE, Understanding the

Withdrawal of Indian Rural Youth

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increased from US$ 3.61 billion in 2004-05 to US$ 5.5 billion in 2008-09, private sector

investment has increased from US$ 14 billion in 2004-05 to US$ 25.5 billion in 2008-09,

according to the Annual Report 2009-10 of the Ministry of Agriculture.

Scheme-wise Expected Employment Generation in Agriculture Sector of

India

Scheme Employment Potential

Additional Areas under Cultivation to be

Brought under Oilseeds and Pulses 0.35 Million Man Years

National Watershed Development Project for

Rainfed Areas (NWDPRA) 0.50 Million Man Years

Horticulture 1.20 Million Man Years

On Farm Management 1.25 Million Man Years

Agri Clinics and Seed Production 0.15 Million Man Years

Tractors 0.10 Million Man Years

Total 3.55 Million Man Years

Source: Employment Generating Growth, Planning Commission, Govt. of India.

In India‘s peri-urban areas and in the off-seasons, small-holder farmers engage in off-farm

paid work. In comparison to rural (often remote) areas, the peri-urban areas are usually better

endowed with road, transport, market, and other infra-structures; they thereby have easier

access to off-season employment opportunities, and their poor people are less poor than the

rural poor. For the rural poor, strengthened rural infra-structures - particularly connections to

major roads and highways - would facilitate the development of small enterprises, agro-based

activities, and markets, and increase off-farm and nonfarm employment opportunities.

2.1 SOME EXAMPLES OF NON-FARM GROWTH OPPORTUNITIES

The rural non-farm economy includes both non-farm wage employment and non-farm self-

employment (though it excludes agricultural wage employment), and it lumps together a

highly diverse collection of activities, including trading, agro-processing, manufacturing,

construction, and commercial and service activities. Different opportunities in the non-farm

economy are open to different groups. Typically, education is the key to accessing good

employment opportunities in the non-farm economy. Poor people dominate many of the low-

return activities such as cottage industries, small-scale trading and unskilled wage labour

used in construction, portering and many personal services. The poor are more likely to be in

casual rather than regular wage labour; while their businesses are likely to be labour-intensive

and small-scale.

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2.1.1 AGRO- FOOD PROCESSING

Food Processing Industry is employment intensive. It has been estimated for India that for

every Rs.10 million invested, it creates 18 jobs directly and 64 indirectly in the organized

sector and 20 jobs in the unorganised sector across the supply chain7. At present food

processing sector employs about 13 million people directly and about 35 million people

indirectly.8 For the projected growth in the Food Processing Industry, it is expected that the

requirement of human resource would be about 17.8 million in 2022. It is expected that

Organised Sector would contribute to about 20% to 25% of employment, while a large

portion of the employment would be generated in the Unorganised Sector in the Food

Processing industry.9

Consumers are seeking foods that are natural (those that contain no preservatives and

chemical additives). This industry is over $60 billion in size and is growing at 12% per

annum. The second big trend is the growth of convenience foods. Consumers have reduced

the time to prepare foods by using ready-to-eat products to prepare meals. Finally, the third

big mega-trend is the growth of international cuisines also called specialty foods. Cuisines

such as Indian and pan-Asian are growing in demand and growing at more than 30% per

annum in US grocery stores.

Tastybite.com10

: Tasty Bite Eatables Limited (TBEL), launched in 1995 manufactures and

markets "Tasty Bite", brand of a range of shelf stable, all-natural, ready-to-serve (RTS) ethnic

food products. Tasty Bite procures its raw materials from farmers apart from having its own

production facilities. With the growth of processed foods, Smallholder farmers lower down

the value chain will benefit in terms of sales of their produce, primary processing and

employment.

