This paper explains the factors which affect rural non-farm employment in two villages; using primary data from the Indian state of Andhra Pradesh, it analyses the reasons for the variations between an agriculturally-developed village and one which is less developed. The survey, conducted during 1993-94 covered a total of 465 households in Veeravalli and 354 households in Anandapuram villages of two districts of A.P. This paper seeks to test ‘distress diversification’ against ‘ agricultural growth linkages’ as explanations of employment of the propensity of rural people to be involved in the RNFS. Unlike other studies of rural non-farm employment in Asia or Africa, this paper brought together these two opposite hypotheses into a single framework. The data analysis by a detailed household survey on the nature and determinants of the rural non-farm employment supports the hypothesis that growth linkages are the main explanation for high shares in, and the growth of, ‘modern’ RNFE, and distress diversification for ‘traditional’ RNFE. It also demonstrates a strong, significant association between traditional RNFE and low literacy and modern RNFE and high literacy.