Beyond lighting: Rural electrification programs for enterprise development

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Providing better electricity access to India’s vast population has long been a priority for the government and policymakers. Several government schemes such as Rajiv Gandhi Grameen Vidyutkaran Yojna (RGGVY), Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY) and Pradhan Mantri Har Ghar Sahaj Bijli (Saubhagya) Yojana have been implemented to support rural electricity infrastructure. According to a World Bank Report, India has led the developing world in addressing rural energy problems over the last decade.
By early 2019, 99 percent of India’s rural villages had been electrified, which showcases an outreach to more than 920 million people. However, the rapid pace of rural electrification has not yet led to 24 hours reliable electricity supply through the national grid. Erratic and unreliable electricity supply in remote areas (on an average six hours per day) hampers the opportunity for people to adopt electricity in their day-to-day lives and engage in economic activities.

In recent years, private and grant supported rural electrification programs have provided access to electricity through renewable sources to complement the efforts of the government. This is done to ensure affordable, reliable, sustainable and modern energy for all by 2030 (as stated in Sustainable Development Goal #7). However, the emphasis of these programs has largely been on providing electricity needs of households in rural areas. This has met a crucial need among households for lighting and other appliances. 

Beyond basic household needs, however, electricity serves as an important driver for rural enterprise and business development, specifically the development of Micro, Small and Medium Enterprises (MSMEs).

Access to reliable electricity is crucial for rural enterprises

The MSME sector contributes to regional development, employment generation, poverty reduction and overall economic growth. In India, this sector employs 110 million people and accounts for 28.77 percent of GDP.  The Government of India has implemented several programs such as the Scheme for Micro & Small Enterprise Cluster Development Programme (MSE-CDP), Financial support to MSMEs for certification, and A Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship (ASPIRE). These programs are mainly aimed at providing financial and technical assistance and enhancing competitiveness of the MSME sector. Given the importance of MSME sector for the Indian economy, access to reliable electricity is as important as the provision of technical and financial support. 

Smart Power, a rural electrification initiative by the Rockefeller Foundation, aims to accelerate welfare in India by ensuring access to reliable electricity to rural customers. Renewable energy-based mini-grids, set up under the Smart Power initiative provide electricity to households and micro-and-small enterprises in select villages of Uttar Pradesh, Jharkhand and Bihar. These mini-grids provide good quality and reliable electricity for six hours in a day to 24 hours based on customers’ need and demand, overcoming the uncertainty associated with national grid electricity. 

The assured supply has been able to garner confidence among many enterprise owners to get involved in productive economic activities. Approximately 90 percent have shifted to the mini-grid as their primary source of electricity.  More than half of the customers (especially enterprises) use the mini-grid as their only source of electricity. Moreover, larger rural enterprises such as grain mills, computer & printer centres, public institutions and others have started running their heavy power load appliance on electricity through the mini-grid instead of diesel generators.

Enterprise customers have not just started using a single source as compared to earlier where they hedged their electricity requirements across multiple sources, but our data also indicates that they prefer the mini-grid to all other sources.

In addition, decentralized power generation through mini-grid ensures higher customer responsiveness than other sources of electricity. More than 70 percent of the customers have reported high level of satisfaction for the schedule and hours of electricity supply, grievance redressal mechanisms, and quality of service provided by the mini-grid operators. 

Role of rural electrification for enterprise development

Crucially, access to quality and reliable electricity through the mini-grid has aided in expansion of business operations of many entrepreneurs in rural areas.

Ram Prasad (name changed), a resident of Gumla district of Jharkhand, India, owned a tiny printing shop. Frequent voltage fluctuations and disruptions in national grid supply often made him turn customers away for a later time. And ‘later’ could mean a few hours, a few days or in fact, a few weeks. Not only did his earnings take a blow, but customers were also affected, especially during emergency situations. 

The last few years has seen him scaling from a small shop owner to a rural enterprise stalwart. Because of mini-grid electricity, he has expanded his microenterprise into large multi-utility customer service centre, offering printing, lamination, and other services.

“I have become a rural entrepreneur from a small shop owner. Earlier, I provided printing services to the customers. Now, I have also bought lamination machine and registered myself  as a Government of India authorized Unique Identification (AADHAR) enrolment point, adding other necessary devices such as biometric machine and internet modem”

Emerging issues and challenges in rural electrification sector

While cases like Ram Prasad’s business offer glimpses of success, there is much work yet to be done. 

First, high cost of the electricity is a point of concern for many mini-grid customers and especially for the enterprise owners. High per-unit cost of mini-grid electricity increases their operating costs. Although, the cost of operating on mini-grid electricity is cheaper than that of a diesel generator, it is less economical than operating on a government grid electricity. 

Second, there are only a few rural electrification programs aiming for convergence between reliable electricity supply and provision of technical, financial and market support for the rural enterprises. The Smart Power initiative promotes setting-up of new enterprises through its Micro-enterprise Development (MED) activities. The sustained growth of new enterprises is maintained by providing technical assistance and skill development to the entrepreneurs, and developing backward and forward market linkages, in addition to the supply of good quality and reliable electricity. 

Simply put, there needs to be a fresh momentum at the policy level that regularises the high cost of electricity through renewable or decentralised systems. Further, future electrification policies and programs can focus on cross-sectoral, inter-departmental & public-private partnerships to support enterprise development, beyond provision of electricity. These partnerships will ensure holistic support to the rural entrepreneurs, capitalise on the efficiency of the private sector (such as the energy service companies (ESCOs)) and target the scale and outreach of the public sector. Thereby, ensuring financial viability of the rural electrification programs in the long run as well as enhancing larger developmental outcomes from better access to reliable electricity. 

It is crucial to note that access to electricity cannot alone solve the fundamental problem of poverty, but it can certainly provide an important impetus for triggering development in rural areas. Because reliability of electricity supply is a significant parameter for development, it is critical to ensure an assured supply at an affordable cost.

Ramanshu Ganguly – Assistant Vice President-Research, Sambodhi
Ridhi Jain, Economist


[1] Power for All: Electricity Access Challenge in India
[2] Electrification report, GoI and Bloomberg estimates (https://www.bloomberg.com/news/features/2017-01-24/living-in-the-dark-240-million-indians-have-no-electricity
[3] Mini-grids: Electricity for all, Centre for Science and Environment Report[4] Annual Report 2017-18, Ministry of Micro, Small and Medium Enterprises. Data for 2015-16.[5] Evidence gathered from Monitoring and Evaluation rounds conducted by Sambodhi for Smart Power program

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