Indian Journal of Agricultural Economics

Vol.75, No.4, October-December 2020

Changing Agricultural Labour Market and Its Effects on

Farm Economy in India
S.K. Srivastava*, Jaspal Singh†, Nalini Ranjan Kumar**, N.P. Singh**
and Nasim Ahmad‡
ABSTRACT

The paper presents long-run changes in agricultural labour market and its effects on farm economy.
Further, the effect of COVID-19 led disequilibrium in labour market on cost of cultivation of paddy and
wheat has been quantified. The evidence from both census and NSSO surveys point out rising
employment diversification towards non-farm sectors. Census estimates of agricultural labour are higher
than NSSO estimates which is partly explained by adoption of different ‘minor’ time criteria by these
sources to identify marginal/subsidiary labour. Census based evidences suggest distress-led transition of
cultivators to agricultural labours, whereas NSSO surveys based evidences refute such trends and point
out towards development-led employment diversification wherein both cultivators and agricultural labours
move towards more productive non-farm sectors. The recent NSSO survey (2017-18) reveals deceleration
in withdrawal of cultivators and acceleration in withdrawal of agricultural labours. Successive cost of
cultivation surveys also report a consistent decline in labour use in crop cultivation and therefore
externally validate the trends from NSSO surveys. However, despite reduction in labour use, labour cost
has increased. Due to inelastic demand for labour, increase in wages could not bring proportionate
decrease in labour use and resulted in increase in labour cost in crop cultivation. Short-term disequilibrium
in labour supply caused due to COVID-19 led lockdown increased cost A1+FL by 1.1 per cent in wheat
and 4.6 per cent in paddy. However, farmers in Bihar did not witness any benefit on account of increased
labour supply due to large scale reverse migration.
Keywords: Labour market, NSSO, Census, Farm economy, COVID-19.
JEL: E24, J43, O15, Q15,

INTRODUCTION

Structural change in the sectoral composition from agriculture to non-agricultural

sectors is an important indicator of economic development. Like other countries,
India is also witnessing such changes (Papola, 2012; Soni and Subrahmanya, 2020).
This is evident from the declining share of the agriculture sector in national output
and employment. Between 1972-73 and 2017-18, the share of agriculture in gross
value added (GVA) and employment has declined by 24 and 30 percentage points,
respectively. However, dependency of workforce on agriculture is still far higher than
its contribution in GVA. Presently, 44.1 per cent of the workforce engaged in
agriculture produces only 17 per cent of the output. Many scholars have argued to

*Scientist, ICAR-National Institute of Agricultural Economics and Policy Research, New Delhi, †Consultant,
NITI Aayog, New Delhi, **Principal Scientist, ICAR-National Institute of Agricultural Economics and Policy
Research, New Delhi, ‡Senior Technical Officer, Dr. Rajendra Prasad Central Agricultural University, Pusa, Bihar.
470 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

accelerate employment diversification towards more productive non-agricultural

sectors (Kumar et al., 2011; Himanshu et al. 2011; Chand et al. 2017).
Employment diversification, though desirable from economic development point
of view, has definite implications on agriculture. The outward movement of
agricultural labour creates labour scarcity for timely completion of farm operations,
particularly during peak season. Further, contraction in labour supply if
unaccompanied by reduction in its demand (through labour saving technologies) can
lead to increase in wages and inflate labour cost. As labour constitutes a predominant
share in production cost (Raghavan, 2008; Srivastava et al. 2017), increased wage bill
can adversely affect farm profitability. Tracking long-run changes in labour supply in
agriculture and assessing its effects on farm economy assume significant importance
in formulating effective strategies for management of labour use in agriculture.
The unprecedented occurrence of COVID-19 pandemic has created
disequilibrium in the rural labour market. The closure of non-essential economic
activities due to imposition of lockdown to curb the virus infection forced a sizable
number of migrant casual labours of urban areas to return to their native villages.
Further, COVID-19 checked rural to rural movement of seasonal labours for
performing farm jobs on contractual basis in the labour deficit states. Therefore, in
few states size of rural labour force increased, whereas the states depending on
seasonal labour faced labour scarcity for farm operation. It is pertinent to assess the
differential effects of COVID-19 led short-run changes in labour supply on farm
economy in labour-deficit and labour-surplus states.
In this context, the paper provides empirical evidences on temporal changes in
agricultural labour supply based on alternative data sources and assesses its effects on
the farm economy. Further, likely effects of COVID-19 led changes in labour supply
on farm economy are predicted by analysing the existing structure of labour market.
The specific objectives of the paper are; (1) to examine long-run trends in estimates
of agricultural workforce from census and National Sample Survey Office (NSSO)
surveys, (2) analyse the effects of withdrawal of agricultural labours on farm
economy, and (3) evaluate differential effect of COVID-19 led changes in labour
supply on farm economy in labour-deficit and labour-surplus states.