DHRUVA Wadi Project – Horticulture : Within a time span of 3 decades, families living

in the tribal areas of Valsad and Navsari districts of Gujarat, India, have moved from a cluster

of tribals, migrating most of year to other areas in search for food and work; to a group of

‗Wadi‘ farmers, cattle owners, workers in processing units, living in brick and cement houses

with school going children11

. ‗Wadi‘ means a homestead orchard, typically an acre of land. is

sowed with 40 mango and 20 cashew trees. The border is covered with forestry used for

fodder and fuel by the families.12

A cooperative named ‗Vasundhara‘ has been formed to take care of the procurement and

selling of the produce. Also to tap in the margins in the final goods market a processing unit

was started and processed food like pickle, mango pulp and cashew nuts were launched under

7 http://indiacurrentaffairs.org/food-processing-industry-in-india-challenges-and-opurtunities/

8 http://indiacurrentaffairs.org/generation-of-employment-in-food-processing-sector/

9 http://www.nsdcindia.org/pdf/food-processings.pdf

10http://www.indiainfoline.com/Markets/Company/Fundamentals/Management-Discussions/Tasty-Bite-

Eatables-Ltd/519091 11

http://www.dhruva.org.in/Image/CaseStudy_BAIF.pdf 12

http://www.dhruva.org.in/Agri%20Buisness.aspx

10

a brand name of ‗Vrindavan‘. 13

Having started the programme in 1982, today it covers more

than 23,000 families in three blocks of South Gujarat apart from families covered in other

states. Seasonal migration has been reduced to a great extent as ‗‗Wadi‘‘ provides year-round

employment opportunities to tribal families.

For generating such kind of local based access to alternate income opportunities, the Wadi

project demonstrates the need for finance, skill upgradation and a sustainable institutional

model.

2.1.2 DAIRY AND POULTRY

Sterling Agro14

was launched in the year 1991 and presently have institutional clients like

Nestle, Cadbury, Parle, Dabur, ITC, Glaxo Smithkline, Unilever and retail clients like Big

Bazaar, Reliance, Metro Cash and Carry and Fair Price. Sterling Agro15

is one of the leading

exporters of dairy products, marketing high quality dairy products under its brand ―NOVA‖.

Sterling currently has a capacity of 2.4 million litres in the field of dairy products. The

company currently produces Skimmed Milk Powder, Instant Skimmed Milk Powder,

Partially Skimmed Milk Powder, Full Cream Milk Powder, etc. making it one of the largest

players in the private sector in India. The company has a strong procurement network,

extending to 150,000 Farmers across Chilling Centres, over 1,000 dealers/distributors and

more than 18,000 retailers spread all over India.

Suguna Poultry16

: Over a period of 25 years, Suguna has become a Rs. 3200 crore company.

Suguna‘s pioneering efforts in contract farming helped create thousands of rural

entrepreneurs who share the growth successfully. "Poultry Integration" introduced and

pioneered by Suguna in the country has energized the livelihoods of farmers in rural India. A

constant and relentless drive has taken the company's growth and expansion which covers

over 15,000+ farmers from 8,000 villages in 11 Indian states, 4,800 employees, 25,000

channel partners, and around 500,000 people benefit from indirect employment.

The above examples of growth in the Agri-allied industries suggests greater employment

avenues for the farmers not only as producers but also creating opportunities for becoming

small traders, low-skilled employee in these industries and set up retail outlets in nearby

towns and peri-urban areas. The Dairy sector itself is estimated to employ an incremental of

1.2 million people by 202217

.

