Factors determining rural-urban market linkages in India

Bihar is enjoying increased rural-urban connectivity thanks to infrastructure improvements, fueling demand for goods, services and jobs. The factors influencing market linkages include sourcing inputs, catering to rural consumers, and access to public services.

Jhanjharpur, India

We were wandering down the main market of Jhanjharpur, a small town in North Bihar in India, home to a population of just thirty thousand. The local market was sprawled all along the railway track, and had many shops — both pucca (brick buildings with electricity) shops and stalls on the pavements and roads. We soon discovered that hardly any of the produce sold in the market was produced locally. Instead, it is sourced outside and traded in the town.

Meeting local demand

Although Jhanjharpur has fertile land and the villages in the surrounding areas grow wheat, rice, pulses, etc., much of the supply of rice, pulses and other grains comes from towns across India. In fact, most products sold in Jhanjharpur, including bangles, mobiles, clothes and vehicles, are not produced locally.

Some local produce finds its way to the market, but meets only part of the demand. For instance, a seller of paan leaves said that he comes in every day from a nearby village and returns in the evening. There are fellow vegetables sellers who come to the market daily, but they sell small quantity compared to what is sold at the mandi (big market), which is sourced from not only outside Jhanjharpur, but outside Bihar state.

The study

This was the case in all the small and medium sized towns we visited in Bihar as part of our International Growth Centre study on ‘Growth, urbanisation and rural-urban linkages in Bihar’. Enterprise and household surveys were conducted for the study by the Institute for Human Development in three towns in North Bihar and three towns in South Bihar, in the latter half of 2015. The sample towns in North Bihar were Darbhanga, Madhubani and Jhanjharour, while those in South Bihar included Patna, Biharsharif and Jhanjharpur.

Rural-urban market linkages

Thanks to a remarkable improvement in road connectivity in the state, and signs of improvement in electricity supply, the survey found that the markets in the smaller towns were quite well connected to the national urban market network. This resulted in an abundant supply of consumer goods such as biscuits, chips, chocolates, beverages, bottled water, packaged noodles, detergents, etc. Nowhere did the survey team find an overwhelming presence of locally produced goods. The supply network in the sample towns was found to be connected to bigger towns in Bihar, as well as other urban centres in India.

In South Bihar, in a small town called Hilsa with a population of 51 thousand, a cement dealer pointed out that construction activity has increased in the last few years, both in rural areas and in Hilsa. Locals source cement from Patna, sand from Gaya, gravel or stone chips (gitti) from Koderma in Jharkhand. This too confirmed market linkages of this small town with neighbouring and distant states.

A timber merchant and carpenter in the same town reported that the timber in his shop comes mostly from Kolkata and his stone comes from Gujarat. In a bigger town of Biharsharif, in South Bihar, fish from Andhra Pradesh is sold more frequently than locally produced fish, especially among the poor, since it is cheaper. Local fish often finds its way to Patna, Kolkata, Ranchi, Jamshedpur and Dhanbad thanks to large-scale traders.

Rural-rural market linkages

Thus rural-urban linkages are not always observed between rural areas and the nearest urban centre. Often rural areas have linkages with Patna, Darbhanga and some other relatively big cities in the state, and also with urban centres out of the state such as Delhi, Bengaluru, Kolkata, as well as with cities abroad. For instance, Madhubani paintings made in villages such as Jitwarpur are marketed directly to agents who are located in Patna, Delhi or Bengaluru. Sometimes foreign buyers go directly to Jitwarpur to buy paintings. But there is very little market linkage with the nearby town of Madhubani.

Labour movement linkages

 The study also shows evidence of rural-urban linkages between an urban centre and the rural hinterland when we consider labour movement. This linkage is to be distinguished from the linkages via migration to faraway urban and rural destinations, which are particularly strong for manufacturing enterprises. On average, around 61 percent of surveyed enterprises in the six sample towns were found to be hiring workers, and among these 33 percent reported hiring rural workers (along with workers from urban areas). This evidence is corroborated when we look at data related to the share of workers commuting from rural areas, which was 45.5 percent of 3728 adult workers.

Findings: factors influencing rural-urban market linkages

 Inputs

Although the enterprise surveys showed that the backward linkage of enterprises was stronger with nearby urban areas, there was some evidence of backward linkage with rural areas. This is reflected in 14.6 percent of the enterprises sourcing their major input/intermediate products from rural areas within the district. Sourcing of inputs from local rural areas was found to be relatively more in the smaller towns. Backward linkages were found to be stronger for the factory sector vis-à-vis the non-factory sector.

 Manufactured products

Manufactured products, namely food and beverages, household products, and handicrafts, exhibited stronger forward linkages, since these products experience relatively higher sales to local rural areas. Among trade/retail, transport related sales/services, and general services, these enterprises reported higher sales in rural areas.

Rural customers

Links through rural customers visiting urban enterprises are also important. Around 80 percent of the surveyed enterprises reported that rural customers come and buy their products. In Patna, this share was the lowest, at 58.7 percent. On average, enterprises with rural customers sell 39-45 percent of their products/services to customers from nearby rural areas, indicating high linkages.

Access to public services

Local rural-urban linkages are also influenced considerably by the availability of public services, such as education and health services, in the nearby town. Darbhanga town has many educational institutions and coaching facilities, as well as a renowned hospital and medical college. Many people from Madhubani, Jhanjharpur, and other smaller towns and surrounding villages, come to Darbhanga to avail of these facilities. Patna is a favoured destination for education and health services for people all over the state of Bihar.