Examining Income Sources and Inequality among Agricultural Households in Gujarat

Abstract

The paper aims to analyse income inequality among agricultural households in Gujarat. As a first step, the study investigates the degree to which agricultural households rely on farming as a source of livelihood. Evidence shows that agriculture constitutes a significant component of household income in the state, contributing nearly 61 per cent of the total income earned by agricultural households. However, a closer look at monthly farm earnings presents a concerning picture. Almost one-third of agricultural households receive less than ₹2,000 per month from farming alone. In addition, the distribution of farm income is highly uneven, with the top 10 per cent of agricultural households accounting for nearly half of the total farm income. Even when income from all possible sources is considered, about 11 per cent of agricultural households continue to earn less than ₹2,000 per month. A decomposition of inequality by income source further indicates that farm income contributes significantly to overall income disparities, whereas wage income tends to reduce inequality. Households with a relatively smaller share of income from farming depend largely on wages and salaries for their livelihood, while earnings from non-farm businesses remain relatively modest. These findings clearly indicate that improving farm income in isolation cannot enhance overall household welfare unless accompanied by the creation of adequate and stable wage employment opportunities in rural areas. Taken together, the results point to the need for an integrated rural policy framework that combines agricultural reform with employment generation and social security to ensure more equitable and sustainable livelihoods.

JEL Codes: D31, Q12, O15

Keywords

Farm Income Income Inequality Inequality Decomposition Agricultural Household Gujarat

1. Introduction

This study contributes to a better understanding of the composition of income sources and the extent of income inequality among agricultural households in Gujarat. The analysis is based on data from the 77^th Round of the Situation Assessment Survey of Agricultural Households conducted by the National Sample Survey Office (NSSO) under the Ministry of Statistics and Programme Implementation (MoSPI), Government of India. A growing body of literature has examined farm income, its distribution and the factors contributing to income inequality (Azam & Shariff, 2011; Bathla & Kumar, 2019; Birthal et al., 2014; Chand et al., 2015; Das & Srivastava, 2021; Narayanamoorthy, 2017; Priscilla et al., 2021; Ranganathan et al., 2016; Saini & Kaur, 2022). Most of these studies, however, focus primarily on measuring inequality in agricultural income and analysing its sources through the Gini decomposition by source approach proposed by Lerman and Yitzhaki (1985).

The ‘Gini decomposition by source’ has been applied using data from the NSSO’s 59^th and 70^th Round surveys on the ‘Situation Assessment of Agricultural Households in India’ (Birthal et al., 2014; Das & Srivastava, 2021; Saini & Kaur, 2022), as well as the India Human Development Survey conducted by the National Council of Applied Economic Research (NCAER) in collaboration with the University of Maryland (Azam & Shariff, 2011; Ranganathan et al., 2016). However, most of these studies are confined to Gini decomposition by income sources at the all-India level, with little attempt to provide insights at the state level. This limitation is important, given the well-known variation across Indian states in both the proportion of agricultural households and the share of income they derive from farming.

The existing body of literature does not provide a sufficiently comprehensive analysis of the composition of income sources among agricultural households at the state level, which limits its usefulness for policy formulation. A few studies, however, have attempted to address this gap. For instance, Saini and Kaur (2022) analyse the determinants of income inequality in Punjab, while Priscilla et al. (2021) examine similar issues in the North-East region of India. Another limitation of the existing literature is its predominant reliance on the Gini coefficient as the main measure of income inequality. Although the Gini coefficient is commonly used for comparing inequality across regions and over time, it offers only a partial understanding of the income distribution. In particular, it does not adequately capture important aspects such as the degree of income concentration or the relative economic positions of households located at the upper and lower ends of the distribution.

Gujarat stands out as one of the few states that has achieved remarkable growth in the agricultural sector. Between 2001–2002 and 2014–2015, agriculture in Gujarat recorded an impressive annual growth rate of 8.6 per cent, significantly higher than the all-India agricultural growth rate of 3.2 per cent per annum during the same period (Gulati et al., 2021). This substantial growth necessitates a thorough examination of farm income and its distribution. Such an analysis is crucial for gaining insights into farmers’ well-being, as their welfare lies at the core of rural development in the state of Gujarat.

