This article evaluates the role of the non-farm sector in generating productive employment and reducing poverty in rural areas. An attempt has been made to analyze the recent growth of rural non-farm activities to explore the determinants and factors that might be responsible for growth. The sources of growth and nature of activities undertaken in the Rural Non-farm Sector (RNFS) are important considerations while analyzing the significance of the non-farming sector in transforming the economic life of rural households. In this regard, the inter-relationship of the RNFS employment and agricultural wages, and the degree of urbanization are highlighted in the article. The major changes in the occupational structure of RNFS, during the period 1983-84 to 1999-2000 are also examined. This article is based mainly on the unit record level data on employment and unemployment, collected by the National Sample Survey Organization (NSSO) in the 38th (1983) and 55th (1999-2000) rounds across 71 comparable rural NSS regions nationwide. The article sketches the growth of RNFS in Uttar Pradesh and examines the factors which could explain the growth, identifies the areas for further research and suggests some policy measures for improving the RNFS.

The conventional understanding of rural economy in the past was to equate it with an economy that is dominated by agriculture with lopsided marketing, transporting and agro based processing industries. But this scenario has begun to change in the past few decades for the most of rural economies of the developing countries, including India. A large number of rural economies are passing through the process of transformation with the introduction of agro-based industries and development of services sectors along with modernization of the agricultural sector. The degree and extent of this transformation may vary from country to country and region to region within a country itself.

This significant change has drawn the attention of a large number of social scientists in India and abroad. For example, Johnston and Kilby (1975), Mellor (1976), Anderson and Leiserson (1980) and Kilby and Liedholm (1986) recognize the importance of the development of non-farm activities in the rural economy, as these activities play an important role in improving the demand and supply side of the rural economy and lead to rapid economic growth. A review of literature on rural non-farm activities in the developing countries is also available with World Bank (1978), Chuta and Liedholm (1979), and ILO (1983).