Themes > Features

08.02.2000

Rural Employment : The 1990s Picture

In an economy such as that of India, the generation of productive employment opportunities spread over a wide base of population is obviously the key to any sustainable economic expansion, as well the reduction of poverty and more equitable distribution of income. Indeed, the inability to generate such employment, thus improving aggregate productivity of labour in the Indian economy rather than just in a few chosen sectors, has been the most obvious symptom of the failure of the Indian economic development process.
 
The marketist economic "reforms" of the 1990s were not specifically directed at employment, however. Despite this, the stated expectation of policy makers over this period has been that liberalising markets, easing the conditions for entry and operation of foreign investors and encouraging exports especially in agriculture, would all contribute to more employment generation. Thus, this was supposed to be a positive fallout of the new economic strategy. And since the expansion and diversification of rural employment in particular has been associated with declining levels of rural poverty over the 1980s, this was also expected to lead to a decline in poverty.
 
The data recently released by the National Sample Survey Organisation allow for an investigation into all-India trends in employment patterns and trends in poverty incidence, based on annual surveys conducted since 1990-91. There has already been much discussion of what the data on consumer expenditure suggest with respect to poverty, in particular the disturbing finding that rural poverty in particular has not declined after the reforms but may even have increased. But the observed pattern of trends in employment have been less noted. In this piece, we deal with rural employment patterns at the all-India level.
 
The annual surveys provide an important picture of how employment generation has changed in the Indian economy in the era of reforms. It should be noted that these annual surveys, which have been conducted since 1990-91, relate to a smaller number of households than the much larger quinquennial surveys, the last of which was held in 1993-94. Thus they have covered between 27,000 and 29,000 households rather than 1.3 lakh households in the larger sample. For this reason, the results tend to be less reliable estimates in terms of all indicators at the state level. However, at the all-India level they continue to be statistically relevant and reliable indicators, except possibly for those variables (such as unemployment) for which the proportion of population is rather low.
 
In what follows, therefore, we consider the all-India trends only, in terms of arriving at some idea of the trends in overall employment generation and pattern of employment in terms of sector and type of activity.
 
A further note on the definitions used in the data is in order. The NSS data on employment is based on the distinction between "principal" and "subsidiary" status of activity as well whether the person is "usually" engaged in the activity. Thus, a person is classified as "usual principal status" according to the status of the activity (or non-activity) on which the person spent a relatively longer time of the preceding year. The activities pursued by a person are grouped into three broad categories : (a) working or employed (b) seeking or available for work (i.e. unemployed) and (c) not in the labour force.
 
A "non-worker" (on the basis of the usual principal status) is someone whose major part of time in the preceding year was spent as either unemployed or not in the labour force. However, he or she could still be involved in some economic activity in a subsidiary capacity - when this is usually the case the person is referred to as a "subsidiary status worker".
 
The two categories together - usual workers by both principal and subsidiary status - constitute "all usual workers". In the discussion below, we consider "all workers" - that is both principal and subsidiary, so as to allow for a comparison over time. However, it should be noted that this could in fact overestimate the extent of employment, on average by around 2 per cent of the population.
 
The "current weekly status" definition is one which classifies a person as employed if he/she was engaged in any one of the gainful occupations listed for at least one hour on any one day of the previous week. The activity assigned to the person then depends upon which activity he/she had spent the most amount of time on. Both the usual status and the weekly status provide stock measures of employment, but the usual status definition is likely to be less reflective of the transient character of the timing of the survey and be less affected by seasonal and short-run factors.
 
Economic activity is defined by the NSSO as any activity that results in the production of goods and services that adds value to the national product. These in turn are both market activities and non-market activities. The non-market activities encompass all activities relating to the agricultural sector and gathering of primary produce for consumption, and activities relating to the own account production of fixed assets such as houses, roads and wells or even machinery for household enterprise.
 
It should be noted that this definition of economic activity is still quite restrictive, and does not include the full spectrum of economic activities defined in the UN System of National Accounts. It therefore excludes a significant amount of unpaid or non-marketed labour within the household, especially by women, including the processing of primary produce for own consumption, services such as cleaning, child care and so on, which are undertaken within the household and not marketed. This means there is a likely underestimation of economic activity within the household, as well as of the work participation rates especially of women.

