Introduction

Traditionally, policy makers and academicians have viewed the rural economy as purely agricultural, but in reality rural economies are based on both agricultural and non-agricultural sectors. Rural economies integrate into the market economy, which is complex and diverse. In recent years, there has been an increasing interest in rural non-farm employment as a way out of the vicious circle of poverty widely prevalent in the rural areas of developing countries.

Of late, economists and policy makers have recognised the importance of income diversification among rural households. Several empirical studies have documented the importance of Rural Non-farm Activities (RNFA) in rural livelihoods. For example, in a study based on a survey of 100 rural farm households from developing countries, from the 1970s to the 1990s, Reardon et al., 1998, found that on average non-farm income contributes 42 per cent to the total income in Africa, followed by 40 per cent in Latin America, and 32 per cent in Asia. Using the data collected by the National Council of Applied Economic Research (NCAER) during 1993-94 from 32,000 rural households belonging to 1,765 villages from across India, Lanjouw and Shariff, 2002, found that, in India, approximately 34.4 per cent of rural households are employed in the non-farm sector. Using a sample of 520 households from the North-Eastern Himalayas of India, Rahut, 2006, found that rural-non farm activities contribute about 60 per cent to the household income, and over 70 per cent of households participate in rural non-farm activities for their livelihoods.