Electricity consumption and economic growth at the state and sectoral level in India: Evidence using heterogeneous panel data methods

The demand for energy has been increasing over the years in India, which may be the result of its rapid economic growth trajectory. In this context, this study examines the direction of the Granger-causal relationship between electricity consumption and economic growth at the state and sectoral levels in India. In doing so, the panel cointegration tests with the structural break, the heterogeneous panel causality test, and the panel VAR based impulse-response model are employed. The study covers overall economic growth and growth in agricultural and industrial sectors for eighteen major Indian states for the period 1960-61 to 2014-15. The results provide evidence in support of a long-term relationship between economic growth and electricity consumption only in the agriculture sector. Further, the results provide evidence for the presence of unidirectional Granger-causality flowing in the direction of overall economic growth to electricity consumption at the aggregate state level. However, at the sectoral level, there is a unidirectional causal relationship running from electricity consumption to economic growth for the agriculture sector, and economic growth to electricity consumption for the industrial sector. (C) 2020 Elsevier B.V. All rights reserved.

Automated summary

The study found a long-term relationship between economic growth and electricity consumption in the agriculture sector in India, with unidirectional causality flowing from overall economic growth to electricity consumption at the aggregate state level. At the sectoral level, there is a unidirectional causal relationship running from electricity consumption to economic growth for the agriculture sector, and economic growth to electricity consumption for the industrial sector.