Electricity as a growth constraint for small and medium enterprises in Bihar state, India

The reliability and access to electricity remain a challenge across much of rural India despite rapidly growing grid electrification rates. Small and medium-sized firms represent one-third of businesses in low-income countries but are also the most vulnerable to bad electric supply. A study conducted in four rural Indian states found that only 65% of firms are connected to grids regardless of proximity. The numbers were worse for Bihar, where only 58% of firms were connected. Facing poor electricity access, firms must bear additional costs or absorb losses due to reduced production.

Current research is limited in two ways: firstly, most studies depict macro-level data from the formal sector despite large segments of the population in India being within the informal sector; secondly, existing studies focus on traditional coping mechanisms instead of how new technologies complement the grid and can reduce the cost of electricity.

This project addresses the fundamental lack of knowledge about energy access at the firm level in Bihar (and India more generally). Informal and small and medium-sized firms are hard to reach for policymakers. Furthermore, political attention is devoted to increasing household electrification rates; whether small and medium-sized or informal firms suffer from similar challenges remains poorly understood. As a result, the extent to which electricity is a binding constraint on productivity is unknown. At this stage, policymakers are unaware which firms face energy challenges and how costly these challenges can be.

To reduce the knowledge gap, the team samples 1,000 small and medium-sized firms in Bihar. A survey is used to obtain information regarding the firm’s electricity needs, whether these needs are met, essential reforms, the consequences in gaps between supply and demand, and whether new technologies can help reduce firms' vulnerability to poor electric infrastructures.