Agricultural Productivity Growth and Structural Transformation in Rural India: Some Recent Evidence

Agricultural productivity growth is key to rapid structural transformation of the economy. More than 50 years after the start of the green revolution, India’s reliance on agriculture as the mainstay of livelihoods continues to be high. Against this backdrop, this paper examines trends in labour and total factor productivity in Indian agriculture. We first examine trends in the differences in employment-output shares in rural India, and show that these have not narrowed enough, and are particularly wide for women workers. Next, at the aggregate level, we compare estimates derived from the India KLEMS and USDA data sources, and find that while both reflect very similar labour productivity trends, the USDA estimates of the share of TFP in output growth are much higher. The omission of water as an input is a serious limitation in both cases. The changing composition of agricultural growth may drive much of the TFP growth, but it is likely occurring on a relatively small base in terms of livelihoods. We then estimate farmer-specific TFP indices for wheat and paddy as these crops continue to be the single large source of rural livelihoods. We use unit record data and estimate production functions in two states each. We find that there is spatial heterogeneity in the extent of shift in the estimated densities of TFP. Finally, we examine sources of change in farm business incomes and show that in the past, productivity growth has been able to sustain farmer incomes despite adverse trends in market prices. We conclude by highlighting the need for a subsectoral analysis of agricultural productivity, that accounts for a degrading resource base, and discuss implications for sustained productivity growth.