II

DATA AND METHODOLOGY

In India, census and NSSO surveys are the two primary sources of data on
employment. Census, which is conducted at decennial frequency, provides wide
range of data on demographic and socio-economic characteristics of the Indian
population. In census, persons engaged in economically productive activities for a
major/minor part of the reference period, are classified as main/marginal workers.
The latest available census data pertains to the reference year 2011. On the other
hand, NSSO conducts household surveys on employment and unemployment issues
 CHANGING AGRICULTURAL LABOUR MARKET AND ITS EFFECTS ON FARM ECONOMY 471

at the interval of five years to enquire about multi-dimensional characteristics of

participation of labour force in different economic activities and to provide estimates
of various indicators of employment structure at the national and state-level. The
latest available quinquennial NSSO data on employment pertain to the reference year
2017-18. In the present study, the estimates on agricultural workforce from both
census and NSSO surveys are compared and long-run trends (1993-94 to 2017-18) in
employment in agriculture sector have been analysed.
Further, macro-level trends in agricultural workforce have been cross-examined
using the estimates from farm-level cost of cultivation (COC) surveys of Directorate
of Economics and Statistics, Government of India. For this, an aggregate time series
of labour use (family and hired) was constructed using COC summary data on ten
principal crops in 19 states. The selected crops include paddy, wheat, maize, jowar,
gram, arhar, rapeseed & mustard, groundnut, sugarcane, and cotton which covered
64.58 per cent of the gross cropped area (GCA) in the country in 2015-16. The area
cultivated under each crop in the respective state was used as weight to construct
aggregate time series. Additionally, aggregate time series were also constructed for
the variables, namely labour cost, cost A1+FL1 and return from the cultivation of
these crops to observe the general trends in farm economy in correspondence with
changing labour use. Cost and returns were expressed in real terms using Consumer
Price Index for Agricultural Labour (2004-05=100).
The decline in labour use in agriculture may have positive or negative effect on
the cost of cultivation depending on the associated changes in wages. The inter-
relationships among these variables have been established by estimating price
elasticity of labour using plot-level COC data for the period 2000-01 to 2016-17. It is
hypothesised that changes in labour supply will influence the prevailing wage rates
and its effect on cost of cultivation can be ascertained using estimated elasticity
coefficients. Following Srivastava et al. (2017), the elasticity coefficients were
estimated at the national level by fitting the transcendental logarithmic (translog) cost
function in ten crops.
To evaluate the differential effect of changes in labour supply due to COVID-19
on farm economy in labour-surplus and labour deficit states, separate models were
fitted for Punjab (labour-deficit state) and Bihar (labour-surplus state) in paddy and
wheat crops and elasticity coefficients were estimated. Further, field level
observations were reported on the change in prevailing wage rates during April-June
2020 as compared to the previous year in Bihar and Punjab for selected farm
operations. Using the estimated elasticities and average change in wage rates, the
effect of change in labour supply due to COVID-19 on farm economy is assessed and
its implications are discussed.
472 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

III

RESULTS AND DISCUSSION

Comparison of Census and NSSO Estimates of Agricultural Workforce

Both Census and NSSO provide the estimates of employment in India. It is

pertinent to compare the estimates from these two different sources and see how close
data correspond to each other. Gender and occupation category wise disaggregated
data on agricultural workforce participation rate (AGWPR) from large NSSO rounds
and closest census years are presented in Table 1. For the comparison, it is essential
that both sources follow similar concepts and have the same reference period. Census
as well as NSSO follow the same definition to identify a worker – a person engaged
in ‘economic activity’ during a reference period. Both sources use a reference period
of one year and the set of production related activities accepted as ‘economic
activities’ are almost the same (Kasturi, 2015). Further, in order to account more than
one economic activities performed by a worker during the reference year, census (as
well as NSSO) provide count of ‘main’ (‘principal activity’) and ‘marginal’
(subsidiary activity) workers using ‘major’ and ‘minor’ time spent criteria on
performing an activity, respectively. ‘Major’ time spent criteria (6 months or more
during the reference year) used in both sources is the same. However, there is a
difference in the ‘minor’ time criteria adopted by census and NSSO while identifying
marginal (subsidiary status) worker. Those who have worked less than six months in

