Land Distribution, Income Generation and Inequality in India's Agricultural Sector

• Published date: 01 November 2019
• Author: Sanjoy Chakravorty,S. Chandrasekhar,Karthikeya Naraparaju
• Date: 01 November 2019
• DOI: http://doi.org/10.1111/roiw.12434

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.LAND DISTRIBUTION, INCOME GENERATION AND INEQUA LITY IN

INDIA’S AGRICULTURA L SECTOR

by Sanjoy Chakravorty

Temple University

S. ChANDraSekhar*

Indira Ga ndhi Institute of Dev elopment Research

AND

karthikeya naraparaju

Indian In stitute of Managemen t

This paper is a contribution to understanding income generation and inequality in India’s agricultural

sector. We analyze the National Sample Surveys of agriculture in 2003 and 2013 using descriptive and

regression based methods, and estimate income inequality in the agricultural sector at the scale of the

nation and its 17 largest states. We show that: (a) there are significant state-level differences in the struc-

tures/patterns of income generation from agriculture, (b) there is a negative relationship between the

amount of land owned by the household and share of wages in total income, (c) income inequality in

India’s agricultural sector is very high (Gini Coefficient of around 0.6 during the period), and (d) about

half of the income inequality is explained by the household-level variance in income from cultivation,

which in turn is primarily dependent on variance in landownership.

JEL Codes: D31, D63

Keywords: agricultural households, income inequality, India, sources of income

1. introduCtion

This paper is a contribution to understanding income generation and

inequality in India’s agricultural sector over the decade 2003–13, a period when

Note: An earlier version of this paper was presented at the 34th Annual Conference of Indian

Association for Research in National Income & Wealth, 2015 held in Mumbai, India, the 57th European

Regional Science Association Congress at Groningen, and at seminars at the Institute of Development

Studies, Kolkata, India and Department of Economics, Jadavpur University, Kolkata, India. For his

detailed comments, we are extremely grateful to Anirban Dasgupta of South Asian University, who was

the discussant of our paper at the IARIW-ICRIER Conference on Experiences and Challenges in

Measuring Income, Inequality and Poverty in South Asia held in New Delhi in November 2017. We are

grateful to two anonymous referees of this journal, and to Achin Chakraborty for detailed comments.

We thank Sanjay Prasad for useful discussions on data analysis. Chandrasekhar is grateful for funding

from the research initiative SPANDAN (System of Promoting Appropriate National Dynamism for

Agriculture and Nutrition) housed at IGIDR and supported by a grant from Bill and Melinda Gates

Foundation.

*Correspondence to: S. Chandrasekhar, Indira Gandhi Institute of Development Research, Gen A

K Vaidya Marg, Goregaon East, Mumbai 400065, India (chandra@igidr.ac.in)

Review of Inc ome and Wealth

Series 65, Numb er S1, November 2019

DOI : 10.1111 /roi w.124 34

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Review of Income and Wealth, Series 65, Number S1, November 2019

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© 2019 The Authors. Revie w of Income and Wealth publ ished by John Wiley & Son s Ltd on behalf

of Internat ional Associat ion for Research in In come and Wealth.

the country’s gross domestic product increased by over three times in nominal

terms from $ 599 billion to $ 1,856 billion. We analyze the Situation Assessment

Surveys of Farmers/Agricultural Households undertaken by India’s official statis-

tical agency, National Sample Survey Organisation (NSSO), in 2003 and 2013. We

provide estimates of inequality and use descriptive and regression based methods

(Mookherjee and Shorrocks, 1982; Shorrocks, 1982; Jenkins, 1995; Fields, 2003;

Cowell and Fiorio, 2011) in order to quantify the underlying factors contributing

to this inequality in the agricultural sector, at the national scale and disaggregated

to the scale of the 17 large states that house about 95 percent of the national pop-

ulation. The contribution of this paper is fourfold.

The first, which is also an important point of departure from a large body of

literature on inequality in India, is that we focus on income and not consumption.

We show that there is a large difference between the two measurement concepts—

income vs. consumption inequality—where the Gini Coefficients of per capita

income and consumption are 0.58 and 0.28 respectively in the agricultural sector in

2013. Our paper provides a much needed correction to the usual narrative, for

example, in reports of the World Bank and the United Nations Development

Programme,1 characterizing India as a country with low income inequality (World

Bank, 2007 p. 46; Anand et al., 2014).2

Second, since we are analyzing incomes, we are able to focus on the factors

contributing to this income inequality, an aspect that is missing in the existing

literature that analyses either consumption expenditure data or wages. Thus, our

paper complements the literature on rural income generation activity (Davis et al.,

2010, 2017; Hazell, 2015) and the drivers of rural income inequality in developing

countries characterized by small family farms (Lanjouw and Stern, 1993; Adams

Jr., 2001; Lanjouw and Shariff, 2002; Himanshu et al., 2013). We find that the two

primary sources of earnings of these households are cultivation and wages. The

importance of income from livestock and non-farm business has not increased.

In particular, we are able to highlight the finding that the underlying endowments

of economic resources, specifically land, is the driver of inequality. We find that in

the decade 2003–13, the salience of cultivation in accounting for income inequal-

ity has increased from 39 percent to nearly 50 percent. Not surprisingly, house-

hold-level variance in income from cultivation is primarily dependent on variance

in landownership.

Third, we find that the share of inequality in total net cultivation income

accounted for by land-size groups increased from 10 percent to 15 percent over

the decade. In contrast, the contribution of the between- and within-group com-

ponents of land size to consumption inequality has hardly changed. There are

large variations at the sub-national level, across states and agro-climatic zones, in

the structures and patterns of income generation in agricultural households. We

find, in particular, that the increase in the share of inequality in total cultivation

incomes accounted for by differences between land-size groups is much higher for

states in the Indo-Gangetic plain, doubling from 13 percent to 26 percent.

1See http://hdr.undp.org/en/conte nt/income-gini-coeff icient.

2Chancel and Piketty (2017) relied on triangulation of host of data sets including tax data to argue

that income inequality in India is high.