The rural nonfarm economy accounts for one-quarter of all full-time employment in rural India and for nearly one-third of rural income, and is also intimately linked to agriculture. This paper examines the importance of rural-urban growth linkages in India, and aims to assess the impact of agricultural growth on national demand for nonfarm products. In addition, because growing land scarcity raises concerns about prospects for rural labor absorption, the paper highlights the impact of agricultural growth on rural nonfarm incomes and employment.Four major sections address these objectives. The first provides a descriptive overview of nonfarm activity in India. It examines the importance, composition and location of nonfarm activity as well as general trends over the past 30 years. The second explores the relationship between agriculture and changes in nonfarm activity. After reviewing previous growth linkage studies, it compares nonfarm activity in high- and low-productivity agricultural states cross-sectionally and over time. The third section estimates the volume of rural nonfarm income and employment generated by agricultural growth, while the fourth projects patterns of demand for nonfarm goods emanating from alternative agricultural growth scenarios.
