Research by Rajveer Jat and Bharat Ramaswami finds that India’s productivity divide is not simply between farming and non-farm work, but also between formal and informal employment.
Moving from agriculture into urban non-farm work does not always bring a substantial productivity gain for workers in India. Economists Rajveer Jat and Bharat Ramaswami reach that conclusion in a study published in the Journal of Development Economics. Many former farm workers find jobs in informal activities such as transport and restaurants.
The authors use India KLEMS sectoral data from 1999 to 2024 and adjust productivity estimates for labour shares, human capital and hours worked. They find that 63% to 75% of non-farm workers are in industries where productivity is statistically indistinguishable from agriculture.
The comparison changes for formal employment. Even after adjustments, value added per worker in the formal non-farm sector is two to three times higher than in agriculture. The authors say the aggregate productivity gap between farming and the wider economy is therefore driven mainly by the smaller but economically significant formal segment.
The paper reframes India’s structural divide as one between high-productivity formal work and low-productivity informal work, including agriculture, rather than a simple farm-versus-non-farm split. It says movement between agriculture and informal jobs appears relatively unconstrained. Seasonal farm work can still prompt migration even when the new job offers little productivity advantage.
Co-author Rajveer Jat told The Hindu that workers need routes into more productive fields such as information technology and finance. He identified limited access to college education and English-language education as barriers. The authors point to education and healthcare access as part of a policy response that could help migrants move into more productive formal work.