Income Sources of Farm Households in India: Determinants, Distributional Consequences and Policy Implications

Abstract

This paper has examined farm households’ access to different income-generating activities, and their impact on income distribution using data from a nationally representative large-scale survey. The analysis has shown that, as against the common perception of agriculture being the dominant source of income for farm households, these households earn close to half of their income from non-farm activities. The nonfarm income is more important for the households at lower end of land distribution. The poor households diversify more towards low-paid, low-return non-farm activities. Small landholdings, low agricultural productivity and surplus labour force the farm households to diversify their income portfolio towards non-farm activities. The non-farm income sources are accessible to a small proportion of farm households and have un-equalizing effect on income distribution. Nevertheless, non-farm sources are positively correlated with the total income. This contrast in income sources between income level and farm size suggests that non-farm sector can serve as potential entry points for land-constrained farm households to enhance their income level.