13 http://www.mgiri.org/rez/rez.pdf

14 http://www.steragro.com/our-profile.html

15 http://www.steragro.com/images/Sterling%20Agro%20Industries%20Limited-WEBSITE.pdf

16 http://www.sugunapoultry.com/about_suguna/overview/overview.asp

17 http://www.nsdcindia.org/pdf/food-processings.pdf

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2.1.3 HANDICRAFTS

About 35 million people are involved in the handicraft industry. The yearly produce of this

industry is estimated to be around $6 billion which is around 8 percent of the total goods

produced in India. Out of this, around one-third is constituted by overseas trade. 18

Fabindia: 19

Fabindia links over 40,000 craft based rural producers to modern urban markets,

thereby creating a base for skilled, sustainable rural employment, and preserving India's

traditional handicrafts in the process. Fabindia promotes inclusive capitalism, through its

unique COC (community owned companies) model. A fully-owned subsidiary of Fabindia,

Artisans Micro Finance, a venture fund, facilitates the setting up of these companies, which

are owned 49 per cent by the fund, 26 per cent by the artisans, 15 per cent by private

investors and 10 per cent by the employees of the community-owned company. The company

promotes the sales of its artisan community to Fabindia, which is the principal buyer.20

A

community-owned company promoted in Jodhpur is valued at Rs 11 million. So far 18

community-owned companies have been set up with 6,000 artisan shareholders. Fabindia

hopes to set up 100 such companies by dividing its supplier base into clusters. Eventually, the

100 companies will cover 100,000 artisans across 21 states

Jaipur Rugs: 21

Jaipur Rugs Foundation (JRF) is a voluntary, non-profit organization,

registered in 2004 with a purpose to organize carpet weaving artisans at grassroot level. At

present it works with more than 40,000 artisans across the carpet value chain in 10 states in

India. JRF has evolved a model of poverty reduction and in the next 5 years plan to reach out

to 100,000 artisans along with their families. 22

Women constitute 80% of total artisans,

hence, a greater space for women empowerment. Assured buy back arrangement through

Jaipur Rugs Co. Pvt. Ltd has given surge and sustainability to the clusters.

Mechanisation and quality enhancement is important for the incremental growth of this

sector. The above examples signify the changing institutional linkages, where the artisan has

access to markets locally and low-cost financing is being supported by buyers.

2.1.4 NON TRADITIONAL RURAL ENTERPRISES

MEADOWS23

: With an aim to do something different in Dharamapuri district to help these

women, MYRADA an NGO started activities for women like tubelight assembly and

finishing shoe uppers for BATA. But both these projects failed either because the companies

closed down or due to productivity and quality issues. With TITAN, a major watch company,

the first proposal involved making of rotis for their canteen. But due to quality and hygiene

issues, this project was shelved. The next suggestion was laundering uniforms of the TITAN

factory workers which is still being performed by a women group. Around 1994-95, TITAN

18 http://www.jimandaz.com/indian_news/40/govt_aid_promotion_handicraft_trade.html, 9 Sep 2010

19 http://specials.rediff.com/money/2008/jun/18sl2.htm

20 http://www.fabindia.com/company/

21 http://www.jaipurrugs.org/

22 http://jaipurrugs.org/1-JRF_Article.htm

23 http://www.iimb.ernet.in/microfinance/Docs/Students/meadow_ujjwala.pdf

12

was planning to set up watch units in Korea and China to reduce costs. Happy with the output

of the women groups, TITAN and MYRADA selected girls who underwent training in

bracelet assembly. After about a year‘s experience, an entity of women groups, MEADOW

Rural Enterprises Limited was formed in September 1998. The number of members is

currently 275, inclusive of casual labourers. Of the members, 4 are men, and the remaining

are all women.

2.1.5 WAREHOUSING AND TRANSPORT

Warehousing24

: In 2010, the Government has launched a scheme of construction /

renovation of rural godowns for providing for the scientific storage in the rural areas by

incentivizing private sector to invest in this area. More than 22,000 godowns with a capacity

of about 27 million tonnes have already been sanctioned. 25

India has about 1,800 to 1,900

million sq. ft. of warehouse space of which only about 8% is in the organised sector. The

organised sector, which includes warehouses of companies and third party logistics providers,

is growing at over 10%. Based on the GDP growth of the Transportation sector, it is

estimated that the warehousing space would continue to record a CAGR of over 10% till

2022. This would drive the requirement for human resource in this sector, which is estimated

to be additional 4.32 million by 2022 in the organised and third party logistics

space.

