Home > 2016 > Dynamics of Rural Labour Markets in India: Recent Trends and Policy (...)

Mainstream, VOL LIV No 13, New Delhi, March 19, 2016

Dynamics of Rural Labour Markets in India: Recent Trends and Policy Concerns

Sunday 20 March 2016, by C.H. Hanumantha Rao

The following is the author’s inaugural address at the National Seminar on ‘Dynamics of Rural Labour Relations/Markets in India: Issues, Dimensions and Processes’, S.R. Sankaran Chair (Rural Labour), National Institute of Rural Development and Panchayati Raj, Hyderabad, March 10-12, 2016.

As pointed out in the background note for this seminar by the S.R. Sankaran Chair at the NIRD&PR, the ongoing structural changes in the Indian economy are leading to significant changes in the rural labour market affecting their livelihoods and prospects for the future. These developments call for discussions among social scientists for stock-taking and reflecting on policies for improving the livelihoods of rural labour.

The subject is important and interesting and is also quite wide-ranging. The major develop-ments in the rural labour markets that have acquired prominence in the recent period in large parts of the country are:


a significant rise in wages of agricultural labour and of rural labour in general;


emergence of rural non-farm sector as an important source of employment for those dependent on agriculture; and


increasing feminisation of agriculture consequent to male labour moving out, even as there has been a decline in the rural female labour force participation.

Rural Wages

Let me take up the rise in rural wages first. They are driven basically by the rising demand for labour emanating from the growth in agriculture as well as overall GDP. Agricultural wages are particularly sensitive to the growth in agriculture GDP. Real wages of male as well as female agricultural workers showed a marked rise in several States during the decade of the 1980s and later during 2005-06 to 2010-11. In both the periods the agriculture growth rate in the country had accelerated to a little over three per cent per annum. Growth in real agricultural wages slowed down during the post-reform period of 15 years between 1990-91 and 2005-06 when agricultural growth decelerated to below two per cent per annum, despite an acceleration in the overall GDP growth. Real wages of Rural Casual Labourers, both males and females, rose significantly in the country during 12 years ending 2011-12. (Jose, 2016; Binswanger-Mkhize, 2012)

The rise in rural wages, particularly a significant rise in quite a few States during 2005-06 to 2010-11, cannot be explained solely by the growth in agricultural and overall GDP. Rural labour being unorganised and consisting largely of those living below the poverty line have a low staying power and hence low bargaining power. Social security measures like pensions, public distribution of foodgrains, provision of healthcare, etc. targeted at them have a potential to raise their capacity for bargaining by improving their staying power. The Mahatma Gandhi National Rural Employment Guarantee Programme (MGNREGA), launched during this period and effectively implemented in quite a few States, is widely believed to have contributed significantly to raising the rural wages, especially agricultural wages, by improving the bargaining power of rural labour and raising their ‘reservation wage’.

Farmers, who depend essentially on hired labour, have been quite vocal on being adversely affected by the MGNREGA. Village studies, such as the one by scholars from the ICRISAT, indeed confirm that this scheme has led to a rise in the share of labour cost in the total production cost, despite a decline in the number of labour days hired consequent to mechanisation. (N.Nagaraj, et.al, 2016) Such a rise in wage-share can be expected because the elasticity of substitution between labour and capital has, in general, been found to be less than unity in Indian agriculture under the given technology. But this is a static picture reflecting the immediate response by the farmers.

Over a period of time, however, farmers respond to the rise in the cost of labour by adopting capital-intensive technologies and practices, including diversification of agriculture, which raise profits by raising productivity and reducing the unit costs and, in the process, contribute to raising the growth rate of agriculture. This indeed seems to have happened, as diversification of agriculture towards high-value products has, of late, been an important source of agricultural growth. The ICRISAT paper mentioned above does hint at such a possibility.

My own study, Technological Change and Distribution of Gains in Indian Agriculture, done in the mid-seventies, had brought out how in response to the rise in the cost of labour farmers reduce unit costs by raising productivity through increased application of fertilisers. In fact, a couple of years ago, another ICRISAT exercise had indicated a positive impact of wage rates on agricultural growth. Even if these results cannot be treated as conclusive because of problems of estimation, logical or a priori reasoning pointing to the positive relationship between wage rates and output growth cannot be given up altogether.

 Even as they effectively cope with the rise in wage cost by adopting new technologies to raise productivity, farmers hiring labour may continue to express their misgivings about welfare programmes like the MGNREGA which improve the bargaining power of labour. Such prejudices are inherent in a society characterised by inequalities of wealth and status. However, from the social point of view, the encouraging results of the MGNREGA should prompt the policy-makers to implement welfare measures targeted at the poor among the unorganised labour such as those recommended by the National Commission for Enterprises in the Unorganised Sector (2004-2007), headed by Professor Arjun Sengupta.

