1. Introduction

Economic growth is attributed to the accumulation of human and physical capital and increase in productivity. It is also aided by successful agrarian and rural transformation entailing diversification of employment and incomes. Agricultural development, through the production (backward and forward) and consumption linkages fosters development of non-farm sectors, leading to transition from an agriculturally dominant economy to the “modern” sectors, as proposed by Lewis, Kuznets, Mellor etc. Urbanisation also has an impact on rural economic growth, through the development of rural-urban linkages, migration and concentration of non-farm activities. A persistently large rural population and workforce mark the trajectory of growth in India. Yet the agrarian economy is witnessing many changes; the rural sector after the onset of reforms is undergoing rapid structural changes. Given the binding land constraint, and widening gap in incomes from agricultural and non-agricultural sectors, jobs in non-farm sector have to emerge in large numbers. In this context rural occupational diversification noticed by the Census and various NSS rounds assumes significance. There are a number of factors associated with the identification of small towns, notably non-farm employment growth, declining importance of agriculture, definitional issues etc. The focus of policy continues to be on the larger cities and metropolitan centres, in spite of the fact that a large chunk of the urban population remains unrecognised that leads to problems of service provision, resource generation and governance. Rural transformation process is accompanied by changes in lifestyles, social customs, and may have environmental consequences. This indicates need for timely policy interventions for the growth process to be inclusive and sustainable. The first chapter states the problem and develops a conceptual framework based on a detailed literature review, along with the hypotheses, data sources and methodology.