Transport26

: Transport sector contributes significantly to India‘s GDP (around 6.4% in

2007-08), employing around 40 million people. Within transport, road transport is the

dominant mode of transport accounting for over two-thirds of the total contribution of the

transport sector to the GDP. Industry estimates show that employment in transport services

will increase. For instance, there were around 3 million truck drivers in India in 2007 which

is likely to increase to nearly 5 million by 2015. Connectivity has increased private

investments in non-agricultural micro enterprises and in transport services. Local villagers are

investing in small petrol pumps, hotels, etc. along the highways. Wage labourers can now

seek employment in nearby towns and there are more opportunities to commute between

workplace and villages. In terms of just drivers, cleaners and helpers, around 11.5 million

people additionally would be employed by 2022 in the road sector itself.

2.1.6 WHOLESALE AND RETAIL TRADING

ITC – Echoupal27

: ITC‘s International Business Division, one of India‘s largest exporters of

agricultural commodities, has conceived e-Choupal as a more efficient supply chain aimed at

delivering value to its customers around the world on a sustainable basis. The e-Choupal

model has been specifically designed to tackle the challenges posed by the unique features of

Indian agriculture, characterised by fragmented farms, weak infrastructure and the

involvement of numerous intermediaries, among others. ‗e-Choupal‘ also unshackles the

potential of Indian farmer who has been trapped in a vicious cycle of low risk taking ability >

24 http://indiacurrentaffairs.org/22000-rural-godowns-to-be-created-for-farm-produce/

25 http://www.nsdcindia.org/pdf/transportation-logistics.pdf

26 Social Impact of Globalising Transport Services: The Case of India by Arpita Mukherjee, 2009

27 http://www.citesales.com/118-e-choupal-case-study.html

13

low investment > low productivity > weak market orientation > low value addition > low

margin > low risk taking ability. ‗e-Choupal‘ leverages Information Technology to virtually

cluster all the value chain participants, delivering the same benefits as vertical integration

does in mature agricultural economies.

‗E-Choupal‘ makes use of the physical transmission capabilities of current intermediaries –

aggregation, logistics, counter-party risk and bridge financing –while dis-intermediating them

from the chain of information flow and market signals. With a judicious blend of click &

mortar capabilities, village internet kiosks managed by farmers – called sanchalaks –

themselves, enable the agricultural community access ready information in their local

language on the weather & market prices, disseminate knowledge on scientific farm practices

and risk management, facilitate the sale of farm inputs (now with embedded knowledge) and

purchase farm produce from the farmers‘ doorsteps (decision making is now information-

based). 'E-Choupal' services today reach out to more than 3.5 million farmers growing a

range of crops - soybean, coffee, wheat, rice, pulses, shrimp - in over 31,000 villages through

5,372 kiosks across seven states.

DCM Hariyali – retail trade28

: DCM Shriram Consolidated Ltd. (DSCL), is setting up a

chain of centres, "Hariyali Kisaan Bazaar" - a rural business centre, aimed at providing end-

to-end ground level support to the Indian farmer & thereby improving his "profitability" &

"productivity". The "Hariyali Kisaan Bazaar" chain, seeks to empower the farmer by setting

up centres, which provide all encompassing solutions to the farmers under one roof. Each

"Hariyali Kisaan Bazaar" centre operates in a catchment of about 20 kms. A typical centre

caters to agricultural land of about 50,000-70,000 acres and impacts the life of approx. 15,000

farmers. Each centre is engaged in: handholding to improve the quality of agriculture,

provides a complete range of good quality, multi-brand agri inputs, provides access to

modern retail banking & farm credit, farm Output Services and other Products and Services

like fuels, FMCG, consumer Goods etc. So far over 302 Hariyali outlets have been set up

across eight states. Hariyali Kisaan Bazaar has plans to rapidly scale up the operations and

cater to cultivable land of over 30 million acres and touching the lives of over 10 million

farmers.

