Pakistan's total labour force is about 42.75 million and out of this 29.69 million or 69.45 per cent lives in the rural areas. Of this rural labour force, 27 million are employed. Thus the unemployment rate comes to nearly seven per cent.
Agriculture is the major source of employment, which provided jobs to 19.08 million or 48.42 per cent in 2003. The rural labour force is growing rapidly but employment opportunities are unable to keep pace with it.
In this situation when agricultural land is squeezing, non-farm employment must expand to avert deepening rural poverty. Expanding opportunities in the rural areas outside agriculture may result in lowering of rural unemployment, high economic growth, more skewed income distribution and alleviating poverty. It may also help stem migration to urban areas.
The rural non-farm sector usually includes manufacturing, trade, construction, transportation, communications, services and some data sources also include remittances.
Demand and supply: Rural non-farm sector engaged in the production of goods and services, fulfilling the demand for consumer goods, agricultural inputs and implements and urban consumer and processed agricultural goods.
The response to these demands depends on the availability of labour and infrastructure, access to capital and technology, including production technology and marketing techniques.
As income rises in the farming sector, farm household demands more goods from the non-farm sector. Smaller and medium-sized farm households, on average, spend more on non-farm goods than larger farmers.
As agricultural production increases, it generates demand for inputs such as seed, water, fertilizer, and farm implements produced by the non-farm sector. The need to process food and agricultural raw materials also stimulates rural non-farm activities.
Increased employment in the non-farm sector can either be associated with a stagnant or a progressive agriculture sector. Sometimes non-farm employment is a way out of unproductive agriculture rather than a response to an expansion of agriculture e.g., many workers in semi-arid zones of Pakistan, where off-farm employment opportunities are limited, have migrated to urban areas.
In this case, workers, being pushed into the non-farm sector, are not pulled by dynamic rural non-farm opportunities. The rural nonfarm sector, especially rural industry, has strong linkages both with agriculture and urban industry.
As some rural, small-scale industries compete with urban industries, while others have a complementary relationship: they produce components for the products of the urban industries or assemble a finished products. Also at the sane time, urban areas may also provide a market for the products of rural industries.
Role of infrastructure, education and credit: Infrastructural developments i.e., expansion of roads, transportation and communication leads to specialization and division of labour by rural households.
It promotes the development of a trade, marketing and distribution network, including subcontracting arrangements linking farm and non-farm sectors to local towns or big cities.
The expansion of transport and communication facilities may also have a negative impact on the rural non-farm sector. As rural areas becomes more accessible, competition from cheaper urban or imported products and changes in rural consumption patterns may also result. On balance, however, the net effect of improved infrastructure is beneficial because it stimulates the growth of an efficient and competitive rural sector.
Education-primary and secondary-promotes the growth of the rural non-farm sector and stimulates entrepreneurial capacity. Literacy enhances the productivity of work force and makes it easier to acquire more modern skills. Similarly the availability of cheap credit tied with technical advice also contributes to the growth of the rural non-farm sector.
The role of government: If local government institutions have decision-making powers and adequate financial resources, they can help promote the growth and vitality of the rural non-farm sector.
Local governments can help by supplying seed capital and managerial expertise, thus shouldering the initial risks of new ventures. Economic policies such as trade, exchange rate, and general regulatory policies and sector-specific policies such as credit or technical assistance can help stimulate the non-farm sector.
Large-scale urban enterprises have an advantage over small rural enterprises in case of foreign exchange, licensing of enterprises, etc. Deregulation reduces this advantage. Import liberalization is also the way to improve the relative position of small-scale enterprises and promote healthy competition.
Policy questions: A number of policy questions must be answered regarding the evolving nature and future role of rural non-farm sector. For example, more empirical analysis is needed on the relative roles and future prospects of non-farm activities.
More evidence is needed on the extent to which employment in the non-farm sector is the result of a push from stagnant agriculture, rather than a pull from the non-farm sector.
Again, to what extent is the distribution of gains from agricultural growth between the farm and rural non-farm sector? What institutional arrangements are necessary to enforce contracts between subcontracting enterprises and contractors? How important is public policy for provision of credit to the non-farm sector? What are the best ways to provide effective technical assistance? To what extent and under what circumstances does local government help promote the non-farm sector? What role should NGOs play? Answers to all these questions must be found if we want to develop our rural non-farm sector.