TABLE 1. CHANGES IN THE AGRICULTURE WORKFORCE PARTICIPATION

BASED ON CENSUS AND NSSO SURVEYS
(per cent)
Percentage point
Ratio of NSSO change between
Census NSSO over census 2001 and 2011
Sector Gender 2001 2011 2004-05 2011-12 2001 2011 Census NSS
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Population Male 53 62 - - - - - -
(crore) Female 50 59 - - - - - -
Person 103 121 - - - - - -
All workers Male 51.7 53.3 54.7 54.4 1.06 1.02 1.6 -0.3
Female 25.6 25.5 28.7 21.9 1.12 0.86 -0.1 -6.8
Person 39.1 39.8 42.0 38.6 1.07 0.97 0.7 -3.4
Ag. workers Male 28.3 27.7 27.8 23.7 0.98 0.86 -0.6 -4.1
Female 19.6 17.4 21.2 13.7 1.08 0.79 -2.2 -7.5
Person 24.1 22.7 24.6 18.9 1.02 0.83 -1.4 -5.7
Cultivator Male 16.1 13.3 16.4 14.4 1.02 1.08 -2.8 -2.0
Female 8.4 6.1 9.9 6.9 1.18 1.13 -2.3 -3.0
Person 12.4 9.8 13.3 10.7 1.07 1.09 -2.6 -2.6
Ag. labour Male 10.8 13.3 9.3 7.3 0.86 0.55 2.5 -2.0
Female 10.0 10.5 7.2 4.6 0.72 0.44 0.5 -2.6
Person 10.4 11.9 8.3 6.0 0.80 0.50 1.5 -2.3
Others Ag. Male 1.5 1.1 2.1 2.0 1.4 1.8 -0.4 -0.1
workers* Female 1.2 0.8 4.1 2.3 3.4 2.9 -0.4 -1.8
Person 1.3 0.9 3.1 2.1 2.4 2.3 -0.4 -1.0
*Plantation crops (tea, coffee, coconut), livestock, fisheries and forestry.
 CHANGING AGRICULTURAL LABOUR MARKET AND ITS EFFECTS ON FARM ECONOMY 473

an economic activity during the reference year are counted as ‘marginal workers’ in
census. On the other hand, NSSO provides subsidiary status (synonymous as
‘marginal worker’) to only those workers who have worked for at least 30 days to
less than 6 months during the reference period. Thus, those working less than 30 days
in a year in an economic activity are excluded from being counted as ‘subsidiary
worker’ in NSSO surveys, but are counted as ‘marginal worker’ in census. This may
be one source of deviation in the estimates from these sources, if any. Apart from
this, the estimates could also partly vary due to differences in the geographical
coverage and coverage of segments of the population (Choudhury and Mukherjee,
2008).Although magnitude of estimates may vary due to several sampling and non-
sampling errors, both the sources shall provide a consistent trend in the employment.
This aspect is empirically examined in the following sections.
According to 2004-05 NSSO employment survey, 24.6 per cent of India’s
population (58.6 per cent of total workers) was engaged in agricultural activities
(Table 1). This estimate is very close to the 2001 census estimate of 24.1 per cent.
Both sources also reported predominance of cultivators (over agricultural labours)
among the total agricultural workers in 2001/2004-05. Further, AGWPR declined
between 2001/2004-05 and 2011/2011-12 in both census and NSS surveys. As the
overall worker participation rate remained almost constant (in census) or declined at
relatively slower rate (in NSSO surveys), declining AGWPR indicates a rising trend
in employment diversification away from agriculture towards non-agricultural
sectors. Several scholars have also observed rising employment diversification in the
country and have provided plausible explanations (Mukhopadhyay and Rajaraman,
2007; Kumar et al., 2011; Himanshu et al. 2011).
It is to be noted that the rate of decline in AGWPR was significantly higher in
NSSO surveys (-5.7 per cent) as compared to census (-1.4 per cent). Disaggregation
of agriculture workers revealed that it is primarily accounted by the wide variation
and contrary trend in the estimates of agricultural labour from these sources. The
2001 census estimate of agricultural labour was 20 per cent higher than 2004-05
NSSO estimates. The subsequent 2011-12 NSSO survey reported 2.3 percentage
points decline in the agricultural labour participation rate as compared to 1.5
percentage points increase in it in 2011 census. As the rate of decline in the
participation of cultivators was uniform in census as well as NSSO surveys, contrary
trend in agricultural labour explained the differential rate of decline in AGWPR
between the two sources. The gap between census and NSSO estimate of agricultural
labours widened to 50 per cent by the year 2011-12.
The share of main (principal status) workers in total agricultural workers was
calculated to investigate whether adoption of different ‘minor’ time spent criteria in
identifying marginal (subsidiary status) workers explains lack of correspondence in
the estimates of census and NSSO surveys, particularly for agricultural labours
(Table 2). The results reveal that more than 81 per cent of total cultivators are main
workers, and census and NSSO estimates are close to each other. However, there
474 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

