Rural income: Now and then

Rural households have witnessed structural shifts in composition, levels and sources of income over the decades.  Empirical evidences drawn from primary sources of household-level panel data reveal that almost all rural households, directly or indirectly, bank on income from agriculture. Noticeably, the share of agricultural income as a whole to total household income dropped from about 60 per cent in 1988 to 37 per cent in 2014. At the national level, the contribution of agriculture sector to gross domestic product (GDP) is less than one-fifth. Within agriculture, rice farming witnessed a sunset sharing only one-tenth of household income as against about one-thirds three decades back. Agricultural labour wage income almost halved during the period.
The decreases in share of rice farming and wage labour point to a declining importance of rice cultivation as a source of household income. On the other hand, the share of non-rice and non-crop agriculture in income as well as in proportion of earning households is on the increase. What explains this reverse trend? First, farmers' fortune hardly hinges on rice cultivation in the face of non-remunerative paddy prices, and second, rise in per capita income has fuelled the demand for non-rice crops. It is a clear mark of the famous Engel's Law that states that with increased income, less and less of the incremental income goes for buying basic staples and more for non-rice crops such as egg, milk, meat etc.
  Rural households now derive about two-thirds of the total income from non-agricultural activities against 40 per cent in 1988. Major source of non-agricultural income is remittance. It contributes to one-fourth of household income as against 5.0 per cent three decades back. About one-thirds of rural households now receive remittance income against about one-tenth in 1988. More interestingly, functionally landless households reap home about one-fifths of household income from remittance. By and large, remittance income has become an important determinant of aggregate demand in rural areas. Next important sources of income are business/trade and non-agricultural labour - both rising over time.
The per capita income of a rural household was estimated to be US$531 in 2014 as against US$157 in 1988, an increase of about four times over the last two decades and a half and a growth rate of about 5.0 per cent per annum. The apparently amazing growth could possibly be adduced mostly to a decline in household size, coupled with, for example, expansion of rural non-farm/non-agricultural activities, migration (both internal and external), increased rice production from improved technology, etc.
The income-earning capacity of the rural households would obviously depend on a number of factors. For example, land, owned or rented, historically has been the most important source influencing household income.  Likewise, income depends on the number of working members within the household, as well as on non-land assets used in production. Again, land availability is not sufficient for income; soil type, topography, depth of flooding, use of modern seeds and improved farm management practices also affect income from land. Tenancy arrangements would raise income only when income derived from tenancy cultivation is higher than the opportunity costs of labour. It would also depend on working capital used in land under tenancy. The productive power of family labour depends on education and training levels of labour. Besides, development of infrastructure increases the price of produced output at household level, reduces input prices and helps market orientation.
The Gini-coefficient (a statistical measure of income distribution developed by the Italian statistician Corrado Gini in 1912) has been used to measure the degree of inequality in distribution of income in rural areas. While estimating the coefficient of concentration, sample households were arranged by per capita income. We have presented total and per capita income separately with the proviso that welfare of an individual is better reflected by per capita income, not by household income (Hossain et al. 1994).  Following other economists, we have conducted Gini decomposition analyses to measure the contributions of different factors in overall income disparity.
However, in recent times, the bottom 40 per cent of rural households regained while the top 10 per cent lost some shares of their incomes resulting in a fall of the Gini index from 0.467 to 0.398 between 2000 and 2014. This might sound surprising, as at national level, the Gini index is shown to have increased over time but presumably this could be due to: (a) growth of the tenancy market where the poor are engaged with; (b) migration of members from poor families (even abroad), and (c) tightening of the rural wage rate following scarcity of labour.
In finding sources of inequality, we focus on the comparison between 1988 and 2014. First, agriculture in general and paddy farming in particular, are an equalising factor. It may be due to the fact that the rich have almost left farming recently, and the poor residing in villages replaced these rich farmers. Second, among agriculture, non-rice crop and non-crop agriculture increase inequality to a certain extent; these activities require a fair amount of capital, which the poor cannot easily access. Besides, high-value crops are now grown on a commercial basis by large farmers, instead of subsistence and home-based production of earlier periods. This has also created income disparity. Third, the largest inequality is caused by income from non-agricultural sources. The Gini-coefficient is very large and the concentration is prominent in the case of business and trade, and also in services and remittances.
Business, services or migration need a lot of money and education. In the past, only the rural rich had access to these opportunities and could thus increase their income. On the other hand, the poor could not get much. It is not surprising that the Gini index has depicted a downward trend. Therefore, to reduce income disparity, education, credit facilities and training opportunities must be taken to the doorsteps of the poor.
We presume that in earlier periods, the access to assets and especially to non-land assets was mostly attained by the rich segments of the rural society. Arguably, this group first seized the advantages of modern technology in paddy production but poor farmers also adopted these methods much later. Free primary education and stipends for girls in secondary level, etc., also increased opportunities for the poor. Finally, the spread of the tenancy cultivation and tightness in labour market also appear to have favoured the poor.
The writer is a former Professor of Economics at Jahangirnagar University.
abdul.bayes@brac.net