Effect of Farm Size on Farm Income: Empirical Evidences from Village Dynamics Studies of India

This paper contributes to the empirical literature on the impact of land on farm income in India. A unique panel data set, Village Dynamics in South Asia (VDSA), of rural households covering 30 Indian villages from nine states surveyed during 2010–2014 is used in the current study. The main objective of this paper is to understand how land size affects the farm income of rural households in India through estimation of the econometric models and present empirical evidence. Non-linear transformations of operated area, average plot size and share of owned in operated area are used in the farm income model estimation. The panel data fixed and mixed effects models have been used to understand the relationship between household farm income and farm size. Literature showed that a higher availability of good farm land would increase the farm income. Our results confirmed this hypothesis. Our analysis reveals that non-land asset base of the household increases the returns from land. The income diversity not only stabilizes household income but also escalates farm income and productivity. The bigger plots can take advantage of farm mechanization; reap the benefits of economy of scale thereby provide increasing farm income. The study has concluded that crop area intensification may increase farmers’ income.