exists significant difference in the share of main agricultural labours in total

agricultural labours between the two sources. In NSSO surveys only 6 per cent of
total agricultural labours have subsidiary status, whereas in census marginal
agricultural labours constitute 40 per cent share. It implies that up to 34 per cent of
labours of census work only for less than 30 days in agriculture and they do not
qualify to be counted as subsidiary agricultural labours in NSSO surveys. Further, the
evidences indicate that outcome of this definitional difference is more striking for
female workers. Thus, definitional difference in ‘minor’ time spent criteria is a source
of gap in the estimate of agricultural labour between census and NSSO surveys.
Nevertheless, contrary trends in estimates of agricultural labour are not explained by
this.

TABLE 2. SHARE OF MAIN AGRICULTURAL WORKERS IN TOTAL AGRICULTURAL WORKERS

Sector Ratio of NSSO over

Census NSSO census
Gender 2001 2011 2004-05 2011-12 2001 2011
(1) (2) (3) (4) (5) (6) (7) (8)
Ag. workers Male 84 78 97 98 1.16 1.26
Female 53 55 72 71 1.36 1.28
Person 72 69 87 88 1.21 1.27
Cultivator Male 92 88 97 98 1.06 1.11
Female 61 64 73 71 1.21 1.11
Person 81 81 88 90 1.08 1.11
Ag labour Male 72 67 99 100 1.38 1.49
Female 45 50 88 85 1.94 1.70
Person 60 60 94 94 1.59 1.58
Others ag Male 85 81 93 94 1.10 1.17
workers* Female 60 56 41 41 0.68 0.74
Person 74 71 59 66 0.80 0.93
*Plantation crops (tea, coffee, coconut), livestock, fisheries and forestry.

Declining cultivators and increasing agricultural labours between the past two
census years have been termed as rising casualisation of Indian agriculture (Gupta,
2016). Often it is attributed to the diminishing profitability of smallholders who are
increasingly forced to sell their land and become agricultural labour. This distress-led
argument of changing composition of agricultural workers based on census data is
refuted if NSSO survey based declining trends in both cultivators and agricultural
labours are believed to be correct. The trends based on NSSO surveys support the
argument of development-led employment diversification wherein both cultivators
and agricultural labours move out of agriculture.

Long-Run Trends in Estimated Agricultural Workforce and Labour Use in Crop

Cultivation

Gender and occupation wise worker participation rates from the successive
NSSO surveys were applied to census population to estimate the size of agricultural
 CHANGING AGRICULTURAL LABOUR MARKET AND ITS EFFECTS ON FARM ECONOMY 475

workforce. Table 3 presents changes in the estimated agricultural workforce during

1993-94 to 2017-18.The sub-period 1993-94 to 2004-05 witnessed an increase in
agricultural workforce (usual status) by 25 million at annual growth rate of about 1
per cent. The size of agricultural labour did not increase and incremental agricultural
workforce during this period was only due to increase in the cultivators. The
subsequent period till 2011-12 witnessed an unprecedented decline in the absolute
number of agricultural workers by 37 million at annual growth rate of 2.09 per cent.
The decline in agricultural workforce was due to withdrawal of both cultivators and
labours, particularly female workers. The annual rate of withdrawal of female
workers was more than 4 per cent in both cultivator and labour categories. As the
period 2004-05 to 2011-12 was a period of high agricultural growth (Chand and
Parappurathu, 2012), withdrawal of female workers is often characterised as an
outcome of the improved economic conditions of farm households (Kannan and
Raveendran, 2012). Most of these female workers did not join even non-farm sectors
and confined themselves either in household activities or pursued education, resulting
in the decline in labour force itself. Decline in male agricultural labours could be due
to inter-sectoral movement of labours in anticipation of higher income as non-farm
sectors in rural areas are up to five times more productive than casual activities at
farm (Chand et al. 2017).

