Interesting finding of a new study by Chakravorty and Pelli (2013), who show that 16% increase in households connected to the grid led to an increase in non-agricultural income of about 9%, and 32% increase in quality of electricity supply (decrease in the number of blackouts, or equivalently an increase in the average number of hours per day during which electricity is available) resulted in an increase in income by 28.6%.
Excerpts from the paper:
In a recent paper, we estimate the effect of a new connection to the grid and of a more reliable power supply for a typical Indian household, using data from a nationally representative sample of about 9,800 rural households (Indian Human Development Survey (IHDS) 2005 and Human Development Profile of India (HDPI) 1994) (Chakravorty, Pelli and Ural Marchand 2013). We construct an index for the quality of supply, in which an improvement in quality is defined as a decrease in the number of blackouts, or equivalently an increase in the average number of hours per day during which electricity is available.
We find that the increase (16%) in the number of households in the dataset that were connected to the grid between 1994 and 2005 led to an increase in non-agricultural income of roughly 9%, which corresponds to about Rs. 574 ($9.5 approx.) per person for the average household. This result is similar to what has been found by studies in other parts of the world. For example, Dinkelman (2011) studies the labour market effects of an electrification project in South Africa and finds that a grid connection leads to an increase of roughly 16% in male earnings. Barham et al. (2013) examine the case of Brazil and show that an increase in the share of electrified households by 10% increases income by 9%.
Our study goes a step further by looking at the effect of the quality of power supply on non-agricultural incomes. There was a 32% increase in the quality of electricity supply in the sample households, between 1994 and 2005. The rise in quality is estimated to have resulted in an increase in income of 28.6% (Rs. 1,852 or approx. $30) per person for the average household. This number includes new connections and the improvement in the quality of electricity supplied to households already connected to the grid. These results suggest that the impact of electrification on households cannot be considered independently of the quality of electricity. While the initial connection is important as it can induce reallocation of labour and capital within the household, this impact increases significantly with improvement in quality. This highlights the importance of providing a high quality supply of power, as the potential benefits of electricity are not completely realised by just providing a grid connection and low quality power.