Hence, there is substantial potential for analysing income patterns among agricultural households and the distribution of income inequality in Gujarat. Accordingly, this study aims to investigate the sources and distribution of income among agricultural households in Gujarat. In addition, it examines the role of agricultural income in shaping overall rural income inequality, thereby providing insights into its relative significance. The present analysis uses data from the 77^th Round of the NSSO’s ‘Situation Assessment Survey of Agricultural Households’, which surveyed 1,721 agricultural households in Gujarat. The analysis is carried out using unit-level data, and all estimates are derived using sample weights.

Section 2 examines the extent to which rural households depend on farming as a source of livelihood. Section 3 analyses the level of income inequality among agricultural households. Section 4 presents the estimation of income inequality through source-wise decomposition, and Section 5 concludes by summarising the key findings and discussing their policy implications.

2. Rural Households’ Participation in Agriculture andDependence on Farm Income in Gujarat

This section analyses the extent of participation of rural households in farming. The analysis is based on data obtained from the NSSO surveys on the Situation Assessment of Agricultural Households. According to the definition adopted in the NSSO 77th Round (January–December 2019), an agricultural household is one that earns a value of output exceeding ₹4,000 from agricultural activities and has at least one member who is self-employed in agriculture, either as a principal or subsidiary activity, during the reference period of the previous 365 days. Households that are engaged solely in agricultural wage labour, as well as those whose income is derived entirely from coastal fishing, rural artisanal occupations, or agricultural services, are not considered agricultural households and are, therefore, excluded from the survey coverage.

In 2019, 61.1 per cent of rural households in Gujarat were classified as agricultural households. This proportion is not only higher than the national average (54 per cent) but is also among the highest across the states presented in Figure 1. States with a higher proportion of agricultural households than Gujarat include Rajasthan (74 per cent), Chhattisgarh (66.8 per cent), Madhya Pradesh (66.4 per cent), Uttar Pradesh (65.4 per cent), and Haryana (61.4 per cent). In absolute terms, 40.37 lakh out of 66.03 lakh rural households in Gujarat were classified as agricultural households. These households account for 4.3 per cent of the total agricultural households in India (930.94 lakh).

Figure 1.

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

The NSS 77^th Round survey on the ‘Situation Assessment of Agricultural Households’ provides detailed information on multiple sources of income of agricultural households. Apart from income derived from farming activities—namely, crop production and animal farming—the survey also reports income from wages, non-farm businesses, and rent received from leasing out land. Additionally, it collects data on earnings from non-economic sources such as pensions and remittances. The survey provides two sets of income estimates for agricultural households: (a) estimates based only on paid-out expenses, and (b) estimates based on both paid-out and imputed expenses. For the present analysis, income has been estimated using only paid-out expenses.

Table 1 presents the distribution of agricultural households in Gujarat by the share of farm income in total household income. It is evident that agricultural households vary widely in terms of their dependence on farm income. The results indicate that only 49.5 per cent of agricultural households in Gujarat are entirely dependent on farm income. In this study, the term ‘farming-income-dependent agricultural households’ refers to households for which farming accounts for at least 50 per cent of the total household income. Based on this definition, about61 per cent of agricultural households in Gujarat are dependent on farming. Notably, farming generates negative profits for a small but non-negligible proportion of households (2.7 per cent). Further, 13.3 per cent of agricultural households derive less than 10 per cent of their total income from farming, while nearly 28 per cent derive less than 30 per cent of their total income from farming.

Table 1.

Contribution of Farm Activities in AgriculturalHouseholds’ Income in the State of Gujarat

Share of Farm Income	Proportion of Agricultural Households
Negative	2.7
<10	10.6
10–20	10
20–30	4.7
30–40	7.9
40–50	3.1
50–60	3.6
60–70	2.8
70–80	2.1
80–90	2.3
90–100	0.7
100	49.5
50+	61

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

In absolute terms, out of a total of 40.37 lakh agricultural households in Gujarat, about 20 lakh households rely entirely on farm income, whereas approximately 24.6 lakh households can be classified as farming-dependent (deriving more than 50 per cent of their household income from farming). When expressed as a proportion of all rural households, 30 per cent are entirely dependent on farming, while 37 per cent are farming-dependent households. Overall, the analysis demonstrates that the reliance of rural households on farming varies considerably depending on the definition employed. It ranges from 61.1 per cent under a broader criterion, that is, households obtaining a substantial share of income from farming, to about 30 per cent under a more stringent definition, namely, households that are entirely dependent on farming.

