Increasing agricultural productivity may significantly and positively impact welfare, income and the pace of structural transformation. Using India’s Green Revolution and the corresponding self-sufficiency in food production as a natural experiment, this article discusses the long-run impacts of the productivity increase. Using an instrumental variable approach, it shows how tube well expansion since the mid-1960s led to a decrease in employment in the farming sector, and had a positive impact on living conditions and asset ownership.
Productivity increases allow economies to release labour resources from agriculture for other sectors of the economy. This ‘released' labour can work in the rural non-farm sector, migrate to cities, or fall into unemployment. In this respect, the Green Revolution in the mid-1960s was a redefining moment in the history of Indian agriculture (Fujita 2010, World Bank 2010, Gandhi and Bhamoriya 2011). The expansion of tube well irrigation during the Green Revolution is an example of an increase in agricultural productivity. Groundwater irrigation still holds a dominant position in India’s agriculture and food security today. India is the world’s largest groundwater user, with more than 60% of its total irrigation dependent upon this limited resource (World Bank 2010).
The Green Revolution can be seen as an appropriate exogenous policy shock for two reasons. First, it has been six decades since its advent, which is a good time frame to study the long-run impacts of its productivity increase on employment, migration and poverty. Second, the availability of fine quality Indian Census data has facilitated detailed village level analysis that captures heterogeneity among “distinct economies with local variation” (Foster and Rosenzweig 2004).
I analyse the impact of tube well irrigation expansion on macroeconomic outcomes like structural transformation, migration and poverty in the states of Gujarat and Rajasthan. In order to address endogeneity concerns, my study uses an instrumental variable (IV)1 approach, with hydrogeology of an aquifer as an instrument. Because of their nature, aquifers' effect can only be harnessed through tube well irrigation, and therefore cannot affect growth independently. Variation in aquifer quality is exploited to investigate how villages with higher irrigation levels performed compared to villages with lower levels. This is so because the differences in expansion of irrigation arose out of differences in groundwater availability and quality, which in turn is determined by the hydrogeological quality of aquifers rocks. The study also finds that the instrument passes both tests of relevance and validity, as aquifers are exogenous and distributed due to natural factors, without bias.
The data used for this study is unique in two aspects. One, it makes use of Census data and WorldClim data for over 29,000 villages in Rajasthan and Gujarat, thereby ensuring a representative sample. Second, an aquifer map from the Central Ground Water Board (CGWB) is digitised to obtain information on the geographical distribution of the rocks and finally data from multiple sources is integrated and mapped using QGIS.
Gaps in the literature
A number of studies specific to India claim that the Green Revolution led to excessive mechanisation, a consequence of which was an increase in unemployment, inequality and poverty (Harriss 1977, Pearse 1980). However, some studies find significant poverty reducing impacts of improving agricultural productivity (Bell et al. 1982, Ahluwalia 1985). In my study, three possibilities for these different results are tested. First, the short-term horizons of earlier studies failed to capture the long run impacts of the Green Revolution and technology adoption. Second, the benefits reaped by the rural poor in terms of lower wheat and rice prices were not taken into account. Third, the link between rural farm and non-farm economy created by the Green Revolution was ignored (Hazell and Ramasamy 1991).
In terms of employment in the farm sector, a 1% increase in irrigation, on average, results in 0.25% decline in the share of workers in the farm sector. The results are consistent with the findings of Hornbeck and Keskin (2015), who found that the discovery of Ogallala aquifers increased labour demand in USA.
For the rural non-farm sector, my estimates predict a very small but statistically significant increase in the share of non-farm workers in the total population. A 1% increase in irrigated land leads to 0.10% increase in non-farm sector employment. These estimates are consistent with the predictions of Matsuyama’s closed economy model, where an increase in agricultural productivity leads to an increase in non-farm activity – this is unsurprising for India, as it was a relatively closed economy before the economic reforms in 1991.
The decline in the number of farm workers is greater than the increase in the number of rural non-farm workers. However, the hypothesis that development in agriculture led to an increase in outward migration to the cities remains unproved, as the IV estimates are statistically insignificant and suggest no outward movement of rural population.
What about the effect on poverty reduction? Of the three measures of poverty used – percentage of households with good/livable housing conditions; with assets like televisions, computers, laptops and scooters; and those availing banking facilities – the IV estimates show a significant and positive impact of productivity increase on the first two. A 1% increase in irrigation results in 0.11% increase in the proportion of households with good and livable housing conditions, and a 0.02% increase in proportion of households with assets. Running robustness checks using different sets of instruments, and definitions of controls, also yield similar results.
Conclusion and policy implications
This study is a detailed village-level analysis which takes into account the significant within-district variations, which are often ignored. The significant welfare impacts of tube-well irrigation expansion have a direct bearing on decisions about resource allocation. If groundwater has positively impacted the Indian economy by boosting agriculture, then policies pertaining to the allocation of groundwater between agriculture and industrial sector need careful consideration.
Increasing productivity is essential for India’s growth and poverty alleviation. The Green Revolution 2.0 may now focus on new technologies like drones, remote sensing to usher in a new era of prosperity in the agricultural sector, but focussing on stimulating growth in the agriculture sector also has a bearing on the pace and style of urbanisation. Such reforms or policy decisions will promote growth in the rural sector and gradually urbanise those areas instead of spurring migration and putting more pressure on resources of existing cities.
1. Instrumental variables are used in empirical analysis to address endogeneity concerns. An instrument is correlated with the explanatory factor but does not directly affect the outcome of interest, and thus can be used to measure the true causal relationship between the explanatory factor and the outcome of interest.
- Hornbeck, Richard and Pinar Keskin (2015), “Does Agriculture Generate Local Economic Spillovers? Short-Run and Long-Run Evidence from the Ogallala Aquifer”, American Economic Journal: Economic Policy, 7(2): 192-213.
- Bell, C, P Hazell and R Slade (1982), Project Evaluation in Regional Perspective, John Hopkins University Press, Baltimore.
- World Bank (2010), ‘Deep Wells and Prudence Towards Pragmatic Action for Ad- dressing Groundwater Overexploitation in India’.
- Fujita, K (2010), ‘The Green Revolution and Its Significance for Economic Development - The Indian Experience and Its Implications for Sub-Saharan Africa’, JICA-RA Working Paper, 17.
- Gandhi, V, and A Bhamoriya (2011), Groundwater Irrigation in India: Growth, Challenges and Risks, Oxford University Press, New Delhi.
- Harriss, J (1977), ‘The Limitations of HYV technology in North Arcot District: The View from a Village’, in B Farmer (ed.), The Green Revolution? Technology and Change in Rice Growing Areas of Tamil Nadu and Sri Lanka.
- Hazell, P, and C Ramasamy (1991), ‘Introduction’, in P Hazell and C Ramasamy (eds.), The Green Revolution Reconsidered.
- Matsuyama, Kiminori (1992), “Agricultural productivity, comparative advantage, and economic growth”, Journal of Economic Theory, 58(2):317-334.