Recent macro evidence reconfirm the earlier finding that Rural Non-farm Activity (RNA) is a dominant and growing component of the rural economy in Bangladesh. Rural manufacturing is the most important RNA both in terms of current size and growth performance. While the overall cottage industry sector experienced negative growth in value added during the ‘80s, there has been differential performance within the sector. Most of the dominant cottage industries stagnated; but growth has been quite pronounced in non-traditional industries involving larger employment size and higher capital intensity. These industries cater towards urban markets and higher income groups in rural areas, and are located mostly in semi-urban and urban areas. The structure of small industries has also changed in favour of non-traditional industries that are located more in the semi-urban and urban areas, and have larger employment size and higher capital intensity. Average labour productivity in a large part of RNA is still lower than the going agricultural wage rate. However, the productivity level has shown a rising trend over the past decade for a significant proportion of the activities. One also observes a strong positive link between productivity and growth of individual industries. This implies that the subsistence nature of the sector is on decline – a process that can be accelerated through right kind of policy support.