Reliable electricity is a crucial input to economic growth. Yet, rural India continues to suffer from severely limited electricity supply. Why are crippling outages so common in Indian villages? Although insufficient generation is frequently blamed, outages also reflect a spillover cost of electricity subsidies for agricultural water-pumps. Unable to recover costs on electricity supplied to these agricultural consumers, bankrupt state utilities allow the electricity market to clear by rationing supply instead. An integrated grid implies that cutting power to agricultural consumers negatively affects other rural households or small businesses.
In recent years, at the cost of hundreds of millions of dollars, several Indian states have attempted a high cost workaround to this problem by duplicating distribution infrastructure in rural areas in order to physically segregate agricultural uses of electricity from other consumers. This duplication enables the utility to discriminate between consumer types in the same location, thus enhancing utility revenues and enabling significantly improved hours of supply. Using a rich dataset of hourly electricity supply measures across several years in Maharashtra, this project studies the impact of these infrastructure investments on rural electricity supply and the growth of manufacturing in rural India.