3. Inequality in Income Distribution among AgriculturalHouseholds in Gujarat

3.1 Inequality in Farm Income Distribution

Table 1 presents the distribution of agricultural households according to the share of income they receive from farming as a proportion of total household income. Although it provides information about the extent to which agricultural households depend on farm income, analysing the actual amount of income they receive from farming is necessary to gain a broader understanding of farm income dependency among agricultural households.

According to estimates based on the 77^th Round survey, agricultural households in Gujarat earned an average of ₹7,795 per month from farming, comprising ₹4,318 from crop cultivation and ₹3,477 from animal farming. However, this average conceals substantial variation between households with the lowest and highest farm incomes.

To show how farm income varies among agricultural households in Gujarat, we use percentiles, which divide households into 100 equal groups based on income. First, households are arranged from the lowest to the highest monthly farm income. For example, the 90^th percentile is the income level that is higher than what 90 per cent of households earn, meaning that only the top 10 per cent earn more. Similarly, the 5^th percentile is the income level below which the poorest 5 per cent of households fall.

Figure 2 illustrates the distribution of monthly farm income across percentiles among agricultural households in rural Gujarat. The 5^th percentile is estimated at ₹221, which indicates that 5 per cent of agricultural households earn less than ₹221 per month from farming. At the upper end, the 90^th percentile is ₹18,515, suggesting that 90 per cent of households earn less than this level of monthly farm income. A closer examination shows that the 17^th percentile of monthly farm income is ₹970, which is close to ₹1,000, implying that 17 per cent of households earn less than ₹1,000 per month. Similarly, 33 per cent earn less than ₹2,000, 56 per cent earn less than ₹5,000 and 77 per cent earn less than ₹10,000 per month. The percentile distribution paints a rather sobering picture of agricultural households’ earnings. Only 28 per cent of households earn more than ₹10,000 per month from farming. Comparing this with the average monthly farm income of ₹7,795, it is evident that 71 per cent of agricultural households in Gujarat earn less than the average, highlighting that most agricultural households earn far below the mean, while a small group earns much more.

Figure 2.

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

Comparing the mean income of each decile provides another way to examine inequality in the distribution of farm income. The poorest 10 per cent (D1) of households in the farm income distribution earned an average of ₹−29 per month from farming, while the next 10 per cent (D2) earned ₹801 per month. The mean farm income for the top 10 per cent (D10) of households is ₹36,497 per month, which is several times higher than that of the poorest first and second deciles. The D10/D1 ratio, defined as the ratio of the mean income of the top 10 per cent to that of the lowest 10 per cent, is commonly used to measure income inequality. In the present case, the mean of D1 is negative, likely reflecting short-term negative returns from farming. To address this, we use the D9/D2 ratio instead, which considers the second-highest decile relative to the second-lowest decile, thereby avoiding distortions caused by extreme values at both ends of the distribution. In this instance, the D9/D2 ratio is approximately 17, indicating that households in the 9^th decile earned, on average, 17 times more than those in the second decile (Table 2).

Table 2.

Mean Monthly Farm Income of Agricultural Households byDecile Class and Their Share in Total Farm Income

Decile Class	Mean of MonthlyFarm Income	Share of Each Decile inTotal Farm Income
D₁	−29	0.0
D₂	801	1.0
D₃	1,476	1.9
D₄	2,130	2.7
D₅	3,273	4.2
D₆	4,747	6.1
D₇	6,230	8.0
D₈	9,035	11.8
D₉	13,734	17.2
D₁₀	36,497	47.1
All	7795	100.0

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

Agricultural households in the bottom half of the distribution earn less than 10 per cent of total farm income, while the poorest 80 per cent earn nearly36 per cent of overall farm income. In contrast, the top 20 per cent of households receive approximately 64 per cent of the total farm income, with the top10 per cent alone accounting for nearly half of the total farm income. Despite capturing a large share of farm income, the top 20 per cent of householdsearn an average of ₹25,116 per month, while the top 10 per cent earn₹36,497 per month. These figures indicate that farm income in Gujarat is highly concentrated among households in the top deciles of the income distribution.

