We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability. We estimate that India's average reported level of shortages reduces the average plant's revenues and producer surplus by 5 to 10 percent, but average productivity losses are significantly smaller because most inputs can be stored during outages. Shortages distort the plant size distribution, as there are significant economies of scale in generator costs and shortages more severely affect plants without generators. Simulations show that offering interruptible retail electricity contracts could substantially reduce the impacts of shortages. (JEL D24, L60, L94, O13, O14, Q41)In this paper, we ask: How do electricity shortages affect input choices, revenue, and productivity in the Indian manufacturing sector? One potential prior is that because electricity is an essential input-most factories cannot produce anything without electricity for lights, motors, and machines-shortages could significantly reduce output. On the other hand, many firms might insure themselves against outages by purchasing generators or otherwise substituting away from grid electricity precisely because the potential losses are so large. The limited existing evidence could support either argument. Foster and Steinbuks (2009) and others argue that the cost of self-generation is relatively small, and Alam (2013) and Fisher-Vanden, Mansur, and Wang (2015) highlight ways in which plants substitute away from

Abstract:We analyze the spatial determinants of entrepreneurship in India in the manufacturing and services sectors. Among general district traits, quality of physical infrastructure and workforce education are the strongest predictors of entry, with labor laws and household banking access also playing important roles. We also find extensive evidence of agglomeration economies among manufacturing industries. In particular, supportive incumbent industrial structures for input and output markets are strongly linked to higher establishment entry rates. In comparison to the U.S., regional conditions in India play a stronger relative role for the spatial patterns of entrepreneurship compared to incumbent industry locations.

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.