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Decreasing farm incomes and uncertain climatic conditions have driven many people away from their farmlands over the past few decades. But which farming households take up non-farm work more seriously?

A new study by Anviksha Drall and Sabuj K Mandal of IIT Madras shows that agricultural households where family members have easy access to credit, have good social capital from participating in co-operatives, and are more technically educated are more likely to have people working outside farms.

The study is based on 2010-14 data for 1,300 households across 30 villages in 8 states. These are regions with uncertain rainfall, infertile soil and high population growth where farmers want to diversify, but succeed to different degrees.

Getting loans is important for households as it makes it easier for them to start new businesses. But many small farmers find it difficult to get loans as they have few assets to show as collateral. More credit for a household solves liquidity problems and increases the share of non-farm income in total income—in other words, it helps in diversification.

Social capital also has an impact on households diversifying. The study finds the higher the share of members of a household registered in associations, the higher the share of non-farm income in total income. Active participation in cooperatives helps reduce financial constraints and improves the entrepreneurial skills of household members, giving them better bargaining power in the market and more information about non-farm employment opportunities.

Running one’s own business or taking up non-farm jobs requires skills. The study finds that households with technically skilled members have much higher non-farm incomes than others.

To help marginal farmers access credit and diversify, the authors suggest encouraging regional rural banks to expand and open new branches.

Also read: “Investigating the existence of entry barriers in rural non-farm sector employment in India: A theoretical modelling and an empirical analysis"

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