Science Direct
Publication Type: Journal Article
Author: Apra Sinha, Tarun Mehta, Surender Kumar and Gopal Sarangi
Abstract: Electricity is an important input for manufacturing, and lowering its cost is likely to foster industrialization and economic development. This paper estimates the effect of state-level open access (competition-enhancing) reform in India’s electricity market on electricity prices and labor market outcomes, using administrative plant-level data. Results suggest that open access leads to a decline in electricity prices and an increase in labor share, with stronger effects for grid-dependent plants. The decline in price and increase in labor share are larger in states with higher electricity revenue (per kWh) from the agricultural sector. These states also experience a greater decline in labor markdown. This is likely because utilities in such states face less resistance to open access and impose lower cross-subsidization surcharges, reinforcing both intensive and extensive margins of open access utilization. Accelerating reform and removing cross-subsidization surcharges would generate broad gains for both industry and workers.
