Understanding Income Diversification among Farmer Households across Indian States: A Herfindahl Index Analysis over Three Survey Rounds

This paper investigates the patterns of income diversification among farmer
households across 18 Indian States using the Herfindahl Index (HI). Utilising data
from three rounds of the Situation Assessment Survey (2002-03, 2012-13 and 2018-
19), the study analyses farm household income from four main sources: crop
cultivation, animal farming, non-farm business and wage labour. The HI is calculated
with and without wage income to distinguish structural diversification from distressdriven shifts. The study addresses key questions: How has the HI evolved across
States over time? Has income diversification improved? Which States have
performed well? Is there any association between the HI and the annual income of
households? The findings show a gradual decline in HI at the national level over
time, suggesting modest improvements in income diversification. State-level trends
reveal considerable disparities in HI, with States like Gujarat, Rajasthan and Haryana
showing significant and sustained diversification driven by increased contributions
from livestock and non-farm activities. Conversely, States such as Madhya Pradesh,
Chhattisgarh and Bihar exhibit high or fluctuating HI values, reflecting ongoing
dependence on cultivation income. The analysis also highlights the importance of
wage income in reducing HI, implying a distress-induced form of income
diversification.