Patterns and Determinants of Farm Income Diversification in India: Evidence from Three Survey Rounds

Income diversification is crucial for Indian farmer households owing to the inherent risks associated with agriculture. This article investigates the patterns and determinants of income diversification among farmer households across 18 Indian states utilizing data from three rounds of the NSS Situation Assessment Survey (2002–2003, 2012–2013 and 2018–2019). The Herfindahl index (HI) was estimated to study the pattern of income diversification, and a regression analysis was conducted to study its determinants. To distinguish structural diversification from distress-driven shifts, the HI was calculated both with and without wage income. A gradual decline in HI at the national level over time suggested modest improvements in income diversification. State-level trends revealed considerable disparities in HI, with states such as Gujarat, Rajasthan and Haryana showing significant and sustained diversification driven by increased contributions from livestock and non-farm activities. Conversely, Madhya Pradesh, Chhattisgarh and Bihar states continued to exhibit high or fluctuating HI values, reflecting ongoing dependence on cultivation income. Regression analysis confirmed that landholding size, irrigation and rural infrastructure are important determinants of diversification, while wage income consistently emerged as the most critical factor influencing the extent of income diversification. The analysis also highlighted the growing importance of wage income in reducing HI, implying a distress-induced form of income diversification. JEL Classification: Q12, Q13, Q15, Q18