Household access to electricity and non-farm business in rural India: A panel data analysis

The role of electricity in formation and performance of rural non-farm entrepreneurial ventures is widely debated. This study aims to understand how, in India, access to household electricity impacts rural households' decisions to take up entrepreneurial activities, operated within household premises. A panel dataset of nearly twenty thousand rural households carried out in the years 2004–05 and 2011–12 has been used to explore the impact of access to electricity on participation in rural non-farm enterprises using panel fixed-effects logit models. Further, the role of electricity access on earnings of non-farm enterprises is studied using Heckman two-stage selection models. It is concluded that electricity has a positive effect on the households' decision to establish non-farm enterprises operating within home premises. It is also found that, in the presence of the household electricity access, the income from business increases by 35.2% on an average. Upon extending the analysis to different groups of states, similar outcomes are observed for relatively rich states, states with relatively higher levels of rural electrification and states with relatively lower rates of rural electrification. In case of relatively poorer states, access to electricity enables a household to participate in the non-farm business sector but does not seem to have a statistically significant impact on their business income.