TABLE 3. CHANGES IN AGRICULTURAL WORKFORCE (USUAL STATUS) IN INDIA

DURING 1993-94 TO 2017-18

Cultivators Agricultural Labours Agricultural Workers

Period Male Female Total Male Female Total Male Female Total
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
Absolute numbers (million)
1993-94 90 56 146 58 40 97 148 96 244
2004-05 101 72 172 57 40 96 157 112 269
2011-12 99 52 151 51 29 80 150 82 232
2017-18 109 39 148 33 21 54 142 60 202
Compound growth rate ( per cent)
1994-2005 1.10 2.49 1.64 -0.17 0.00 -0.12 0.62 1.52 0.97
2005-2012 -0.29 -4.44 -1.88 -1.43 -4.38 -2.56 -0.68 -4.35 -2.09
2012-2018 1.75 -4.92 -0.38 -7.21 -5.02 -6.43 -0.90 -5.04 -2.29
Source: Authors’ estimates based on NSSO estimates on activity-wise distribution of workers and census
population.

During the recent period 2011-12 to 2017-18, withdrawal from agriculture

accelerated and another 30 million agricultural workers left agriculture. The
withdrawal from agriculture sector during the recent years was primarily led by
agricultural labours, while the withdrawal by cultivators decelerated. The growth rate
in the decline in the female agricultural workers accelerated to 5.04 per cent during
recent period as compared to 4.35 per cent during previous period. Interestingly, male
agricultural labours declined at historically highest rate of 7.21 per cent per annum
during the latest period. Thus, successive NSSO surveys during the last 24 years have
revealed consistent declining trend in agricultural labours in the country. On the other
476 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

hand, declining trend in cultivators is slowing down over time. In fact, the number of
male cultivators has increased between 2011-12 and 2017-18. This could be either
due to limited capacity of non-farm sectors to absorb the incoming workforce or
effect of ongoing agricultural reforms raising their expectations about remunerative
returns.
The gradual withdrawal of labourers from agricultural activities is also reflected
from the declining labour use in crop cultivation in COC surveys (Table 4). Although
the estimates of labour use from COC surveys are not directly comparable with
NSSO estimates on the number of agricultural labours, trends in average labour use
can be taken to externally validate trends in NSSO estimates. Similar to NSSO
employment surveys, successive COC surveys have reported consistent decline in
labour use in crop cultivation over time with significantly higher rate during the
recent period 2011-12 to 2016-17. Further, reduction in labour use occurred for both
male and female labours. The declining labour-intensity in crop cultivation is
desirable if it is accompanied by a commensurate increase in farm mechanisation and
farm operations are not affected. Such investigations are vital but outside the scope of
the present study.

TABLE 4. CHANGES IN AVERAGE LABOUR USE AND COST OF CULTIVATION OF MAJOR CROPS
DURING 1993-94 TO 2016-17

Average real Average real Average real Share of labour

Average labour use (Hrs./ha) labour cost labour wages cost A1+FL cost in cost
Year Male Female Total (Rs./ha) (Rs./hr) (Rs./ha) A1+FL*
(1) (2) (3) (4) (5) (6) (7) (8)
Absolute numbers
1993-94 455 246 701 4367 6.2 10585 41.3
2004-05 419 223 642 4971 7.7 12938 38.4
2011-12 412 220 632 7205 11.4 15651 46.0
2016-17 366 189 555 7218 13.0 15705 46.0
Growth rate ( per cent)
1994-2005 -0.89 -1.13 -0.97 1.30 2.10 2.03 -
2005 -2012 -0.26 -0.15 -0.22 5.45 5.82 2.76 -
2012-2017 -2.34 -2.99 -2.56 0.04 2.67 0.07 -
*At current prices.