2.1.7 BUSINESS SERVICES

Telecommunications: There are 200.77million fixed and WLL connections on March 2010

provided in the rural areas. More than 3 lakh PCOs are also providing community access in

the rural areas. At present, 2,772 Public Call Office are covering 12,043 villages. Also, to

provide Internet service, Sanchar Dhabas (Internet Kiosks) have been provided in more than

3,500 Block Headquarters out of the total 6,337 Blocks in the country. The target of 80

million rural connections by 2010 have already met during year 2008 itself. 29

With an

28 http://www.dscl.com/Business_Agree_HarKisBzr.aspx

29 http://www.dot.gov.in/osp/Brochure/Brochure.htm

14

estimated 555 million subscribers and at least 17 million being added each month, India‘s

booming mobile phone market represents a facet of India‘s rapidly modernizing economy. 30

With the penetration of mobile services, the need for mobile services and value added

services is increasing, thereby creating opportunities for employment in the

telecommunication sector. This would require access to capital and IT related skills for

getting employed in this sector. Petty trade has been one of the common enterprises for the

rural poor and diversification into mobile and new technology related services is more

preferable.

2.1.8 SOCIAL SERVICES

Education: On April 1, 2010 education was made a fundamental right. The Act ensures

compulsory admission, attendance, and completion of elementary education to every child

between the ages of 6 and 14—a massive undertaking in a country of 1.2 billion. There are

300 million Indians under the age of 15 and according to ministry sources 10 million of these

children don‘t attend school. However, data from the 2001 census shows this number to be

eight and a half times larger at 85 million and an industry report puts it even higher at 142

million. 31

According to DISE data, 514,000 para-teachers (9.9% of all basic school teachers)

were working nationwide in 2006-07. Further, 5.9% of all basic schools in 2006-07 had only

para-teachers. 32

With the increase in primary education students, the need for para-teachers

in rural areas can be tapped as alternative livelihood option by the literate youths.

Health: India has a huge shortfall of healthcare workers. While the World Health

Organisation (WHO) estimates that there ought, ideally, to be 2.5 health workers for every

1,000 people, India falls far short of that standard, with 20% less health workers than the

WHO‘s optimum number. 33

Workforce estimates based on the 2001 Census suggest that

there are around 2.2 million health workers in India. Under NRHM, almost 1,06,949 more

skilled service providers were added in the public health system by March 2010, NRHM

funds have also enabled the revitalising of the community health worker programme in India,

and the over 7,00,000 ASHAs signifies a massive increase in health workers in the country. 34

Besides these the demand for Community based health workers will also increase over the

years.

2.1.9 RECREATIONAL SERVICES 35

With an estimated 1.6 billion international tourists expected to visit the country by 2020, the

Indian Government expects that around 950 million jobs would be created in the tourism

30 http://csis.org/files/publication/sam_143.pdf

31http://www.dise.in/Downloads/Use%20of%20Dise%20Data/ParaTeachers%20in%20India_Geeta%20Gandhi

%20Kingdon,%20Vandana%20SipahiMalani-Rao.pdf 32

http://beyondprofit.com/education-for-all-translating-the-dream-into-reality/ 33

http://mohfw.nic.in/Annual%20Report%20to%20the%20People%20on%20Health%20_latest_08%20Nov%202010.pdf 34

http://www.dnaindia.com/bangalore/report_huge-shortfall-in-healthcare-workers_1490062 35

http://www.expressindia.com/latest-news/950-mn-jobs-in-tourism-sector-by-2010/373289/

15

sector by 2010. 36

With an extensive focus on agri tourism, thousands of farmers in India

plans to raise its share and claim its status in world employment generation through a capital

investment of $94.5 billion in the tourism sector by 2019. While the backward areas are

supposed to benefit and develop from tourism, generation of employment and economic

development are the other desired contributions associated with it. While agri tourism would

facilitate the development of agri museums with benefits for farm vacations, heritage trails,

farm tours and farm activities; agriculture related festivals, fairs and farmers‘ markets; local

cuisine, culinary practices, handicrafts and vernacular skills would also gain the limelight and

create further non-farm employment opportunities.

