Canals may have created new towns in India, but they haven’t added non-farm jobs: Study

Towns situated close to canals in India witnessed faster urbanisation but not industrialisation, according to a paper by researchers at the Development Data Lab, a non-profit research organisation.

Construction of canals led to an increase in population in the areas they serviced, due to a combination of migration and natural growth. However, there was no increase in the non-farm jobs in these new towns, even more than 100 years after canal construction, the paper – which studied data for the period 1901 to 2011 – found.

The availability of water allowed farmers in these canal-irrigated towns to grow more crops, even in the winter. Landowners benefitted the most, reporting higher consumption and more years of schooling than their landless neighbours and the residents of nearby towns not supplied by canals, the paper said.

Cities have historically grown along rivers, and their growth has almost always been accompanied by industrialisation, with workers moving from agriculture to manufacturing. However, this has not been the case in India, according to Reetika Khera, a development economist at the Indian Institute of Technology, Delhi, as we explain later.

Canals extend the area that benefits from a river through an artificial network of streams. More than 24% of India’s irrigated land is serviced by canals, which are the second-largest source of irrigation in the country after groundwater, as per statistics from the statistics and programme implementation ministry.

Farm jobs

The occupation profile of the new towns did not change after the construction of the canals, the study found.

Based on the National Industrial Classification Code, the researchers determined that canals did not lead to an increase in the availability of non-farm jobs in the towns they irrigated, not even in related industries such as agro-processing.

In many other parts of the world, urbanisation has been accompanied by industrialisation, with the residents of new towns moving from working on farms to skilled jobs in factories and offices, in a process called structural transformation.

“The historically observed pattern is a move from agriculture to manufacturing and then to services. Manufacturing was typically an urban activity, so both grew together. India, however, has been an aberration, and the secondary sector was bypassed in favour of services,” explained Khera. Services like banking and insurance typically employ skilled labour and are highly productive, which is a possible explanation for the low requirement of labour in these industries.

Agriculture was the biggest employer in rural India in 2019-’20, with 61.5% of the workforce engaged in agriculture according to government data. A 2017 paper by Ramesh Chand, a member of the NITI Aayog, found that industrial output was increasing in rural areas but not employment.

“Growth of industry in rural India is generating few jobs. PLFS [Periodic Labour Force Survey] data indicate a shift in the workforce from farm to non-farm sectors in the country,” Chand explained in an email to IndiaSpend.

“To the extent that the manufacturing sector has grown, it has been very capital intensive, with relatively low job creation potential,” Khera said. Increased contractualisation and preference for capital over labour has resulted in the shrinking of employment in manufacturing, as IndiaSpend reported in April.

“Infrastructure investments in villages may improve well-being and may motivate in- and out-migration, but are unlikely to cause substantial changes in manufacturing opportunities in those villages,” the researchers explain in the paper.

Yields up

Winter yields were 7.4% higher in the towns situated below the canals than those situated above them, found the study. The towns also had 17% more area under irrigation than their counterparts above the canals, leading to more area being cultivated in these towns. (Elevation determines the flow of surface water bodies to places situated below them due to gravity.)

Yields were measured using a satellite imagery-based measure of vegetation. Using census data, the researchers found that the canal-fed towns were more likely to grow water-intensive crops such as cotton, sugarcane and paddy. More households in below-canal towns owned farm equipment, implying that there were higher returns to complementary investments in agriculture.

However, the benefits were limited to the winter months. “Canals improve water access to a second cropping season but generate no significant differences during the summer (kharif) growing season, when monsoon rains provide sufficient water,” the paper noted.

Effects on migration

Urbanisation occurred faster in towns after canals were built there, according to the paper.

Using census data on population growth for 30 years before and after a canal’s construction there, the researchers found that towns grew more quickly in the 30 years following canal construction than in the years before.

Towns situated below canals had 13.1% more people per square kilometre than those situated above.

However, there was no significant difference in the share of workers employed across the agriculture, manufacturing and services sectors between the above- and below-canal towns.

“The main effect of canals is to draw in additional labour to treated locations, with little effect on the magnitude of the non-farm sector,” the paper explained. This is consistent with the nature of structural transformation around the world that involved moving people from farms to cities, it added.

Benefits for landowners

Although migration allowed more people to experience productivity gains in towns, the researchers found that lifestyle differences between the landowners and the landless persisted decades after canal construction.

In addition, there was a decline in the share of landowners in the above-canal towns with the average land size being smaller in these towns, implying that the proportion of landless households increased in these areas.

With higher productivity gains in these towns, landowners enjoyed a higher standard of living compared to the landless.

Landowners in canal-fed towns had 1.9% higher consumption compared to landless households. They also had the highest education gains among the residents of a town.

The higher incomes of landowners, along with the growth of towns nearby, caused villages to demand more non-agricultural goods, including schooling, in the canal-fed towns and villages. The share of the adult population that had completed primary, middle school and secondary education in below-canal towns was greater than that in above-canal towns by 1%.

“One potential explanation for the higher educational attainment in these towns is that richer landowners have a higher demand for schooling because they can afford to educate their kids, and if they demanded more schools, then both landowners and landless might benefit from those schools,” explained Paul Novosad, one of the authors of the paper.

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.