Do rural roads promote inclusive entrepreneurship?

It is well-known that infrastructural investments, such as in rural roads, help integrate markets and promote economic growth. But are the benefits uniformly distributed across social groups? Analysing data from four waves of the census of establishments in India, this article shows that India’s national road programme, which served previously unconnected villages, led to an increase in entrepreneurship in the services sector among marginalised groups.

Does better market integration reduce social exclusion? In recent research (Brahma and Soundararajan 2025), we explore the effects of rural infrastructure development, particularly the construction of feeder roads that enhance connectivity, on entrepreneurship across different social groups. We study this in the case of India by utilising the national rural road-building programme – the Pradhan Mantri Gram Sadak Yojana (PMGSY) or Prime Minister's Village Road Programme – that connected villages that were previously unconnected by road. The programme has made significant progress since its inception – by 2024-25, it connected 170,875 villages and built roads spanning 777,768 kilometres.

What do we know about the link between road connectivity and development?

On the one hand, improved infrastructure and connectivity are expected to enhance market efficiency and foster integration across all communities, including marginalised groups, by democratising access and eliminating physical barriers to participation (Becker 1971). On the other hand, various frictions may hinder or delay this process. Historically disadvantaged communities, particularly individuals from marginalised groups, may face structural barriers that limit their ability to capitalise on new market opportunities. These barriers include unequal access to capital and formal finance, limited social networks, and lower levels of educational attainment, all of which are shaped by persistent exclusion and discrimination. As a result, even when a national rural road programme improves market access, these groups may not be equally positioned to initiate and sustain entrepreneurial activity. In some cases, better-connected groups may disproportionately capture the benefits, further widening existing inequalities.

A substantial body of research has examined the impact of infrastructure investments on economic growth, mostly finding positive effects (Donaldson 2018). In contrast, relatively few studies have explored the implications of infrastructure for social inclusion. Notably, Ghani et al. (2016 ) analysed the effects of India’s Golden Quadrilateral (GQ) highway project and found that female entrepreneurship and employment increased more in districts farther from the highway, contrary to expectations. Our study seeks to contribute to this limited literature by examining the causal impact of rural road expansion on entrepreneurship outcomes among marginalised groups. Enhanced entrepreneurial activity among excluded communities carries important implications for poverty reduction, job creation, and inclusive economic development.

Data and methodology

We use the census of establishments (the Economic Census (EC)) in India across four waves (in the years 1990, 1998, 2005, and 2013), which uniquely contain details on the social group of the owner, and various other aspects of the enterprises. We also use the Population Census of India for information on baseline paved road connectivity and various village-level characteristics, and the Socioeconomic High-resolution Rural-Urban Geographic Platform for India (SHRUG, Version 2.0) created by Asher et al. (2021), which provides village-level identifiers with consistent boundaries over time, compatible across these datasets. We focus on the rural sample of the EC, and restrict our analysis to previously unconnected villages where new roads would potentially be built. For separate analysis, we also use four rounds of data from the Employment-Unemployment Survey (EUS) of the National Sample Survey Organisation (2004, 2004-2005, 2009-2010, and 2011-2012).

To identify the causal impact of roads on entrepreneurship among marginalised communities, we exploit variation in the timing of road construction, comparing the evolution of entrepreneurship across social categories in villages that receive a programme road to villages that are yet to receive a programme road. Using the ‘difference-in-difference’ estimator¹, we examine entrepreneurship across social groups: the Scheduled Castes (SCs), Scheduled Tribes (STs), and Others (non-SC/STs, including Other Backward Classes and remaining castes). The SCs and STs are constitutionally recognised groups that have faced long-standing social and economic marginalisation. Other Backward Classes (OBC) is a collective term used by the Government of India to classify subpopulations which are educationally and socially disadvantaged, although not as acutely as SCs and STs.

Nuances of the entrepreneurship effects of road expansion

Our results indicate that new roads increase the number of service sector enterprises across all caste categories, including the SC/STs. While rural roads lead to an increase in service sector enterprises across all groups, the gains for marginalised groups do not translate into a notable rise in their ownership share. As a result of roads, SC-owned enterprises grew by 20.9%, enterprises owned by others grew by 18.9%, and ST-owned enterprises grew by 12.4%. Given that these increases are not disproportionately higher for SCs and STs, their relative share in service sector ownership remains largely unchanged.

In the manufacturing sector, roads increase entrepreneurship among non-SC/ST caste groups, while decreasing entrepreneurship among SCs, with no significant effect on STs. Thus, rural roads tilt ownership-share towards non-SC/STs, although these effects are not statistically significant.

Another dimension of inclusion is the diversity in the work that marginalised groups engage in. For example, in India, marginalised groups have historically been concentrated in socially stigmatised sectors like leather or footwear manufacturing (Deshpande and Sharma 2013), limiting their ability to diversify into more profitable work even when new market opportunities arise. Notably, we find that marginalised groups engage in a more diverse range of segments in the service sector. While such diversification is a positive development, these businesses owned by marginalised groups are predominantly subsistence-oriented and exhibit limited potential for growth or formalisation. The increase in enterprises is primarily concentrated in small-scale enterprises, and those enterprises with a single employee, which lack formal registration and power supply.

Why do SC/ST individuals turn to entrepreneurship in response to new roads? While rural roads expand access to wage employment – particularly in nearby towns (Asher and Novosad 2020, Aggarwal 2018) – not all caste groups benefit equally. Evidence of hiring homophily (Deshpande and Sharma 2013, Iyer et al. 2013) and labour market discrimination (Bertrand and Mullainathan 2004) suggests that SC/STs face barriers in securing these jobs. Using EUS data, we find that although rural roads increase employment overall, the gains are significantly lower for SC/STs. This helps explain why SC/STs respond more through entrepreneurship.

How does entrepreneurship flourish?

To understand how road construction influences entrepreneurship, we examine two channels. First, the financial channel: improved connectivity may help marginalised entrepreneurs access credit, especially in areas with greater formal banking presence. Using the Central Information System for Banking Infrastructure (CISBI) data of the Reserve Bank of India (RBI), we find stronger effects of rural roads on entrepreneurship in districts with more bank branches. Second, the human capital channel: roads may allow educated individuals from marginalised groups to tap into new market opportunities. We find that the impact of rural roads on entrepreneurship is greater in areas with more schools, across all caste groups.

Discussion and looking forward

Our findings show that rural roads positively impact service sector enterprises, with particularly strong effects for SCs. However, because gains are broadly similar across groups, the overall enterprise share of SCs and STs does not rise significantly. While this may suggest limited shifts in ownership shares, the roughly equal percentage growth across caste groups is itself a notable outcome in a context of historical exclusion. This suggests that rural roads have not systematically excluded marginalised communities and may be enabling greater social and economic inclusion. We expect that the enterprise share of marginalised groups will increase over time, as the long-term impacts of infrastructure investments often materialise gradually over several decades through greater sectoral diversification, or as initial frictions decline. Consistently, we also observe lagged gains for SC-owned enterprises. Moreover, there is increasing sectoral diversification among marginalised groups, pointing to gradual but meaningful improvements in inclusive economic participation.

Note:

Difference-in-differences is used to compare the evolution of outcomes over time in two groups, where one was impacted by an event or policy – in this case, receiving a programme road – while the other was not.