Electricity and rural development: Insights from a natural experiment in Punjab, Pakistan

Pakistan has suffered extreme electricity shortages for almost a decade. The electricity crisis in Pakistan is regularly cited as one of the country’s most binding constraints on economic output and growth. Most estimates operate with an annual loss in growth of approximately two per cent caused by the crisis. Industrial output and exports have suffered badly and domestic firms often cite electricity shortages as the biggest obstacle to growth.

But whereas problems for industrial and export sectors attract considerable focus from policymakers and international organisations, the implications of the crisis for rural Pakistan are less well known. This is unfortunate, as Pakistan remains an agricultural economy with almost half of the total labour force employed in agriculture and more than sixty percent of its population residing in rural areas. Understanding the implications of the crisis for Pakistan’s rural economies is thereby crucial and could provide important lessons for how to deal more efficiently with the shortage of supply. The crisis has been devastating in poor rural communities, where rolling blackouts (load-shedding) have left some villages with less than one hour of electricity a day during summers. Using Pakistan as a case study, our project seeks to understand the implications of electricity shortages for rural economies, primarily with respect to water provision for production and consumption. The specific focus of the study is Punjab – the most important agricultural region in Pakistan.

The role of electricity for farming output and practices is important not just to address constraints on growth but also the growing food shortages in the country. Approximately 50 percent of the population in Pakistan is categorised as food insecure – a striking figure in an agricultural economy. One of the primary challenges here concerns inefficient water management in agricultural production. Proposed solutions have pointed at reforms of farming, irrigation, water storage, and drainage techniques. While these efforts are all necessary, our project will question whether they are sufficient. Because, when farmers are prevented from running electric tube-wells to water their fields due to electricity shortages, farming practices and output may continue to suffer water shortages irrespective of efficiency enhancing reforms.

Our analysis will assess the implications of this increase in input costs for agricultural production caused by the electricity crisis. For our dependent variables we focus not only on agricultural output, as earlier studies, but also on crop-choice, where we expect electricity shortages to have reduced cultivation of water-intensive crops - such as rice, sugarcane, and cotton - resulting in inefficient crop decisions.

Overall, the project will address some of the key knowledge gaps about the role of electricity in rural production and could provide important policy lessons for both stakeholders in Pakistan and, perhaps, beyond.