29/08/2017 9:01 AM IST | Updated 29/08/2017 9:01 AM IST

How Non-Farm Enterprises Can Become Major Job Creators In Rural India

They can also stem distress migration.

Bishnu Sarangi
Finding full employment in rural areas is not easy.

By Sanjiv Phansalkar*

Rural enterprises, particularly those that are not farm-based, are key to the creation of local employment and avoiding migration for jobs. Three features of rural enterprises — raw materials, skill or technique applied, and markets — are critical for success that can be sustained.

Common sense suggests that enterprises where all the three are local, familiar or traditional (for example, the local blacksmith repairing the plough of the local farmer), there is really no need for any enterprise promotion effort. On the other hand, where all three are distant, unfamiliar or new (for example, youth running a medical transcription business in a village in Bastar) the enterprise faces a challenge in surviving and needs a consistent management input. Thus, enterprises that need promotion would have one or two of the three features (raw materials, skills or techniques and market) to be new, distant or unfamiliar.

Targeted interventions and managerial assistance to promote non-farm rural enterprises have the potential to create a large number of jobs in the countryside...

These rural enterprises can be divided in three classes — the R-R (rural-rural) class in which the product or the service is produced as well as consumed in the rural area itself; the R-U (rural-urban) class where production occurs in rural areas but caters to an urban demand; and the U-R (urban-rural) class that consist of enterprises which import and distribute products and services from urban areas to meet rural demand.

A village ironsmith repairing agricultural implements in the village belongs to the first class. This class of enterprises has the problem of stagnancy. Producers of craft and household products such as earthen pots selling their produce in the nearby town represent the second class. Shops selling shampoo or mobile recharge kiosks in the villages represent the third category.

Growth and job potential

It may be a good idea to see the growth and job potential of each of these categories. Enterprises in the third category are derived and driven from the economic activities of actors in urban areas. The growth of employment by them is a function of their expectation of demand from the rural areas.

As tele-density in rural areas grows, more mobile shops will be encouraged and recharge shops and repair people will be needed. When more rural folk buy motorcycles, more spare shops and repair shops will come up. Thus, while there will of course be some multiplier effects of these enterprises, they are primarily spurred by prosperity of the rural areas—arising out of production of goods and services there, as well as from remittances received.

Prosperity arising out of production of goods and services in rural areas is thus key to growth in jobs in enterprises. Let's look at a few examples.

Prosperity arising out of production of goods and services in rural areas is key to growth in jobs in enterprises.

Back in 1984, I observed the work of a certain Shaligram Baghri in Ratlam district. His enterprise was in the R-R class. He knew the requirement for farmyard manure of various large farmers. So, he organised the aggregation of farmyard manure from neighbouring villages and supplied it to them. He was an on the specific types of manures that farmers needed for different purposes, in different settings. It appears that to get the best results, the manure must match the crop as well as the nature and texture of soil on the farm.

Shaligram knew how the ideal mix could be obtained by combining manures produced in the homes of various people since he knew the proportion of stall feeding and free grazing animals and the type of forage on which animals grazed in different villages. Of course, he could cater to demand and procure supply only within the bounds of villages where he was known.

Another person, a lohar (blacksmith) in the same area continued his ancestral trade of making implements and repairing them. But soon he innovated and started making frames and wheels for bullock carts as well as other fabricated structures. He developed contacts in the nearby town and started marketing his fabricated gates and other items to the town. He opened a shop in the town.

In a span of a few years he had hired eight persons in various tasks. But he was proposing to slowly shift completely out of the village to the town since that would avoid transport of heavy iron angles. Fabrication operations involved welding, either based on electricity or on gas. Electricity supply in the village was erratic and gas cylinders also had to be fetched from the city.

Lessons from examples

The first example suggests that for many products arising in rural areas, standardisation is difficult due to variability in conditions at the users' end as well as in quality parameters of input materials. Hence production of products deemed satisfactory to consumers requires a big play for judgment. It's hard to turn such judgment into a transferable skill.

As long as villages suffer from poor infrastructure, there will be a challenge to the growth of rural enterprises in the non-farm sector.

This in turn limits the reach for raw materials as well as customers, and hence scope for growth. And with that it limits the scope for employment in the focal enterprise. We then see a cloning of similar enterprises offering similar products and services in clusters of villages spanning a whole terrain.

The second example suggests that while potentially there is much scope for expansion of the product line and hence business of the enterprise, this is constrained by infrastructure issues of power supply, road connectivity and access. As long as villages suffer from poor infrastructure, there will be a challenge to the growth of rural enterprises in the non-farm sector. The two main advantages that a rural non-farm enterprise enjoys are low cost of space for facilities and cheaper labour. But this is soon offset by transaction costs associated with operations due to poor infrastructure.

Thus we need to confront the issues of promoting rural enterprises in the extant environment and infrastructure if we wish to make them engines for growth and employment. We will continue to examine and explore this further.

Sanjiv Phansalkar is associated closely with Transform Rural India Foundation. He was earlier a faculty member at the Institute of Rural Management Anand (IRMA). Phansalkar is a fellow of the Indian Institute of Management (IIM) Ahmedabad.

Views are personal.

This article was first published on, a public-interest communications platform focused on rural India.