How Farm Household Spends Their Non-farm Incomes in Rural India? Evidence from Longitudinal Data

Abstract

With a nationally representative longitudinal data of farm households of rural India, this article contributes to the literature by investigating whether additional income obtained from rural non-farm enterprises (NFEs) help farm households in enhancing their dietary and expenditure diversity. Additionally, it also investigates the impact of NFEs income on-farm investment to comprehend how NFEs income competes or complements agricultural production activities. We used the Generalized Two Stage Least Squares approach due to the potential endogeneity of NFEs income. Socio-economic, demographic and household characteristics are included in the models as control variables. It has been examined that NFEs income significantly increased food intake in general and also helped farm households to shift from less nutritional to high nutritional foods which contributes to greater household dietary diversity, and, also raises expenditure on non-food items and durable household assets, resulting in greater household expenditure diversity. In addition, we also examined that NFEs income has a positive impact on-farm investment which contributes to reform farm sector. Our findings provide insights into how farm households increasingly engage in rural non-farm enterprises. This has significant policy implications for livelihood diversification and diversification in consumption expenditures, particularly for marginal and small farm households.