Integrating environment, ecology and climate change concerns in Indian fiscal federalism framework
The terms of reference (TOR) of the 13th Finance Commission requires that it considers in its recommendations the need to “manage ecology, environment and climate change consistent with sustainable development.” This report aimed at contributing to this part of the TOR by examining how the Centre- State fiscal architecture needs to be reinforced to promote more environmentally sustainable development in India. The project suggests a framework for using intergovernmental transfers to improve environmental management and the quality of environmental services provision in India.
The centre-state architecture needs to be reoriented to help achieve environmentally sustainable development. The key aspects of this reorientation are:
• A differentiated devolution, based on goals of governance, with the involvement of multiple tiers of governments with clearly delineated responsibility
• Institutional strengthening at state and local levels to (i) Enable SPCBs to efficiently discharge the mandated functions specified under the Water, Air and E(P) Act and Rules there under(ii), and have own revenue sources for local governments
• The strategic use of intergovernmental transfers to produce desired outcomes: where public goods or bads spill across jurisdictions; where states and local bodies do not have adequate resources or capacities for improved environmental management; to incentivize more innovative approaches to environmental management; to reward good environmental performance ,and to help equalize the delivery of minimum environmental protection services across States
• Adhering to the “precautionary principle” and the “polluter pays principle” and addressing failures: market, policy, and governance
The study recommends that centre-state fiscal architecture should be designed so that it: “rewards environmental performance”, “creates incentives for improvements in key areas”, “builds resilience to climate change impacts” and “assists local bodies to improve the delivery of minimum environmental protection services.” The framework for the disbursal of grants along these lines has been delved in detail in the report.
In order to ensure environmental sustainability, and to help further the objectives of the NEP 2007, the IEP, and the NAPCC, it becomes important to assist States to use environmental and energy resources in a more sustainable manner. In the Indian context this means that a proportion of total grants-in-aid could be kept aside for environmental and ecological management to be disbursed to the state and local governments. This would internalize the externalities of environmental degradation in various cost computations and provide incentives to improve the natural resource base in the states. Therefore, the aspects of equity and efficiency that have shaped the approach followed by the Twelfth Finance Commission would be equally applicable in case of environment-linked transfers from the centre to the lower tiers of the government. These transfers would need to be cognizant of the fact that states have different environmental (along with fiscal) capacities and needs, as well as inherent differences in the cost of providing environmental services. However, while deficiency in environmental (and fiscal) capacity needs to be redressed, deficiency in environmental (and revenue) effort should be effectively discouraged.
The centre-state architecture needs to be reoriented to help achieve environmentally sustainable development. The key aspects of this reorientation are:
• A differentiated devolution, based on goals of governance, with the involvement of multiple tiers of governments with clearly delineated responsibility
• Institutional strengthening at state and local levels to (i) Enable SPCBs to efficiently discharge the mandated functions specified under the Water, Air and E(P) Act and Rules there under(ii), and have own revenue sources for local governments
• The strategic use of intergovernmental transfers to produce desired outcomes: where public goods or bads spill across jurisdictions; where states and local bodies do not have adequate resources or capacities for improved environmental management; to incentivize more innovative approaches to environmental management; to reward good environmental performance ,and to help equalize the delivery of minimum environmental protection services across States
• Adhering to the “precautionary principle” and the “polluter pays principle” and addressing failures: market, policy, and governance
The study recommends that centre-state fiscal architecture should be designed so that it: “rewards environmental performance”, “creates incentives for improvements in key areas”, “builds resilience to climate change impacts” and “assists local bodies to improve the delivery of minimum environmental protection services.” The framework for the disbursal of grants along these lines has been delved in detail in the report.
In order to ensure environmental sustainability, and to help further the objectives of the NEP 2007, the IEP, and the NAPCC, it becomes important to assist States to use environmental and energy resources in a more sustainable manner. In the Indian context this means that a proportion of total grants-in-aid could be kept aside for environmental and ecological management to be disbursed to the state and local governments. This would internalize the externalities of environmental degradation in various cost computations and provide incentives to improve the natural resource base in the states. Therefore, the aspects of equity and efficiency that have shaped the approach followed by the Twelfth Finance Commission would be equally applicable in case of environment-linked transfers from the centre to the lower tiers of the government. These transfers would need to be cognizant of the fact that states have different environmental (along with fiscal) capacities and needs, as well as inherent differences in the cost of providing environmental services. However, while deficiency in environmental (and fiscal) capacity needs to be redressed, deficiency in environmental (and revenue) effort should be effectively discouraged.