Charts 1 and 2 give the work force participation rates (that is, number of all workers as a ratio of total population) for men and women in rural India for a fairly long period, from the early 1970s to the late 1990s. It is evident that the male work force participation rates have remained broadly stable over this entire period, fluctuating within a relatively narrow band between 54 per cent and 56 per cent. Within this, the latest period, the first half of 1998, shows a relatively sharp decline. It should be mentioned here that while this decline has been particularly sharp in the younger age-bracket (5-14 years) which is a positive development, it has also declined in other age-groups (including the most active group of 15-59 years) as well. This decline in usual status work participation is also matched by a similar decline in terms of the weekly status definition in 1998.
 
For rural females, the picture of work participation has shown a much higher degree of fluctuation. Here it is important to remember that while there continues to be a significant degree of underestimation of the actual (largely unpaid) labour of women, to the extent that the current estimates reflect the access of women to recognised productive employment, it is an important indicator of material status.
 
As Chart 2 shows, the overall picture of female work force participation in the rural areas is one of fluctuations around a declining trend. This is surprising because the sensitivity of NSS investigators to the possibility of women working has if anything increased by the 1990s, so that the likelihood of under-reporting according to the prevailing definition is less. Female work force participation rates were on average significantly higher in the 1970s until the mid-1980s. While the 1993-94 data do show a level comparable to the 1987-88. the general pattern based on the annual surveys shows a fairly sharp decline. The latest year in fact shows the lowest rate over the entire period. This tendency is extremely significant and the causes for this need to be investigated in much more detail.

Charts 3 and 4 describe the pattern of employment for all rural workers for males and females respectively. The picture that emerges from both of these charts, but most strongly for male rural workers, is that the period from 1997-78 to 1987-88 witnessed a significant decline in the proportion of primary sector employment, and the period thereafter, and especially over the 1990s, has indicated first a reversal of that pattern, followed by a slight increase in the share of primary sector employment over the 1990s.
 
For rural male workers, the share of primary sector employment fell from more than 80 per cent in 1977-78 to 70 per cent by 1990-91 - a fall of nearly ten percentage points which is a very large shift over a little more than a decade. The shift was to both secondary and tertiary sector activities. However, thereafter there was an increase in the share of primary sector employment, and over the 1990s the ratio has remained around 75 per cent, increasing slightly over the period.
 
For rural female workers, the picture is similar. Primary sector employment declined from 87 per cent in 1977-78 to around 81 per cent in 1989-90 - a decline of around six percentage points. Subsequently it has started increasing again, and stood at nearly 89 per cent by 1998. For both men and women, the shift to primary work has been mainly at the expense of the secondary sector, although even tertiary sector employment is lower compared to the levels achieved at the close of the decade of the 1980s.
 
These trends are extremely important, because it is now widely accepted that the diversification of rural employment away from the primary sector to non-agricultural activities in the period 1997-78 to 1987-88 was a significant factor in the reduction of the incidence of poverty at an all-India level.
 
There is now significant evidence that that the main dynamic source of rural employment generation over the period from the mid 1970s to the late 1980s was the external agency of the state rather than forces internal to the rural economy. Indeed, the role of dynamic agriculture was significant only in states such as Punjab and Haryana where agricultural incomes had crossed a minimum threshold and where further increases in agricultural output were accompanied by labour displacement rather than greater labour absorption. Outside this limited region, the pull was provided mainly by external stimuli.
 
In certain very specific regions, for example along the Bombay-New Delhi and the Bombay-Bangalore highways, industrial development and the growth of services linked to this did make inroads into rural society by creating new employment opportunities not only in the tertiary sector but also in small-scale industry. In addition, in the hinterland of industrially or commercially developed regions, there was growing incidence of workers who lived in rural areas but commuted to urban areas - a tendency which was enhanced by the fact that the organised sector has tended to prefer casual workers to regular employees, and because rising urban rents and deteriorating urban infrastructure along with falling transport costs have influenced workers' choice of residence.
 
However, given the limited geographical spread of such direct links to modern industry and commerce, in most areas the pivotal role in the expansion of rural non-agricultural employment appears to have been played by the expansion of government expenditure.
 
As noted earlier, the eighties were a period when, along with a rapid increase in all sorts of subsidies and transfers to households from government, there was a very large increase in expenditure on the rural sector by State and Central governments, and this was also a period when the expenditure on Rural Development expanded manifold. More generally, throughout the period political developments tended to give rural interests greater power and they were able to command an improvement in the historically low share of government expenditure benefiting rural areas. Although this improvement in share should not be exaggerated, an indication may be the fact that nearly 60% of all new government jobs created accrued to rural areas during the decade.
 