To assess the ability of farming to provide a subsistence-level income—defined as an income sufficient to meet the basic necessities of a household—we estimated the proportion of agricultural households whose monthly farm income falls below the state-specific official poverty line. The most recent state-specific poverty lines in India are available for 2011–2012, based on the 68^th Round survey of NSSO on Household Consumer Expenditure. For 2011–2012, two alternative poverty estimates are available: those proposed by the Tendulkar Committee and the Rangarajan Committee. For the present analysis, the Rangarajan Committee poverty line is used as it represents the more recent estimate.

Since the data for this study pertain to 2018–2019, the 2011–2012 poverty line was updated using the state-specific Consumer Price Index for Rural areas (CPI-Rural) published by the National Statistical Office, MoSPI, Government of India. Based on this adjustment, the poverty line for Gujarat is estimated at ₹1,622 per capita per month. Using this updated poverty threshold, we estimated the proportion of agricultural households whose monthly per capita farm income falls below the poverty line. The results show that approximately70.5 per cent of agricultural households fall below this threshold, indicating that farming alone is insufficient to provide a subsistence-level income in Gujarat.

Although agricultural households account for 61 per cent of rural households, only about 29.5 per cent earn a monthly farm income sufficient to meet the subsistence level. This indicates that farming alone is largely inadequate to provide basic sustenance for the majority of households. In other words, the agricultural sector may be considered over-populated, with more households engaged in farming than can be supported sustainably by farm income.

3.2 Income Inequality among Agricultural Households

Apart from farming, agricultural households earn an average of ₹4,415 per month from wage employment. In addition, they receive an average of ₹369 per month from non-farm businesses, ₹138 per month from remittances or pensions, and ₹53 per month as rent from leasing out land. Overall, farming and wage earnings are the two main sources of income, together accounting for nearly 96 per cent of the total household income. If all sources of income are added, an average agricultural household is seen to earn approximately ₹12,769 per month.

Table 3 shows the mean of the total monthly income of agricultural households for each decile class of monthly farm income. This helps to understand how agricultural households with varying levels of farm income benefit from non-farm activities. A comparison of monthly farm income with monthly total income demonstrates that non-farm sources contribute significantly to enhancing the income of agricultural households. Non-farm sources support agricultural households with extremely low monthly farm income. For example, the monthly farm income of an agricultural household in the first decile is negative ₹−29), but when non-farm income is added, it is ₹7,072, which is greater than the monthly farm income of an agricultural household in the seventh decile ₹6,230).

Table 3.

Mean of Monthly Income per Agricultural Household forEach Decile Class on Monthly Farm Income

Decile Class of Monthly Farm Income	Mean of Monthly Total Income	Share ofFarm Income	(3) – (2)
(1)	(3)	(4)	(5)
D₁	7,072	−0.4	7,101
D₂	7,832	10.2	7,031
D₃	10,281	14.4	8,805
D₄	6,042	35.3	3,912
D₅	7,749	42.2	4,476
D₆	9,164	51.8	4,417
D₇	10,888	57.2	4,658
D₈	12,753	70.8	3,718
D₉	16,274	84.4	2,540
D₁₀	39,574	92.2	3,078
All	12,769	61.0	4,974

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

As we progress from the lower to higher deciles, the reliance of agricultural households on farm income grows. Agricultural households in the first decile of farm income earn −0.4 per cent of their income from farming, as compared to a corresponding figure of 92.2 per cent in the 10^th decile. Non-farm sources account for more than 50 per cent of the total income of agricultural households up to the 5^th decile class. Another significant finding is that the total income of households increases as we move from the lower to higher deciles. This implies that non-farm income is insufficient to compensate agricultural households in the lower farm income deciles to the extent required to equalise their total income with the total income of the higher farm income deciles. As a result, there is a large income disparity in the total income of agricultural households between the lowest and top farm income deciles. The average monthly total income of agricultural households in the 10^th decile class of farm income is more than 5.6 times that of the 1^st decile class.

