Electrification and productive use among micro- and small-enterprises in rural North India

Abstract

The reported effects of electrification on rural entrepreneurship are mixed, with recent studies describing heterogeneity in outcomes and methodological challenges in attributing causal effects. Furthermore, the debate largely focuses on performance outcomes, rather than supply- and demand-side barriers to productive electricity use itself. In this paper, we contribute new evidence describing electricity use among micro- and small-enterprises (MSEs) in rural northern India. Puzzlingly, 34% of the 2,004 MSEs surveyed have no grid-connection despite almost complete village grid electrification. We exploit variation in grid supply hours at village level, finding no conclusive link with this and MSE connection likelihoods. Rather, connection likelihood appears to be more closely related to wealth characteristics. Supporting this hypothesis, the reported electricity consumption appears equally unrelated to supply quality and quite low overall: 75% of grid-connected MSEs consume less than 1 kW-hour per day, powering only lighting and fans. These results are notable given the positive bias we expect due to the likely endogeneity between grid supply quality and broader development trends, as noted in recent literature. Our work follows others in arguing that supply side improvements must occur in concert with demand side initiatives to unlock rural MSE electricity consumption. At the same time, the role of off-grid technologies in meeting nascent MSE electricity needs deserves further study.