Synopsis India's Semi Arid Tropics (SAT) comprising more than half of the country is characterized by scarce, erratic rainfall, poor moisture holding capacity of soil and substantial run off and soil erosion. In the region, what are the forces causing changes in production and rural labour markets in general and wage formation processes in particular? What are the dynamics and evolution of labour market characteristics, institutions and arrangements? To what extent labour is fragmented and mobile? What are the sources of power of monopoly and constraints leading to interlocking of factor markets on the wage formation processes? The present study undertaken in the SAT of Andhra Pradesh is in consonance with the recent shift of attention from outlining the macro process of economic development to attempting to understand the role of institutions as well as behaviour of individuals and households. It goes beyond demand supply variables and takes a hard look at the rigidities and the institutional complexities in the rural labour markets.