In addition to the overall monthly farm income, we have also computed the monthly farm income and the monthly total income of agricultural households by land-possessed decile classes. Table 4 presents this information along with the average size of the land possessed, as well as the minimum and maximum land size in each land-owned decile class. The results indicate that nearly 70 per cent of the agricultural households in rural Gujarat possess less than one hectare of land. Moreover, the average landholding size of an agricultural household is also less than one hectare.

Table 4.

Mean Monthly Farm Income and Total Income of Agricultural Households by Land Possession Decile Class in Gujarat, 2019

Decile Class of Land Possessed	Land Possessed (Hectare)			Mean of Monthly Farm Income (₹)	Mean of Monthly Total Income (₹)	Share of Farm Income	Difference (6) – (5)
Decile Class of Land Possessed	Mean	Minimum	Maximum	Mean of Monthly Farm Income (₹)	Mean of Monthly Total Income (₹)	Share of Farm Income	Difference (6) – (5)
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
D₁	0.01	0.00	0.02	5,149	12,308	41.8	7,160
D₂	0.13	0.02	0.20	3,593	8,309	43.2	4,716
D₃	0.22	0.20	0.25	3,219	9,563	33.7	6,344
D₄	0.31	0.25	0.41	2,577	8,710	29.6	6,132
D₅	0.50	0.41	0.61	4,876	10,397	46.9	5,520
D₆	0.72	0.62	0.82	4,699	8,804	53.4	4,104
D₇	0.92	0.82	1.00	5,876	10,500	56.0	4,624
D₈	1.20	1.00	1.45	9,179	12,566	73.0	3,387
D₉	1.84	1.46	2.39	14,738	19,659	75.0	4,920
D₁₀	4.05	2.39	14.19	23,876	26,629	89.7	2,754
Total	0.99	0.00	14.19	7,795	12,769	61.0	4,974

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

Monthly farm income and monthly total income do not follow a consistent pattern across the land-possessed decile class. However, the top three land-possessed decile classes, D₈, D₉ and D₁₀, have the highest monthly farm income and total income. However, the agricultural households in the lowest decile of the land-possessed categories are not those with the lowest monthly farm income and the lowest total monthly income among all the households. Looking at the proportion of farm income, we notice that dependency on farm income fluctuates across the initial land-possessed categories and thereafter grows.

Figure 3 presents the percentile distribution of the total income of agricultural households. The distribution shows that about 45 per cent of agricultural households earn more than ₹10,000 per month, compared to 28 per cent in the case of farm income alone, highlighting the significant role of non-farm sources in augmenting the income of agricultural households. However, even after accounting for non-farm income sources, a substantial proportion of agricultural households continue to live with very low levels of total household income. It is observed that 25 per cent of agricultural households earn less than ₹5,000 per month, while 11 per cent earn less than ₹2,000 per month. The percentile distribution also indicates that the average total monthly income of agricultural households (₹12,769) is highly unevenly distributed. A comparison of the mean with the percentile distribution shows that the average income is approximately equal to the 68^th percentile (₹12,833), implying that 68 per cent of agricultural households earn less than the average income, which reflects a high degree of income inequality. When this distribution is compared with the rural poverty line of Gujarat, it is observed that around 45 per cent of agricultural households earn less than the poverty line, even after considering all sources of income.

Figure 3.

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

Table 5 presents the mean monthly total income of agricultural households across decile classes of total monthly income. The results show that the poorest 10 per cent of households earn an average monthly income of ₹625, whereas the top 10 per cent earn ₹45,469 per month. The mean income of the top decile is several times higher than that of the bottom decile, with the D10/D1 ratio estimated at around 73, indicating an extremely high level of income inequality.

Table 5.

