The transition in the rural economy in the last four decades is examined based on the analysis of growth and composition of output and employment. A reduction in the share of agriculture, and a dominance of non-farm activities in the rural economy is noted from 2004–05 onwards. However, agriculture continues to be the predominant source of employment. Employment in the construction sector increased substantially, but was not large enough to absorb workers leaving agriculture, resulting in a decline in rural employment after 2004–05. A serious imbalance has emerged in output and employment in different sectors in rural areas requiring urgent attention to create jobs in manufacturing, services, and construction. Creation of jobs in rural areas requires a complete rethink of rural industrialisation.
