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How Lives Change: A long term view of development

The work on Palanpur, a village in Uttar Pradesh (UP), in North India, is one such observatory which allows detailed examination of these issues because of the availability of detailed household surveys, covering every household and individual, for every decade since India’s independence. Seven surveys in all, starting from the 1950s to the current decade. One village cannot be representative of the more than 600,000 villages in India but Palanpur is not particularly unusual and development economics should help us explain its experience. We connect Palanpur data to national sample surveys, surrounding villages and to UP and India as a whole. Palanpur is in some ways a unique observatory which allows us to link the theories, policies and lived experience of its residents to understand the process of change.

The lives of the people of Palanpur have indeed changed but their experience on important dimensions is at variance with standard theories of growth. To understand change in Palanpur, we must examine the interactions between the structure of the local economy, technology and social structures, including in relation to the structural change and to institutions and behaviour.

The Setting and the Study

Palanpur is a small village located in Moradabad District in west Uttar Pradesh. It is located in the plains of the Ganges river near the town of Chandausi, and the large city (and district headquarters) of Moradabad. A railway line connects the village to these urban centres, as well as to Delhi, some 220 kilometres away. The village population has grown slowly over time, rising from just over 500 in the 1950s to around 1,300 in 2015. The economy of Palanpur was very largely agricultural, and agriculture still plays a major role. But with rising population density and declining percapita landholdings, recent decades have seen an accelerating process of non-farm diversification occurring alongside continuing intensification of agriculture.

While Palanpur is not peculiar in any important way, what makes the village important is that it is “uniquely endowed” with data and studies. It has been the subject of close examination since 1957/58, when it was first surveyed by the Agricultural Economics Research Centre (AERC) of the University of Delhi who then examined the village again in 1962/63. Subsequent surveys, each covering the entire village population, were in 1974/75, 1983/84, 1993, 2008/09 and 2015. Of special note is that most of the surveys were designed, organised and fielded by researchers who were themselves fully engaged in the subsequent investigation and analysis of issues. A high degree of continuity of researchers’ involvement was maintained throughout the study period. These unique longitudinal data, covering seven decades, have allowed this small village to serve as an observatory of the myriad ways in which the rural economy of India is affected by, and in turn affects, the broader economic context and environment.

Seven Decades of Palanpur

In early 2008, Palanpur had a population of 1,255 people, divided into 233 households. Population growth over the entire survey period, after adjustment for out-migration, was roughly similar to that for India as a whole. Palanpur is a multi-caste village, encompassing also a small Muslim community. Although there are eight caste groups in the village, and a few additional individual caste households, the three main castes in the village are the Thakurs, Muraos, and Jatabs. Thakurs are the largest caste in the village numerically and they continue to be powerful economically. They were the first to move into the non-farm sector in a major way but have now been joined by other castes. Muraos, on the other hand, are seen as a cultivating caste and take pride in their agricultural skills. Jatabs, at the bottom of the village hierarchy, remained economically and socially marginalised until around 2005, but are now seen as an increasingly important community within the village.

Throughout the survey period, the economy of Palanpur has essentially been one of small farmers. Since the late 1950s the village has seen agricultural practices transformed in connection with the spread of irrigation, the introduction of new seed varieties, fertilisers and pesticides, the emergence of rental markets for agricultural equipment, and the introduction of new crops. Nonetheless, in the face of ongoing population growth and roughly constant village land availability (village lands cover roughly 400 acres, or about 160 hectares), a growing share of village income comes from non-agricultural wage employment outside the village.

Agricultural growth rates in Palanpur have mirrored the national income growth rates in India for most of the period post-Independence. Key to the agricultural development process over the survey period has been the expansion of irrigation from around half of village land at the beginning of the survey period to 100 per cent by the 1974/75 survey years as well as the intensification of farming practices via farm mechanisation that has been both land-augmenting and labour-saving. While farm mechanisation has raised agricultural productivity, it has also played a role in enabling the release of labour to non-farm activities. Additional forces of agricultural change have been the shift of cropping patterns towards higher value crops, such as mentha, as well as increased application of improved inputs such as fertilisers, pesticides and new seeds.

Changes in agriculture as well as move towards non-farm has also altered tenancy relations. Unlike earlier decades when possession of draught animals was necessary to lease in land, emergence of markets for inputs such as tractors and borewells has allowed even those who do not own the inputs to lease in land. Increasing monetisation has also led to emergence of new forms of tenancy such as “Chauthai” which do not rely on input sharing. With non-farm employment becoming important and less time for supervision by the landlords, it has also led to strengthening of earlier trend of intra-caste leasings. The importance of trust in land leasing markets is similar to trends in credit market.

Expansion of non-farm employment

While agriculture was the primary driver of change in Palanpur in the first three decades, last four decades have seen the emergence of non-farm sector as an important driver of change. Non-farm activities represented roughly two-thirds of total primary employment in Palanpur by 2015 (See Figure 1). It accounted for nearly 60 per cent of average household income in 2008/09. This compares to less than 10 per cent of employment and 20 per cent of income in 1957/58.

Better access to towns and cities via improvements in railways and communications infrastructure, particularly mobile phones, has helped villagers find jobs and has assisted in this process and has led to growing numbers travelling outside Palanpur for their employment.