Average Monthly Farm Income and Average MonthlyTotal Income of Agricultural Households for Each Decile Class

Decile Class	Mean of MonthlyTotal Income	Share of Each Decile inTotal Income
D₁	625	0.5
D₂	2,758	2.2
D₃	4,830	3.8
D₄	6,669	5.2
D₅	8,650	6.8
D₆	10,031	7.7
D₇	11,954	9.6
D₈	15,231	11.8
D₉	21,389	16.8
D₁₀	45,469	35.7
All	12,769	100.0

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

If both extremes of the distribution—the bottom 10 per cent and the top 10 per cent—are excluded, the D9/D2 ratio declines to nearly 8, suggesting a substantially lower level of inequality compared with the D10/D1 measure. This finding indicates that agricultural households in the lowest decile are exceptionally poor. In terms of income shares, agricultural households in the bottom half of the distribution account for only 18.5 per cent of the total income, while the poorest 80 per cent together earn about 47.6 per cent of the total income. In contrast, the top 20 per cent capture 52.5 per cent of the total income, and the top 10 per cent alone receive nearly half of the total income. Despite this concentration of income at the top, the top 20 per cent of agricultural households earn an average monthly income of ₹33,429, while the top 10 per cent earn ₹45,469 per month.

4. Decomposing the Income Inequality of Agricultural Households

Following Lerman and Yitzhaki (1985), the Gini coefficient (G) for total income inequality can be expressed as follows:

G = \sum_{k = 1}^{K} S_{K} G_{k} R_{k},

where S_k represents the share of income from source k in total income, G_k is the source Gini corresponding to the distribution of income from source k, and R_k denotes the Gini correlation between income from source k and the distribution of total income [R_k = Cov {y_k, F(y)}/ Cov{y_k, F(y_k), where F(y) and F(y_k) represent the cumulative distributions of total income and income from source k respectively]. The relationship among these three components has a clear and intuitive interpretation. As noted by Stark et al. (1986), the influence of each income component on overall income inequality depends on:

The share of the income source in total income (S_k),

The level of inequality in the distribution of that income source (G_k) and

The extent of correlation between the income source and total income distribution (R_k).

If an income source constitutes a large share of total income, it may have a significant impact on overall income inequality. However, if the income from that source is distributed equally (G_k = 0), it will not influence inequality, even if its share in total income is substantial. Conversely, if the income source is both large and unequally distributed (S_k and G_k are large), its effect on inequality will depend on which households receive it and their position in the overall income distribution. If the income source is unequally distributed and accrues disproportionately to households at the upper end of the income distribution (R_k is positive and large), its contribution to overall inequality will be positive. In contrast, if the income source is unequally distributed but is concentrated among poorer households, it may have an equalising effect on the overall distribution of income.

Lerman and Yitzhaki (1985) demonstrate that this method of Gini decomposition allows the estimation of the effect of marginal changes in a particular income source on overall income inequality, while holding income from all other sources constant. Consider a small proportional change in income from source k, expressed as ey_k, where e is close to 1, and y_k denotes income from source k. It can be shown that the partial derivative of the Gini coefficient with respect to a proportional change e in income from source k is given by

\frac{\partial G}{\partial e} = S_{k} (G_{k} R_{k} - G),

where G denotes the Gini coefficient of total income inequality before the income change. The percentage change in inequality resulting from a marginal percentage change in income from source k is given by the difference between the contribution of source k to total income inequality and its share in total income.

\frac{\partial G / \partial e}{G} = \frac{S_{k} G_{k} R_{k}}{G} - S_{k} .

4.1 The Decomposition Estimates

Table 6 shows the results of Gini decomposition estimates. In farming, which includes both animal farming and cultivation, the four income sources are wages, non-farm business, remittances/pension, and rent. Wages include those for both casual and regular workers, who differ in terms of work and employment. It is considered as one group due to the limitations of the data. According to the estimations, farming is the most important source of income for agricultural households, followed by wages. Both sources together contribute 95.6 per cent of the total income of agricultural households.

Regarding the distribution of income from different sources, we find that remittances and pensions exhibit the highest level of inequality, as measuredby the Gini coefficient. The Gini coefficient is very high in the distribution of non-farm business, as well as rent from land leased out. The high Gini coefficient can be attributed to the fact that only a small proportion of agricultural households receive income from these sources. In contrast, farm income exhibits the lowest level of inequality, as reflected in the Gini coefficient, followedby income from wages.