Gujarat UNDP Tourism: 37

The Hodka, Gujarat endogenous tourism project aim is to use

the hospitality trade to open up new and innovative livelihood opportunities for low-income

rural communities, especially unemployed youth. All the staff at the Hodka resort, except for

the manager are local villagers. They have been given various responsibilities like

maintenance of telephones, electricity, tents, etc. The security staff too has been employed

from the villages. Besides labour and wood, food items like butter, ghee and buttermilk are

procured locally. The resort also functions as a kind of folk theatre and museum showcasing

the talents of Hodka, which is famous for its artisans and musicians. Special programmes by

local musicians demonstrating the various music styles of the Muslim and Harijan

communities are drawn up for the night. The resort encourages its guests to shop handicraft

directly from the artisans.

2.1.10 WHAT DO THE ABOVE EXAMPLES SHOW?

Although there is availability of employment opportunities in various sectors, tapping into

these opportunities by the Smallholder households depends on set of accessibility factors. Out

of the various factors required for moving to alternate livelihood options, geographical

accessibility, skills and financial services most importantly define the actual success of

getting these employment opportunities. But, overall thousands of non-agricultural jobs are

being created in rural areas and various services driven companies in emerging sectors like

MFI, retail, telecom, healthcare, agro-processing, infrastructure and logistics are scouting for

local talent in small towns and villages.

3. HOW CAN SMALLHOLDERS DIVERSIFY INTO NON-FARM ACTIVITIES

The smallholder farmers are faced with a disadvantage in terms of access to credit, non-

agricultural skills, production infrastructure, information on new activities, and input and

output markets. Despite the growth in the domestic economy and foreign trade enhancing the

demand for products of the non-farm sector, the choice of activities that a smallholder

agriculture household can make, are limited.

36 http://www.hotelresortinsider.com/news_story.php?news_id=133903&cat_id=3

37 http://infochangeindia.org/index2.php?option=com_content&do_pdf=1&id=345

16

3. 1 THE DETERMINANTS OF DIVERSIFICATION BY A SMALLHOLDER

The selection of non-farm activity depends on several determinants such as

Geographical proximity – The distances between the village and the place of non-farm

work needs to be as less as possible. Most of the non-farm employment activities can be

viable only in towns and urban areas. Not all smallholders can commute or move there.

Seasonality - Unlike landless labourers, who can easily migrate from the village to small

towns or cities at any time of the year, a smallholder is ―tied‖ to his little parcel of land,

since he expects to at least grow some food there, and thus in not able to migrate between

the sowing and harvesting season in search of non-farm activity. At the end of the

harvest season, when he does have the option, the labour market gets flooded with a large

number of people.

Skills – many of the non-farm activities, whether in processing, manufacturing,

construction or the service sector require skills that smallholders do not possess. Thus the

small holders are mostly trapped in the unskilled work, resulting in lower earnings.

Capital requirement – The income profile of smallholder household is such that they do

not have much surplus to invest in non-farm activities. They are often income deficit, and

definitely have cash flow problems during the year, due to which they often borrow from

informal sources at a high interest rate. Thus they are unable to put up even the margin

money or equity that is needed for a loan from a formal institution.

Infrastructure – Most non-farm activity requires access to electricity, roads for bringing in

raw materials and sending out finished goods, production sheds, storage facilities,

banking and telecom facilities. Some require common infrastructure which an individual

unit cannot afford, such as a dye-house for yarn for weaving, or a design information

centre for tapping distant markets, in case of handicrafts.