Effect of Withdrawal of Agricultural Labours on Farm Economy

Presently, labour constitutes 46 per cent share in average cost of cultivation

(CostA1+FL) of principal crops (Table 4). Due to a predominant factor of production,
changes in labour supply have cost implications for the farmers. It is hypothesised
that contraction in labour supply due to its withdrawal from agriculture pushes wages
upwards which in turn leads to reduction in its use in farm operations. The cost
implications of labour withdrawal largely depend on the relative changes in wages
and labour use, and labour share in cost of cultivation.
A perusal of Table 4 reveals that average labour use in crop cultivation declined
by 8 per cent between 1993-94 and 2004-05. But, despite reduction in labour use,
 CHANGING AGRICULTURAL LABOUR MARKET AND ITS EFFECTS ON FARM ECONOMY 477

labour cost at real prices increased by 14 per cent on account of 33 per cent rise in
real wages. Incremental labour cost contributed 26 per cent of the total increase in
Cost A1+FL during this period. Nevertheless, the share of labour in CostA1+FL
reduced from 41.3 per cent in 1993-94 to 38.4 per cent in 2004-05 due to relatively
higher increase in cost of other factors of production. The subsequent period till
2011-12 witnessed significant rise in real labour wages which resulted in 45 per cent
increase in labour cost (despite decline in labour use). This inflated real cost A1+FL
by 82 per cent and the share of labour in cost increased to 46 per cent by the year
2011-12. Interestingly, decline in the labour use accelerated during the latest period
2011-12 to 2016-17 which negated the effect of rising wages on labour cost.
These evidences indicate that despite the reduction in labour use in crop
cultivation, labour cost could not be saved during the past 24 years. This phenomenon
is explained by the inelastic nature of demand of labour in crop cultivation. The
estimated price elasticities of labour demand was negative and less than one in all the
selected crops with the average value of -0.21 (Table 5). This implies that in the
situation of wage rise, labour use in crop cultivation reduces less than proportionately
resulting in rising labour cost. As the magnitude of reduction in labour use is
insufficient to negate the wage-push cost inflation, it is necessary to promote farm
mechanization and improve its economic access to farmers through institutional
innovations (e.g. custom hiring centres). Srivastava et al (2017) have observed that
present level of farm mechanisation is inadequate to offset the wage-push cost
inflation in Indian agriculture.
TABLE 5. ESTIMATED ELASTICITIES OF LABOUR DEMAND IN SELECTED CROPS IN INDIA

Crop Price elasticity of labour demand

(1) (2)
Paddy -0.20
Wheat -0.27
Jowar -0.25
Maize -0.22
Arhar -0.22
Gram -0.16
Groundnut -0.16
Rapeseed and Mustard -0.23
Cotton -0.20
Sugarcane -0.20
Overall -0.21
Source: Authors’ estimation.
The estimated parameters of models have not been given due to paucity of space and can be obtained from the
authors.

Effect of COVID-19 Pandemic Led Change in Labour Supply on Farm Economy

After the first COVID-19 confirmed case reported on January 30, 2020 in Kerala,
Indian government took proactive step and announced nationwide lockdown on
March 24, 2020, for 21 days. Owing to the rising number of cases, lockdown was
further extended till May 3, 2020. As period of lockdown coincided with rabi harvest
478 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

and kharif sowing seasons, agricultural activities (along with selected other essential
services) were permitted with social distancing provisions. The labour-deficit state
like Punjab, where farmers primarily depend on outside contractual labour for wheat
harvesting and paddy transplanting, faced labour shortage to carry out these
operations due to inter-state movement restrictions. The farm-level observations
revealed that labour scarcity resulted in 24.4 and 46.6 per cent increase in wages for
wheat harvesting and paddy transplanting in 2020 over previous year, respectively.
The effect of such wage rise on cost was ascertained using estimated price elasticity
of labour and share of these operations in cost A1+FL.
A perusal of Table 6 reveals that due to the wage rise, estimated labour cost for
harvesting of wheat and transplanting of paddy increased by 15.62 and 40.54 per
cent, respectively in Punjab. Multiplication of change in labour cost with its share in
Cost A1+FL provides likely effect of COVID-19 led change in labour supply on cost
of cultivation. The results show 1.1 per cent and 4.6 per cent change in Cost A1+FL
of wheat and paddy, respectively. In absolute terms, it is Rs. 287 per hectare for
wheat and Rs. 1668 per hectare for paddy at 2016-17 prices.
TABLE 6. EFFECT OF COVID-19 ON FARM ECONOMY OF PUNJAB AND BIHAR

