Solar Deployment, State Economic Output, and Sectoral Employment in India: Evidence from State-Level Panel Data

Abstract

This study examines how the deployment of grid-connected solar photovoltaic capacity relates to state economic output and employment across India. Drawing on an unbalanced panel of 28 states from 2012 to 2023, it estimates the within-state relationship between installed solar capacity and real Net State Domestic Product (NSDP) using state fixed-effects models. Employment outcomes are accounted for separately, using 2022-23 state-level indicators from the Periodic Labour Force Survey that distinguish aggregate labour-force participation from manufacturing employment. The results point to a positive within-state relationship between solar capacity and real NSDP. Moreover, the estimate stays positive and statistically significant when capacity is lagged by one year. Solar capacity shows no significant association with aggregate labour-force participation, whereas the association with manufacturing employment is positive. Taken together, these findings suggest that the economic gains from solar deployment may register more clearly in state output and in sector-specific employment than in aggregate labour-market participation. They also underline the value of accounting for sectoral heterogeneity when weighing the socioeconomic effects of India's energy transition.