Improving lives and economy: social and economic benefits of electricity from mini-grids on rural communities in India

A response to The Economist’s view on the impacts of rural electrification

By

Ramanshu Ganguly and Swapnil Shekhar

The global dialogue on electricity access identifies it as a critical driver for improving lives, especially for the poor in the developing nations.[1]

As this World Economic Forum article points out, electricity is an essential ingredient for ensuring a better life; critical in enabling access to cleaner and purified water; enhancing access to better medical care; ensuring study hours for children; improving connectivity through charging mobile phones, among others.[2]

An article published by The Economist on 7th February, however, differs from this standpoint. The article, drawing reference from a couple of research studies based in Africa, highlights the inability of rural electrification to create developmental outcomes such as poverty alleviation.

Indeed, electrification, on its own, cannot alleviate poverty. This holds for a range of public services such as clean water, better roads, internet connectivity, financial inclusion services, waste management and so on that governments often provide. The outcomes of such public goods are inherently difficult to measure precisely. Both because of the long time-span required for their effects to become visible and the diffused nature of their benefits. This is primarily why they are called public goods and why we expect governments to provide them. Because governments can afford the risk of investing in a good which might not deliver outcomes for an extended period and for which it is difficult to pinpoint who benefitted and how much exactly.

Further, public policy decisions are not based on a singular metric of poverty alleviation.

Equity or the idea that all citizens must have equal access to services and equal opportunities to utilize them for development is also an important goal. So is an improved quality of life. These goals might be achieved without concurrent improvements in income but viewing interventions in developing country contexts purely from the perspective of immediate poverty alleviation outcomes is a limited view on public policy.

What electricity access can do in the short term is to trigger a change towards a low poverty situation, improve the quality of lives and reduce distributional inequities. And, we have seen electricity access triggering such changes in rural communities in India.

Since 2015, Sambodhi has independently assessed social, economic and environmental benefits of electricity from decentralized renewable mini-grids, under various initiatives, especially the Smart Power Initiative.[3] These initiatives are owned and operated by nine energy service companies (ESCOs) across 120 plus villages in three most power-starved states in India. 

Concurrent measurement of the Smart Power Initiative’s impact over the last eight years showcases how electricity access has been able to positively impact the lives of the rural poor at the levels of households, businesses, and overall village level economy. The six-monthly concurrent impact measurement studies that are carried out across 2000 households and 600 local businesses have provided robust evidence on how electricity access has transformed the quality of rural lives.

Electrical appliances are one of the critical enablers of improved life quality. Fans, in a tropical country such as India, and televisions are indicators of an enhanced standard of living. The impact measurement rounds highlight that nearly 14 percent of households have been reported to have purchased fans, a necessary device to keep the scorching summer heat at bay. There has also been a 12 percent point increase in the number of households buying televisions. Televisions act as both entertainment and knowledge source for rural communities. With access issues of print media, televisions ensure that global information is brought to the rural doorsteps.

Kerosene consumption, across electricity users, have also reduced by 58 percentage points. A direct impact of this reduction is reflected with nearly 70 percent of mini-grid electrified households, citing marked reduction in ailments and injuries due to the use of kerosene lamps.

We need to acknowledge the role of electricity in making our day-to-day life convenient. In the context of the Smart Power initiative, women report that reliable electricity has made domestic chores easier to perform.  Women report having carved out an additional half to an hour of spare time which they prefer to spend on personal engagements such as stitching, knitting or even watching television.

Local business units powered by reliable electricity supply also play a role in making lives easier for rural women. Key among them being grain processing units and water purification units. Traditionally in India, grain processing and collection of water are arduous engagements for women. With mechanized grain processing units making their entry into the hinterland of the country, there has been a significant reduction in the drudgery undergone by women in getting paddy hulled hitherto. Similarly, water purification units ensure local availability of clean water, reducing the efforts, otherwise made by women to collect and purify. The enhanced access to mechanized services helps us appreciate the ability of electricity to improve rural quality of lives.

While electricity access has longer poverty impact trajectories, our data prove that it positively impacts local economic development in shorter runs-acting as an enabler to growth.

Evidence from SPRD points out expansion, diversification, and development of local businesses because of electricity access.

The impact measurement mandate of SPRD focuses strongly on understanding causality and estimating impact on village economy. The measurement is driven by two components a) Aggregating change in village-level economic productivity through repeated cross-sectional surveys of local businesses. b)  Using difference-in-difference (DID) to estimate the impact and appreciate its trajectory for a panel of 600 local businesses representing the village level business ecosystem.

The aggregated measure of village-level economic impact suggests an increase in overall economic output due to improved electricity. The per capita annual economic outputs have increased from USD 414 to USD 439 (USD 3 of which can be attributed to mini-grid programmes).

Our panel of local businesses helps us deconstruct the aggregated economic growth story. 

The DID estimates at the level of local businesses suggest increased daily operational hours (an additional hour and a half) for businesses with reliable electricity connection. Moreover, local businesses supplied with electricity from mini-grids experience an additional seven percent customer footfall.  Electricity access has also led to the mechanization of business operations. From 2015 to 2018, we have seen tailoring and carpentry units, the most commonly seen enterprises in rural India, switching to electricity run machines over manual ones. Thus, enhancing the efficiency of the businesses by a large margin. Many tailors, connected to the SPRD mini-grids, have highlighted a monthly increase in revenues of 35 percent or USD 30 (from USD 85 to USD 115). Carpenters have emphasized that their efficiency has tripled after the introduction of electricity run machines.

Local businesses have enjoyed an increase of around 42 percent in their monthly revenue from USD 137 to USD 195, over three years. About 64 percent of these businesses have been able to derive financial benefits just through improved and regular lighting. It is, however, seen that local businesses, which use electricity to run machines or for productive use, have experienced greater economic gains (52% increase from USD 145 to USD 220 per month) as compared to businesses that use light as the only point of electricity usage (36% increase from USD 132 to USD 180 per month).

We do acknowledge the article’s stand on lack of evidence on electricity access leading to significant economic transformations in the rural context. This is largely explained by the short-term nature of programmes for creating access, the small quantum of electricity provided in most programmes, and the fact that in many regions the target population uses multiple sources of electricity. We believe that with a shift towards evaluating impacts and standardization of outcome variables, future evidence on electricity and development will be more robust. However, our experience in this domain leads us to believe that poverty alleviation will require a larger and inter-generational time-frame. In the meanwhile, electricity access paves a pathway towards that change through smaller and more frequent direct impacts, and these are extremely valuable by themselves.

Ramanshu Ganguly is an Assistant Vice President-Research at Sambodhi. 

Swapnil Shekhar co-founded Sambodhi and is one of its director

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[1] https://energyeducation.ca/encyclopedia/Access_to_electricity

[2] https://www.weforum.org/agenda/2016/05/why-access-to-electricity-is-key-for-africa/

[3] The installations range from 27kW solar mini-grids to 70kW