Share of Change in
Change in wages in transplanting/ costA1+FL due
Price elasticity 2020 (April-June) Change in labour harvesting labour to change in
of labour over 2019 (April- cost cost in costA1+FL wages (per
State Crop demand June) (per cent) (per cent) (per cent) cent)
(1) (2) (3) (4) (5) (6) (7)
Punjab Paddy -0.13 46.6 40.54 11.4 4.6
Wheat -0.36 24.4 15.62 6.8 1.1
Bihar Paddy -0.18 Nil 13.9 -
Wheat -0.25 Nil 14.5 -
Source: Authors’ estimation

In case of Bihar, it was expected that reverse migration would positively

contribute to farm economy by pushing labour wages downwards due to increase in
labour supply. However, farm-level observations revealed no change in labour wages
as reverse migrating labour did not work at farm and preferred to work in public work
programmes like Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS). Also, most of the labours started coming back to urban centres as soon
as lockdown was relaxed (The Economic Times, 2020). Thus, disequilibrium in
labour market created due to reverse migration did not show any effect on cost of
cultivation in Bihar.
IV

CONCLUSIONS AND POLICY IMPLICATIONS

The evidences from census and NSSO surveys clearly point out rising trend in
employment diversification from agriculture to non-farm sectors. NSSO surveys have
reported relatively higher rate of decline in participation of agricultural workers as
 CHANGING AGRICULTURAL LABOUR MARKET AND ITS EFFECTS ON FARM ECONOMY 479

compared to census. This is primarily accounted by wide variation and contrary trend
in the estimates of agricultural labours from these data sources. The 2001-census
estimates of agricultural labours were 20 per cent higher than 2004/05-NSSO
estimates, and the gap further widened to 50 per cent by 2011-12. One of the sources
of variation in the estimate of agricultural labour is “minor” time spent criterion used
by these sources which excludes upto 34per cent of agricultural labours of census to
be counted as subsidiary agricultural labours in NSSO surveys. Further, census
provides evidences on rising casualisation of Indian agriculture wherein cultivators
are turning to agricultural labours. On the other hand, NSSO surveys reveal
consistent declining trend in both cultivators and agricultural labours. Such contrary
trends in census and NSSO surveys create confusion while drawing policy
implications. Census based evidences suggest distress-led transition of cultivators to
agricultural labours, whereas NSSO surveys based evidences refute such trends and
point out towards development-led employment diversification wherein both
cultivators and agricultural labours move towards more productive non-farm sectors.
The recent NSSO survey reveals deceleration in withdrawal of cultivators and
acceleration in withdrawal of agricultural labours. Slow-down in withdrawal of
cultivators could be due to the effect of ongoing agricultural reforms raising their
expectations about remunerative returns from farming. This could also imply limited
capacity of non-farm sectors to absorb the incoming workforce and necessitates
strengthening of rural non-farm sectors so as to generate gainful employment
opportunities. Successive cost of cultivation surveys also report a consistent decline
in labour use in crop cultivation and therefore externally validate (though not directly
comparable) the trends from NSSO surveys.
Withdrawal of agricultural labour affects farm economy either by creating
physical scarcity of labour or through the rise in farm wages. Due to inelastic demand
of labour, increase in wages could not bring proportionate decrease in labour use and
resulted in increase in labour cost in crop cultivation. Thus, the extent of decline in
labour use is found to be insufficient to negate the wage-push cost inflation. This
warrants concerted efforts to accelerate pace of farm mechanisation and its economic
access to farmers to partially substitute labour. Short-term disequilibrium in labour
supply caused due to COVID-19 led lockdown increased cost A1+FL by 1.1 per cent
in wheat and 4.6 per cent in Paddy. However, farmers in Bihar did not witness any
benefit on account of increased labour supply due to large scale reverse migration as
labours preferred working in MGNREGS over farms.

NOTE

1) Cost A1 comprises of all paid out cost components such as value of hired human labour, hired bullock labour,
maintenance and upkeep charges on owned bullock labour, upkeep charges of owned machines, hired machine
charges, seed cost, pesticides cost, manure cost, fertiliser cost, canal irrigation charges, depreciation of implements
and farm buildings, land revenue cess and other taxes, interest on working capital and miscellaneous expenses on
other inputs. Imputed value of family labour (FL) was estimated by multiplying working hours of family labour with
prevailing wage rate.
480 INDIAN JOURNAL OF AGRICULTURAL ECONOMICS

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