One in 13 unconnected small village gained access to power under India's electrification programme

New Delhi: India's electrification programme significantly increased access to power, with one in 13 previously unconnected small villages and one in seven rural households gaining electricity connection, according to a new study.

The programme led to a 14 per cent increase in household grid connections and notable improvements in basic amenities such as electric lighting and fan adoption. However, more expensive appliances did not see increased adoption.

Launched in 2005, the ambitious Rajiv Gandhi Grameen Vidyutikaran Yojana aimed to provide electricity to more than 4,00,000 (four lakh) rural villages.

While the programme drastically increased electricity access in villages with more than 300 inhabitants, the study revealed that the economic impact of electrification varied significantly, depending on the size of the village, with larger ones reaping far greater benefits.

The study, published in the Journal of Political Economy, highlights the disparity in economic outcomes for small and large villages after electrification.

Researchers Fiona Burlig from the University of Chicago's Harris School of Public Policy and Louis Preonas from the University of Maryland conducted a natural experiment to analyse the effects of electrification on rural communities.

They compared villages just eligible for electrification (those with more than 300 people) with smaller, ineligible villages and tracked the economic changes before and after electrification.

The study found that the rural electrification programme significantly increased electricity access, with one in 13 previously unconnected small villages (around 300 inhabitants) and one in seven rural households gaining access to power.

However, more expensive appliances did not see increased adoption.

Despite the rise in access, the study revealed a stark contrast in economic benefits between small and large villages. Electrification barely moved the needle on economic growth in villages with fewer than 300 people.

In these small communities, per-capita monthly expenditures showed little change, and the researchers found no significant increase in business activity.

In contrast, larger villages with populations around 2,000 recorded considerable economic growth after electrification.

Per-capita monthly expenditure in these larger villages nearly doubled, rising by approximately $17 (Rs 1,428) per month.

The growth was attributed to the expansion of firms, as electrification spurred a 10 per cent growth in the number of businesses and a nine per cent rise in employment in larger communities.

The researchers found that the size of the village was crucial in determining whether electrification led to meaningful economic gains. Larger villages not only experienced economic transformation but also enjoyed a 33 per cent return on investment from electrification.

In contrast, villages with around 300 inhabitants had zero return on electrification after 20 years, with a less than 27 per cent chance of recouping the upfront infrastructure cost.

Even villages with populations of 1,000 saw only a marginal return of 13 per cent, barely surpassing the cost-effectiveness benchmark.

These findings suggest that the benefits of electrification are more pronounced in larger, more populous villages where there are greater opportunities for businesses to develop and communities to capitalise on the newfound access to electricity.

The findings hold important implications for policymakers who are grappling with how best to allocate resources in rural electrification programmes.

Electrification remains a key pillar of global poverty alleviation efforts, with nearly a billion people worldwide still lacking access to electricity.

However, the study suggests that targeting electrification efforts toward larger rural communities may yield more significant economic returns while smaller, remote villages may require alternative solutions.

"It's clear that electricity access boosts GDP at the national level but does it necessarily improve the lives of those living in small communities? We found the answer to be 'no'," said co-author Burlig.

"While we see large benefits to larger villages, bringing electricity access to the smallest, remote villages is expensive and it doesn't necessarily lift them out of poverty," she said.

The researchers recommend exploring small-scale solutions such as solar home systems or mini-grids for smaller, more remote villages that are less likely to benefit economically from grid expansion.

Meanwhile, focusing grid infrastructure on larger communities can maximise the return on investment and contribute more meaningfully to economic growth.