Technology – In most non-farm activity, technical practices keep changing. Even

something as traditional as weaving moved from pit looms to frame looms to power

looms, and in case of weaving patterns, from painstaking hand work like kantha to

attachments like dobbies and jacquards. For a late comer, the catch up requirements can

be daunting. In modern activities, this is even more so due to equipment costs.

Competition – With large population of smallholders, all having only a few activities to

choose from, it results in more households getting into the same non-farm economic

activity in a local cluster. This results in high competition and lower income realisation

making the household fall back to the same profile of subsistence despite the

diversification. One can see this pattern in a large number of traditional handloom and

handicrafts clusters. In fact, over a period of time, the effective wage rate in non-farm

activity is hardly more than the prevailing wage rate in agriculture.

Regulation – some of the activities are regulated by local or state authorities, and due to

this, becomes hard to enter. The safety match and the power loom sub-sectors in India,

17

are two examples where protection to the smallest units led to their proliferation but to the

detriment of the sub-sector as a whole.

Determinants/Status Handicraft Petty Trade Agro-

processing

Construction

Geographical

proximity

Low (can do at

home)

Low-Medium

(in village

,nearby small

town)

Medium (in

nearest factory

town)

High (mainly in

large cities)

Capital requirement

(as a worker)

Low Low Low-Medium Low-Medium

Skill requirement

(as a worker)

Low Low Low-Medium Low-Medium

Competition (as a

wage worker)

Medium High Medium Medium

Infrastructure

requirement

Low Low Medium Medium

Technology

requirement

Low Low Medium Medium

Market availability Medium High Medium Medium

Competition for the

enterprise

Medium High Medium Medium

Regulatory issues Low Medium Medium Medium

In the above matrix – four non-farm economic activity examples have been taken, from the

point of view of a smallholder becoming a wage worker in them. As can be seen, the more

he moves away from his starting point in terms of geography, skills or capital requirement,

the less likelihood of his getting in. The same matrix below is from the point of view of the

smallholder becoming a non-farm micro-entrepreneur in the same activities and one finds that

the probability of his succeeding is even lower.

Determinants/Status Handicraft Petty Trade Agro-

processing

Construction

Geographical

proximity

Low (can do at

home)

Low-Medium

(in village

,nearby small

town)

Medium (in

nearest factory

town)

High (mainly in

large cities)

Capital requirement

(as an enterprise)

Low Low Medium High

Skills requirements

(as an entrepreneur)

Low Low Medium High

Yet, as stated in the introductory section rural transformation is necessary and must be

addressed. What is required is the orchestration of a number of enablers together – credit to

provide capital, vocational and entrepreneurial training to provide skills and the systematic

development of small towns within commuting distance of villages, so that smallholders can

18

continue to live in villages and continue to till their land, while working during the day and in

the non-agricultural season in town based non-farm enterprises. In some ways, the Chinese

model of TVEs (township and village enterprises) tried to do this, but with heavy state

initiative. In India, that is neither feasible nor desirable. But the alternatives to the state are

also imperfect – NGOs do not work in a business-like manner and cannot handle scale,

whereas, private sector players though market savvy, tend to focus on their own short-term

profits rather than the longer-term transformational agenda.

3.2 SKILLS

The country is adding 2 million young people to the ranks of the unemployed every year.

India has planned to achieve the ambitious target for training 500 million people by 2022. 38

In terms of employment in the emerging sector, a large number of people are employed in the

retail sector which includes both the organized and unorganized labour market (7.1%).

