On rural income

| Updated: October 25, 2017 05:17:04

On rural income

Income is considered to be one of the most important determinants of livelihoods in a society.  But it must also be admitted that ignoring distributional issues, the goal of increasing per-capita income alone does not ensure welfare for all. It is mainly because the level and the sources of household income are responsible for the existing differential livelihood system. However, estimation of such income, especially in rural areas, is always a very complex and hard task and the reasons are not far to seek. There is hardly any record-keeping system for inputs purchased and output produced in the vast spectrum of informal transactions in rural areas. The respondents attempt to answer most of the income-related questions from memory recalls. Again, advertently or inadvertently, the general tendency to under-report income makes it all the more difficult job to arrive at a correct estimate. Besides, sometimes the 'guess-based' accounts of income given by the respondents can not be cross-checked due to the lack of alternative information. On the other hand, the most difficult problem arises when households' own production is never considered as an income for the household.  The same happens with the in-kind income that households receive. And only for these reasons, estimates of rural income remain confusing and especially the balance is tilted towards undervaluation.
In the estimation of household income, as used in this write-up, we have adopted a different technique to minimise errors and omissions.  For example, (a) receipts in kind or in cash, have been treated as income. In this case, money value was imputed to in-kind earnings, and the value represents the prevailing prices in survey areas; (b) households' self-produced products and by products, such as crop, livestock and poultry, fisheries and forest products were bracketed as income on the assumption that expenditure saved is also income earned and, (c) income from crops has been estimated by the value of the main product and by-product. The value of inputs used has been deducted to arrive at net income of the household. The prices of inputs supplied by the household were imputed at the prevailing prices in the market.
However, still few limitations remain to be resolved. For example, no allowances could be given to the depreciation of fixed assets and for own house. And as we all know, there is an acute dearth of information on these counts in rural Bangladesh.  Again, receipts from sale of assets and loans are also not included as income since there is always a possibility of very high or very low reporting on them. We admit that government services, such as non-market transfers received from health and education, should have been included in income. Unfortunately, we failed to collect information on these items. And finally, we have expressed household income in terms of US dollars and for that the exchange rate of the year of data collection is used.
As a panel data of rural households spanning 1988-2014 show, per capita income of rural household has gone up implying a growth rate of about 3.0 per cent per annum over the last few decades. Admittedly, a decline in household size over the comparable period fuelled much of the growth rate in per capita income. We observe that about half of the total income originates from agriculture; the share was about 60 per cent, say, in 1988. This indicates that the income from agriculture has fallen in the comparable periods. Quite apparently, the fall in agriculture's share has mainly been caused by drastic reduction in income from paddy farming. But incomes from non-paddy and non-crop agriculture have increased at respectable rate overtime. For example, these two sources now account for one-thirds of total income as against one-fifth two decades back and growing at more than 4.0 per cent on an average. This is not a surprising turn given the fact that adoption of modern technology has enabled rural households to increasingly release lands for non-paddy crops. Besides that, encouragement for homestead-based crop activities is coming from government and non-governmental organisations  (NGOs). 
The source of income that witnessed substantial decline overtime is wage labour in agriculture. It is the labour that mainly the poor in rural areas exchange for livelihoods. We observe that the contribution of this source to household income has almost halved over the comparable periods. The reason may be that the poverty-stricken labour force is leaving for more remunerative engagements in non-farm sector. Or, may be, agricultural labour of the distant past has started own cultivation by accessing the tenancy market. By and large, it can be said that rural households are much less dependent on paddy farming and agricultural wage income for a living.
The lion share of the total household income (roughly 60 per cent) originates from non-agricultural activities.  We can argue that a robust rate of growth (over 5.0 per cent/year) swept the sector over time. Again, among the non-agricultural sources, remittances emerged as a promising source of household income along with business/trade and services. Take one example. In 1988, only 5.0 per cent of the household income came from remittances; the share rose to about 20 per cent in recent times depicting a robust growth rate. Income from business and trade also increased at a rapid rate. Needless to mention that expansion of rural infrastructure, increase in labour demand abroad, a liberalised commercial regime and increasing role of the private sector in production and marketing of inputs and outputs facilitated the increased participation of rural people in these activities. 
The discussion above applies for aggregate households irrespective of economic status. This kind of analysis does not adequately represent the internal dynamics of income generation and its distribution among various socio-economic groups. To have a clear perception, one needs to look at disaggregated level that we wish to take up later.
The writer, a former Professor of Economics at Jahangirnagar University, is Chair, Department of Economics and Social Sciences (ESS), BRAC University.
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