Moreover, NSS data suggest that, despite a low average contribution of only around 5% of total rural employment, the government's contribution was around a fifth when it came to either total rural non-agricultural employment in 1987-88 or the increments in total rural employment between 1977-78 and 1987-88. Moreover, in 1987-88, about 60% of the regular non-agricultural employees in rural areas were employed by the government which created almost 80% of the increments in such regular jobs during the decade covered.
 
Thus, the total quantum of increased flow of public resources into rural areas must have been significant. This flow of resources took two predominant forms. There was, first, a fairly large expansion of `rural development' schemes with an explicit redistributive concern. This included not only the various rural employment and IRDP programmes but also a plethora of special schemes for a variety of identifiable `target' groups. Motivated by the realisation that income growth by itself would not `trickle down' in adequate amounts, these programmes were however less than entirely successful. They spawned a large bureaucracy and they became a focal point for the politics of `distributive coalitions'. Yet, even though the intended beneficiaries often got short-changed because of such leakages, these programmes represented a fairly massive net transfer to rural areas.
 
The second avenue by which resources flowed from government to rural areas was through the greater accessibility of the rural elites to the varied benefits of government expenditure. In part this was a result of greater mobility due to better transport infrastructure, but to a large extent it was also the outcome of the fact that with governments changing frequently (particularly at the state level) more new favours, not just jobs, but also various types of agencies and contracts, had to be distributed more often and the rural areas got a greater than normal share in such largesse. The resulting flow of resources and the consequent generation of rural demand led to growing opportunities for diversification of the self-employed from agriculture to non-agriculture.
 
To a very large extent, the direct access to government permanent employment and also to many of the other resources was confined to the better-off and more powerful groups in rural society, to whom such incomes were more lucrative than agriculture. It should also be noted that such access to better employment or other resources was dominantly accorded to male workers rather than to women workers.
 
Associated with this was a large and significant increase in the proportion of the 15 to 29 age cohort which continued in education rather than join the work force. Once again, males dominantly benefited, but the increase is evident even in the case of females, albeit to a much smaller extent. In part this shift to higher education rather than seeking immediate employment must have been a result of the expansion of educational facilities as part of the general expansion of government in rural and semi-urban areas. But this may have represented also a motivational change (to acquire necessary qualifications for a regular non-agricultural job) among the youth - particularly the male youth - in the relatively well-off sections of rural society.
 
There was thus a movement out of agricultural work at the margin by workers and potential workers from such better-off rural groups, which meant that sections of the relatively rich vacated agriculture either to obtain regular employment, mainly in the service sector, or to take up non-agricultural self-employment. This increased the ability of members of the less well-off rural households - including and in some areas especially, women - to find agricultural work, and also created a demand for certain types of rural services and industry.
 
However, these averages probably serve to hide very significant differences among workers, both across regions and between groups of relatively more privileged and more disadvantaged workers. Although such increases in employment and wages did improve the condition of the poorest rural workers, their employment diversification into non-agriculture continued to have many characteristics of a "distress" process, given the overall tendency of labour use in agriculture. Dictated by the need to ensure economic survival, they increasingly entered into casual work not only in agriculture but also in non-agriculture.
 
The main sectors providing this type of non-agricultural employment were secondary sectors like construction, mining, and manufacturing, and here too the agency of the state was important in terms of the effect, at the margin, of rural employment and income generation schemes. Thus, 22.3 per cent of all casual labour days spent on non-agricultural activity in 1987-88 were on public works programmes of the government, this percentage having increased from 17.7 in 1977-78 and 14.9 in 1983. Indeed, the expansion of public works programmes was a critical element in increasing both access to lean-season incomes and boosting the bargaining power of rural labour.
 
This is of course an extremely schematic presentation of what is a much more multifarious and regionally diverse scenario, and there were variations in the pattern across states and over time. However, the fact that the developments described above occurred in almost every state, irrespective of the rate of growth in agriculture or organised industry, does point to the increased importance of external stimuli to rural employment and, in particular, the crucial role of the state. More importantly, these trends mean that the rural labour demand is no longer determined only by what is happening within the agricultural sector, but is determined crucially also by macro-economic processes and policies which do not at first appear to have any direct link with rural well-being.
 
In this context, it is not difficult to see why the macro-economic policies of the 1990s should have contributed to the reversal of two important processes in the rural areas in the 1980s : the diversification of employment and the reduction of poverty. The pattern of structural adjustment and government macro-economic strategy since 1991 has been one which has involved a continued stagnation in employment generation in the organised sector, both public and private.
 
