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A recent study on India’s ‘last mile’ electrification programme has revealed mixed economic impacts, with larger villages yielding substantial benefits over smaller ones.
The researchers found that, “not only are there high costs of providing infrastructure to remote, sparsely populated areas, but these communities may not be able to translate improved infrastructure into meaningful economic gains.”
The study, conducted by economists Fiona Burlig from the University of Chicago and National Bureau of Economic Research and Louis Preonas from the University of Maryland, examined the effects of the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) programme, which aimed to electrify over 400,000 villages across India.
Launched in 2005, RGGVY was India’s flagship initiative to bring electricity to rural areas, with the dual goal of connecting unelectrified villages and more intensively electrifying villages with limited access.
The researchers employed two primary aspects of RGGVY's execution to carry out their analysis. First, they examined the programme's eligibility criteria, which required villages to have at least one neighborhood with more than 300 people. Second, they leveraged the programme's phased rollout across different districts in India, analysing the differences between the first and second phases.
Using census data, satellite imagery and household surveys, Burlig and Preonas analysed the impact of RGGVY on various economic outcomes, including electricity access, consumption expenditure and business activity.
The initiative designed to provide electricity to India’s villages had differing levels of success based on the sizes of villages, the researchers observed. In smaller villages of around 300 people, the authors of the report found little evidence of economic growth resulting from electrification. Despite increased access to electricity, these communities saw no significant changes in per capita expenditure, poverty rates, or employment levels.
However, the story changed dramatically for larger villages. Communities with 2,000 or more residents showed promising signs of economic improvement. In districts where the programme was implemented most intensively, these larger villages experienced a 9 per cent increase in per capita expenditure.
The study suggested that village size plays a crucial role in determining the economic benefits of electrification. Larger villages, particularly those with over 3,000 residents, saw a 10 per cent increase in the number of firms and a 9 per cent rise in firm employment. This indicates that bigger communities may be better positioned to leverage electricity for economic growth, possibly due to greater opportunities for business development.
“The gap in expenditure-based ROIs between small and large villages suggests that electrification was more effective at creating new income generating opportunities in larger communities,” said the researchers.
When analysing the return on investment, the researchers found that electrification in small villages had less than a 27 per cent chance of generating positive returns. In contrast, for villages of 2,000 people, there was a 90 per cent probability of positive returns.
The analysts noted that their conclusions remained consistent even when accounting for differences in household expenditure levels within communities.
These findings have important implications for policymakers and development strategists insinuating that a one-size-fits-all approach to rural electrification may not be the most effective strategy. Instead, tailoring electrification efforts to community size and existing economic structures could yield better results.