Rural Non-Farm Sector

The emergence of the rural non-farm sector as an important source of output and employment holds the prospects of spatially broadbased and environment-friendly growth conducive to the well-being of the rural poor. Spatially broad-based growth would reduce the costs and hardships associated with migration and urban congestion and can ensure a larger volume of employment than when growth is limited to high-wage pockets.

Non-farm wage income is less variable than income from farming which is subject to weather-induced fluctuations. Small, marginal, and semi-medium farmers may be receiving a larger proportion of their income as wage income and remittances from non-farm sources when compared to the medium and large farmers. (Ranganathan, et.al., 2016) As the rural non-farm sector grows, this stable source of their income may predominate, thus drought-proofing their incomes. In view of the rise in land values such farmers may prefer to continue as part-time farmers without alienating their land.

 Agro-processing, which has strong linkages with agriculture and which has a large potential for sustained growth of output and employment in the rural non-farm sector, has yet to make a visible impact in India. Sustained growth of agriculture, through the rise in the Total Factor Productivity, is indispensable for the growth of the rural non-farm sector because of its strong backward and forward linkages. This requires strong policy measures to raise agricultural productivity and improve infrastructure for agricultural marketing.

Apart from raising agricultural productivity, the growth of the rural non-farm sector requires broadbased development of physical and social infrastructure in the rural areas such as roads, electricity, water, schools and healthcare facilities. In this context, it would be instructive to study inter-State or regional variations in the develop-ment of the rural non-farm sector in India in relation to agriculture growth and development of rural infrastructure.

Feminisation of Agriculture

Feminisation of agriculture is largely a consequence of male labour in the household taking up non-farm work. Management of farms by women may become widespread among marginal, small and medium farms in course of time with the male members of households increasingly taking up non-farm work.

Management of farms by women should be regarded as an opportunity as well as a challenge. Opportunity, because it enables empowerment of farm women who have greater familiarity with enterprises like dairying and horticulture which are going to be the major sources of farm income. Challenge, because women lack property rights on land, farming becomes an additional respon-sibility for them apart from household work, their lower literacy level and lack of experience in dealing with agricultural support systems, including extension services, which are male dominated.

As it is, small and marginal farmers fail to get adequate access to agricultural support systems because of their weaker resource position and various forms of discrimination against them within and outside the village. The seriousness of the challenge is underlined by the need to accelerate total factor productivity growth in agriculture where small and marginal farmers predominate cultivating a substantial proportion of area, including the area leased-in by them which is on the increase.

Nevertheless, a silver-lining is that apart from their familiarity with and expertise in managing certain farm enterprises, women farmers have performed extremely well when adequately empowered, as exemplified by the work of Women’s Self-Help Groups. This experiment needs to be extended for the provision of various services, including marketing, by organising small and marginal farmers into groups.

Since feminisation of agriculture is a major challenge, it calls for strong policy initiatives, right from the national level, for dealing with issues such as strengthening land inheritance rights for women, endowment of property rights on houses built with public assistance, improving literacy level and awareness among women farmers, measures to lighten the burden of their household work, and sensitising the agricultural support systems, including credit institutions, about the needs of women farmers and, in particular, inducting women in large numbers in the agricultural extension system to assist women farmers.


Binswanger-Mkhize, Hans P., ‘India 1960-2010: Structural Change, Rural Non-Farm Sector, and the Prospects for Agriculture’, Stanford University, 2012.

Jose, A.V., ‘Factors Influencing the Growth of Wages in Rural India’.

Nagaraj, N., Lalmani Pandey, Cynthia Bantilan, Namrata Singh, ‘Impact of MGNREGA on Rural Agricultural Wages in SAT India’, ICRISAT, Patancheru, Hyderabad, 2016; paper presented at the National Seminar on Dynamics of Rural Laboour Relations/Markets in India: Issues, Dimensions and Processes, S.R.Sankaran Chair (Rural Labour), National Institute of Rural Development and Panchayati Raj, March 10-12, 2016.

Ranganathan, Thiagu, Amarnath Tripathi, Bisla Rajoriya, ‘Changing Sources of Income and Income inequality among Indian Rural Households’, Institute of Economic Growth (IEG), New Delhi, 2016; paper presented at the above Seminar.

The author is an Honorary Professor, Centre for Economic and Social Studies, Hyderabad.