Moreover, this strategy involved the following measures which specifically related to the rural areas :
 
(1) Actual declines in Central government revenue expenditure on rural development (including agricultural programmes and rural employment and anti-poverty schemes), such that there has been an overall decline in per capita government expenditure on rural areas.
 
(2) Very substantial declines in public infrastructure and energy investments which affect the rural areas. These have not related only to matters like irrigation but also to transport and communications which indirectly contribute significantly even to agricultural productivity, besides being an important source of rural non-agricultural employment.
 
(3) Reduced transfers to state governments which have been facing a major financial crunch and have therefore been forced to cut back their own spending, particularly on social expenditure such as on education and on health and sanitation, which had provided an important source of public employment over the 1980s.
 
(4) Reduced spread and rising prices of the public distribution system for food.
 
(5) Financial liberalisation measures which effectively reduced the availability of rural credit.
 
Thus, in the 1990s, several of the public policies which contributed to more employment and less poverty in the rural areas in the earlier decade have been reversed. It should, therefore, not be entirely surprising that rural non-agricultural employment appears to have declined fairly sharply as soon as these policies began to be put into place from 1991 onwards.
 
There is a natural question of whether this increase in agricultural employment was a positive development or a distress outcome related to lower rural non-agricultural opportunities and higher poverty. Those supporting the market-based reforms have argued that export orientation and increased prices of cash crops have operated as incentives for more output and investment in agriculture, and this has in turn meant more agricultural employment as well.
 
In fact, however, the rate of growth of agricultural output has slowed down after the reforms, rather than increase. This suggests that the growth of labour demand in agriculture is likely to have decelerated as well, especially given the known fact of declining employment elasticities in cultivation. Consequently what is being observed is almost certainly a rise in labour supply into the agricultural sector from certain segments of the rural population, particularly casual labourers and subsidiary workers.
 
This in itself suggests that the higher growth of agricultural employment in the 1990s was driven more by distress factors, specifically the lack of productive employment opportunities elsewhere in the rural economy.
 
The shift to agriculture in the 1990s also fits in with the hypothesis that the observed large increase in rural poverty following the reforms was caused primarily by the factors which caused rural non-agricultural employment to decline. This is also supported by changes in the nature of employment, that is whether it was regular, casual or self-employment.

Charts 5 and 6 present these data for men and women workers respectively. Over the entire period from 1977-78 to 1998, there appears to be a continuous trend of increase in casual contracts in employment, mostly at the expense of regular employment. This tendency is sharpest in the case of male workers over the 1990s. Thus, while casual work as a proportion of all work increased from 27 per cent in 1977-78 to 31 per cent in 1990-91 (an increase of 4 percentage points over 14 years) it had increased again to nearly 38 per cent by 1998 (an increase of 7 per cent in 7 years). The decline in male regular employment has been very sharp, but even self-employment appears to have declined as a proportion of all work.
 
For women workers, by contrast, the increase in casual work (from 35 per cent in 1977-78 to 41 per cent in 1990-91 to 44 per cent in 1998) has been largely at the expense of self-employment. This has declined particularly over the 1990s, from 60 per cent in 1992 to 53 per cent in 1998.
 
Data on unemployment are notoriously poor indicators in rural India, for a number of reasons. Firstly, it should be borne in mind that open unemployment is usually not an option for poor people, who have to force themselves into some activity, however low-paying, so that changes in open unemployment rates are not necessarily very good indicators of changes in levels of economic activity. This is one reason for the relatively low and stable nature of the unemployment rates reported by both the NSS and the Census over time. Effectively these incorporate possibly high and varying rates of disguised unemployment.
 
Secondly, as mentioned earlier, the continued under-reporting of much household-based labour contributes to wrong assessments of the extent of female economic activity in particular. Finally, there is the point mentioned above, that the small samples may not be able to capture changes in this variable simply because the rates are relatively low in the size of the total population.

With these caveats in mind, Charts 7 and 8 present the data on open unemployment rates for men and women in rural India since 1993-94. While the male rates are close to the norm for the period since the 1970s, the female rates are much higher than before, and show that the decline in female work participation observed from Chart 2 is related not to women's movement away from the labour force, but the sheer absence of available employment opportunities.
 
The overall picture, then, is one of a relative decline in productive employment opportunities, especially in non-agriculture, and the growth of less attractive casual work for both men and women in rural India over the 1990s. This corresponds with the observed persistence and even increase in the ratio of people below the poverty line that has already become the focus of much concern. It is clear that the macro-economic policies of the 1990s have played an important role in both of these processes.