Farm income contributes the largest share to total income inequality, accounting for 62.3 per cent, followed by wages (32.5 per cent). Non-farm businesses contribute 3.3 per cent, while remittances and pensions account for 1.5 per cent. Rent from leased-out land contributes only 0.4 per cent to overall inequality. Although Table 6 identifies five different sources of income, farm income and wages are the two dominant components, contributing the most to both the total income of agricultural households and overall income inequality. Together, these two sources account for 95.6 per cent of the total income of agricultural households and 94.8 per cent of total income inequality.

Table 6.

Decomposition Estimates of the Income ofAgricultural Households by Source

IncomeSources	IncomeShare (S_k)	Gini Index (G_k)	Gini Correlation (R_k)	Relative Contribution (S_kR_kG_k)/G	Marginal Effect (S_kR_kG_k)/G-S_k
Farming	0.604	0.640	0.797	0.623	0.019
Wages	0.352	0.730	0.626	0.325	−0.026
Non-farm businesses	0.029	0.972	0.578	0.033	0.004
Remittances and pension	0.011	0.993	0.661	0.015	0.004
Rent from leased out land	0.004	0.990	0.414	0.004	−0.001
Total income	1.000	0.494	1.000	1.000	0.000

Source: Author’s estimates from NSS 77^th Round (2019), Situation Assessment of Agricultural Households, NSSO, MoSPI, Government of India.

We next analyse how a marginal increase in each income source affects overall income inequality. Table 6 reports this effect in terms of the percentage change in the Gini coefficient. The findings suggest that a 1 per cent increase in farm income, ceteris paribus, raises the Gini coefficient of total income by 0.019 per cent. While farm income itself is relatively less unequal than other income sources, its high Gini correlation with total income (0.797) indicates that it is disproportionately concentrated among higher-income households. In contrast, wage income contributes to reducing inequality in total income. A 1 per cent increase in wage income, holding other income sources constant, lowers the Gini coefficient of total income by 0.026 per cent.

5. Discussion and Conclusion

This paper examines the income sources and distribution of agricultural households in Gujarat, highlighting both their dependence on farming and widespread inequality. The findings of this study suggest that policies centred solely on increasing farm productivity will be insufficient to address income insecurity among agricultural households in Gujarat. Given the widespread dependence on low and unevenly distributed farm income, there is a clear need to strengthen livelihood diversification beyond agriculture. Expanding rural non-farm employment, promoting agro-processing and allied activities and improving access to skill-based wage employment can help reduce excessive reliance on farming, particularly among small and marginal farmers. At the same time, agricultural support policies, such as provision of credit, extension services, input subsidies and price support, must be more effectively targeted towards households with limited landholdings to prevent further concentration of income among the top income deciles.

The persistence of poverty and high income inequality even after accounting for all income sources underscores the importance of robust social protection and redistribution mechanisms, alongside facilitating gradual and voluntary exit from unviable farming through education, skill development, and employment linkages. However, given that a large proportion of agricultural households operate very small landholdings and earn minimal income from farming, productivity-enhancing measures alone are unlikely to substantially improve their well-being. Agricultural households with a lower share of farm income rely heavily on wages and salaries, while non-farm business income remains limited. These findings clearly indicate that improving farm income in isolation cannot enhance overall household welfare unless accompanied by the creation of adequate and stable wage employment opportunities in rural areas. Together, these considerations point to the need for an integrated rural policy framework that combines agricultural reform with employment generation and social security to ensure more equitable and sustainable livelihoods for households in Gujarat.

Footnotes

Acknowledgements

The author acknowledges the support received from the Indian Council of Social Science Research (ICSSR) in carrying out this study.

Data Availability Statement

The data used in this study are publicly available and can be accessed from the website of the Ministry of Statistics and Programme Implementation (MoSPI), Government of India. No special permissions are required to obtain these datasets.

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author disclosed receipt of the following financial support for the research, authorship and/or publication of this paper: This study is part of the research project titled ‘Economic Transformation in Rural India: A Household Income Perspective’, funded by the ICSSR, New Delhi. The author sincerely acknowledges and thanks the ICSSR for its generous financial support.

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