Evaluating the Role of Solar Power Expansion in India’s Economic Growth

Abstract

India’s solar energy sector has experienced rapid growth in recent times, with the installed capacity growing from a meagre 161 MW in 2010 to a whopping 90 GW in 2025. This rapid growth in the solar sector is likely to influence the overall GDP growth in the country. Although several studies have been conducted on the environmental benefits of solar energy, limited research has been conducted on the macroeconomic benefits. Specifically, the causal relationship between the expansion of solar energy and the growth of the Indian economy has not been studied. The study aims to determine whether solar capacity expansion has a measurable and positive effect on GDP, and to identify sectoral linkages such as construction, manufacturing, and electrification of agriculture in rural areas. Secondary data were drawn from government and international agencies including the Ministry of New and Renewable Energy, the Central Electricity Authority, the Reserve Bank of India, the World Bank, and the International Energy Agency. Time-series econometric methods are applied, including stationarity tests (ADF, PP), Johansen cointegration, Vector Error Correction Models (VECM), Granger causality, and OLS regression with robust errors. The findings highlight solar energy as both an environmental necessity and an economic growth driver. Policy implications include strengthening domestic solar manufacturing under the PLI scheme, expanding green finance, and aligning state-level renewable additions with national growth targets.