While non-farm jobs were restricted mainly to traditional caste-based jajmani services and a few regular jobs in the railways during the first two survey years of the 1950s and 1960s, employment is now found in a range of establishments located in the vicinity, such as a cotton factory, a sugar mill, a paper factory, marble polishing units, casual labour in brick kilns, and so on. The jobs in the non-farm sector comprise low-paying casual wage and menial activities as well a relatively well-paid regular jobs (often government provided) and some profitable self-employment activities. But even the lowerpaying jobs are generally more remunerative than agricultural labour. The casual non-farm sector has registered the highest growth in employment in recent decades, notably in activities related to the construction sector.

Unlike regular jobs, where access is often determined by an ability to pay bribes, as well as influence, contacts, and networks based on caste and kinship, recent decades have seen a marked increase in participation by Jatabs in the casual wage non-farm labour force, where there are fewer barriers to entry. This process has led to improvements in their economic circumstances.

Poverty, inequality, and income mobility

How did the changing nature of economy in the village affect poverty and income distribution in the village? The richness of the Palanpur data, notably the total population coverage of the income surveys, permits an analysis of the dynamics of poverty, inequality, and mobility at a level of detail not normally available from secondary data sources. These dynamics are profoundly influenced by the structural change described above and by interactions between economy, technology and society.

The growth in incomes associated with agricultural intensification and non-farm diversification has led to a more than halving of poverty by 2008/09 from levels of poverty at more than 80 per cent in the first two surveys. Zamindari abolition and limited land reforms along with expansion in irrigation contributed to declining inequality in the first two decades. However by 2008/09, the Gini index, at 0.379, was at its highest level compared with all other survey years. Decomposition of inequality by income source indicates that in 2008/09, the contribution of cultivation income to overall inequality was only 20 per cent while that of non-farm income was 58 per cent. While non-fam diversification contributed to poverty reduction, the nature of non-farm diversification has also contributed to rising inequality in the last two decades.

While broad aggregate estimates of poverty and inequality are important indicators of changing income distribution, the long-time horizon covered by the Palanpur study offers a unique opportunity to look beyond intra-generational mobility to intergenerational mobility, and indeed to compare changes in intergenerational mobility. Our estimates of inter-generational mobility suggest that the intergenerational elasticity of earnings has increased over time, suggesting a decline in intergenerational mobility: the father’s income is a better predictor of his son’s income in the 1983/84–2008/09 interval than the preceding interval. Although non-farm employment opportunities in the village have become available to a wider population, the importance of networks and assets has not disappeared and may well have increased. In particular, access to regular, well-paying, on-farm jobs remains concentrated among Thakur and other advantaged households who have better access to networks and are able to pay bribes where these are necessary. The finding of declining intergenerational mobility is thus not inconsistent with increased intragenerational mobility.

Palanpur, India and Development Economics: Theory and Policy

The process of development in Palanpur is the story of the integration of a village economy with the outside world. Markets and institutions shape, interact with, and are influenced by social norms, economic structures and geography. Some elements of conventional theory in development economics are helpful in understanding these changes; other theories and perceptions much less so. But the flow of learning is not just from theory to understanding of the evidence and phenomena we identify: the village’s experience and development can also help us to understand how and in what direction some of the theories could and should develop.

Palanpur story seeks to nuance the traditional understanding of structural change from a primarily agrarian economy to a modern industrial economy. Such a process is not as linear as the history of development at the country-level might suggest. Palanpur points to a process of structural change which is gradual and is rooted in rising incomes in the traditional sector, unlike Lewis where investment is largely driven by the modern sector. The process of diversification emerging from rising incomes from agriculture is strongly dependent on the informal sector. The informal sector, thus, does not appear to be an aberration but a normal process of growth and distribution.

Similarly, the agrarian sector is not just a pool of reserve army of labour waiting to be absorbed in the modern sector but is, rather,a dynamic sector responding to opportunities and facilitating the rise in incomes and mobility which is vital to the process of transformation. In this process, dynamism of institutions plays an important role by adapting to the changing factor and product markets. Non-agricultural dynamics are conditional on agriculture contributing to investment as well as releasing labour for growth of non-farm sector.

However, the process of change does not affect everybody in the same manner. Entrepreneurship, networks and skills continue to define the mobility of individuals and groups over time and across sectors. They also affect income distribution and access to opportunities outside agriculture. But whether the rise in inequality inherent in this process leads to further growth and structural transformation is not clear. A lot depends on institutional structures which can reinforce inequality or may facilitate greater mobility. Institutional structures are not exogenous. They are as much driven by the changes in the economic structures as they are driven by social and political structures which are less likely to change in the short run.

It is here that the role of policies become important. Palanpur has seen incomes rise along with rising inequality and mobility but has not seen corresponding improvements in human development outcomes. Exogenous changes such as Zamindari abolition which allowed greater access to land by the lower groups can change behaviours and responses to technological change as is evident from green revolution. So too is the case of affirmative action such as reservation in village councils which have empowered disadvantaged groups and facilitated diversification. But these had limited impact on education and health outcomes. While it is not yet so apparent in the current context, education is likely to play an important, growing, role in how Palanpur residents access outside jobs but also on their behaviour to social and political structures.

Some of these observations are not central to the current understanding of development economics. An important finding from the Palanpur surveys is the interplay of social and political relations which not only facilitate economic transformation but also are affected by the gradual integration of the village economy to the world outside. An understanding of these is essential to an understanding of markets which relies on these communities of trust in the presence of information asymmetries. The informal sector is a classic example of this; we find stronger reliance on these communities of trust in sectors where the degree of informality is higher.

The Palanpur study is not just about understanding the process of development in one village. It also uses the village as a lens to understand and assess various theories of development in their social political and institutional contexts. And it goes further and seeks to inform the role of, and scope for, public policy in shaping the lives of individuals and societies.