Flickering Lifelines: Electrification and Household Welfare in India

Access to reliable energy is central to improvements in living standards and is a recognized Sustainable Development Goal. This study moves beyond counting the electrified households and examines the effect of the hours of electricity households receives on their welfare. We hypothesize that additional hours of electricity have different effects on the poor, the middle income and the rich, in rural and urban areas. The methods used are panel fixed effects instrumental variables, cross sectional fixed effects instrumental variables, and logistic regression with data from the Indian Human Development Survey 2005-2012. We focus on extensive and the intensity margins, i.e. how access and additional hours of electricity affect household welfare in terms of consumption expenditure, income, assets and poverty status. The results show large gaps between benefits and costs of electricity supply among consumer groups. We also find that electricity theft is positively correlated with the net returns from electrification. A progressive pricing mechanism with targeted subsidies for the poor could therefore increase household welfare while reducing the financial losses of the State Electricity Boards.