Second largest labour market comprises the construction industry (5.9%). This sector is male

dominated (7.7 percent) and pro-urban in terms of employment. Nearly 8.7 percent of the

urban and 5 percent of the rural workers are involved in this sector. In the transport sector,

7.5 percent of the workers are males and only 0.1 percent are females, a pattern common to

both the urban and rural segments in India. 39

Employment in the IT sector is non-existent in

rural areas and it appears that these sectors are pro-urban since they need educated and highly

skilled workers. The pattern of employment in the media and pharmaceutical sectors is

predominantly urban, similar to that in the IT and software sectors. The hospitality and health

care sectors seem to provide more opportunities to women. 40

Formal sector employed 63 million in 2004-05 (NSSO 61st round). It is estimated that 500 mn

additional job opportunities will be there by 2022, or 42 mn jobs every year in selected

sectors of Textile, Garment & Apparel, Leather & Leather Products, Construction, Logistics,

Auto & Auto Components, Organised Retail, Banking, FS, & Insurance, Tourism &

Hospitality and General Engineering. 41

3.3 FINANCIAL SERVICES

The financial services sector contributed 15 per cent to India's GDP in FY09, and is the

second-largest component after trade, hotels, transport and communication all combined

together, as per the Banking & Finance Journal, released by an industry body in August

2010.42

Only 30% of the bank branches operate in the rural areas that house 72.2% of the

country‘s population. Further, rural India accounts for just 9% of total deposits, 7% of total

38 http://www.yesweb.org/docs/rdbook.pdf

39 India Labour Market Report - 2008

40 http://labour.nic.in/lc/43ilc/RecordNoteofDiscussionAmendedbyMOLE.pdf

41Skill Development as a Means to Promote Employment for the Rural Poor, FICCI Global Skills Summit 2010,

August 19-20, 2010, New Delhi , rcmreddy 42

http://www.ibef.org/industry/financialservices.aspx

19

credit, 10% of life insurance and 0.6% of non-life business. 43

40 percent of India, or 135

million households, remain unbanked. At present 2.5 lakh common service centres are being

set up across the country through which people would be able to access various financial

services. 44

According to a McKinsey study, India's banking sector generates 2.5% of GDP and employs

900,000 people. With all reforms it could generate 7.5% of GDP and employ 1,500,000

people. India is now 5th

largest insurance market in Asia. Likewise, the insurance industry has

and will generate a million jobs. 45

With the growth of microfinance alone in the country, it is

estimated that the sector now employs more than 150,000 people.46

4. CONCLUSION:

The paper argues that diversification into non-farm activity is a must for the Indian

smallholder and it adduces data and evidence from several studies that this trend is indeed

catching up, as the overall economy is growing. A lot of these opportunities are in the newer

services sector. To capitalize on these opportunities however, requires improving access to

skills, financial services and markets.

With 42mn incremental job opportunities every year, the smallholder household needs to be

provided with an enabling environment to access requisite capabilities and capacities for

having alternate Rural Non-Farm Enterprise based livelihoods. Although the government has

committed huge investments on employment (100 days of employment under NREGA),

Right to Education, Skills enhancement related programmes; these will have a sustainable

long term impact if the set of determinants mentioned in this paper is applied to design and

implement sectoral, segmental and spatial based customized interventions. With migration for

employment opportunities becoming prominent; a set of social and welfare services in a

financially sustainable manner needs to be planned for, to minimize the risks faced by the

rural migrants.

To improve access, several successful models have been tried, but few have been replicated

on the scale that is needed to address the crisis. This paper offers an approach to identifying,

pilot testing and scaling up such approaches, based on the experience of a number of

innovative projects in the non-governmental, cooperative and the private sectors. These cover

a range of interventions and sub-sectors – from processing of agricultural, horticultural,

livestock and non-timber forest produce; to traditional household manufacturing like

handloom and handicrafts; to non-traditional rural manufacturing; and on to services –

storage, warehousing, wholesale and retail trading; and business, social and recreational

services.

43 http://csis.org/files/publication/sam_143.pdf

44 http://indiacurrentaffairs.org/enhance-relevancy-of-financial-services-to-rural-india/

45 http://www.niitimperia.com/partners/sizing-the-opportunity.html

46 http://www.microfinancefocus.com/content/microfinance-crisis-prompts-indian-mfis-lay-employees