1. Political Economy of Greening Fiscal Federalism in India
Rohini Chaturvedi
19 September 2013

2. Structure of Presentation
Environment & Development Trade-offs Centre-States negotiations in the Twelfth and Thirteenth Finance Commissions Understanding Greening of Fiscal Federalism

3. Environment & Development Trade-offs
Addressing environment and development in an integrated way involves trade-offs
Who decides?
How can the costs and benefits be equally distributed?

4. Even as we think of winners and losers, the federalism dimensions of conservation become exceedingly important. The uneven distribution of forests implies that the potential for conservation is more in some States than others.
Some states are therefore expected to bear a disproportionate burden of the costs of conservation in national interest. MP is a classic example; it has the largest forest area in the country (in terms of extent). And has been consistently arguing for financial compensation for the opportunity costs that conservation imposes on its development. Where forests are concerned some of the smaller states have more than three quarters of their area under forest.

5. ‘Forest Rich’ States’: compensation for costs of conservation
Flow of ecosystems goods and services beyond States’ territorial boundaries.
Increasing gap between revenue and expenditure wrt forests
High opportunity costs of conservation
Absence of domestic markets for carbon trading
The Himalayan Chief Ministers Conclave, 2009
Internationally India has maintained a stance that it is the developed countries that need to pay. Domestically, we have been shy of examining whether this concept can be applied to the States offering incentives to those on the path of green growth.

6. States arguments before the 12FC and 13FC
Spill-over Benefits
Cost-Revenue Gap
Opportunity Cost
Carbon Credit
Andhra Pradesh -
13FC
Arunachal Pradesh
12FC, 13FC
Assam
Bihar
Chattisgarh
Goa
Gujarat
Himachal Pradesh
12FC
Jammu and Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Manipur
Meghalaya
Mizoram
Orissa
Sikkim
Tripura
Uttarakhand

7. Twelfth Finance Commission
Agenda setting: representation from the States + members experiences of forest issues + political acceptability
The Transfer: 1000 crore/five years distributed on the basis of forest cover estimates; Additionality
Balancing E&D: ‘Preservation of forests’; Fungibility of the State treasury

8. Thirteenth Finance Commission
Agenda setting: terms of reference of the Finance Commission
Rs crore/five years; additionality; IIFM study – formula with multiple variables
Balancing E&D:
Year 1 & % for preparation of working plans;
Years 3-5 – 25% (75% for development and 25% for forestry)

9. States’ shares: Twelfth and Thirteenth Finance Commissions

10. Political Economy of Greening
Ecosystems services framework in policy narratives and estimates of forest value
Domestic responses to the international negotiations on climate change
Shifts in power within the Indian federal system
Coalitional politics
Economic liberalisation and ‘Provincial Darwinism’

11. Shifting Power in the Federal System

12. Forest Linked Transfers from Centre to States

13. Comparison between outlays to selected States in the National Afforestation Programme and Forest Transfers
National Afforestation Programme ( )
Forest Transfers
Forest transfers tied to forest spending ( )
(Rs.in crore)
Arunachal Pradesh 30
827
414
Chattisgarh
227
496
262
Himachal Pradesh 65
120 63
Madhya Pradesh
182
605
326
Maharashtra
188
379
204
Orissa
139
406
218
Rajasthan 59
113
Uttarakhand 84
240
124

14. So,
Greening of fiscal federalism has taken place through the inclusion of environmental criteria in fiscal transfers
Environmental Performance Index and green bonus
Commission on Centre-States relations
Symptomatic of shifts in power in the federal system
Is it here to stay? Likely…..

15. Diversion of forest land since 1980
But, can it address this? Unlikely……..
Diversion of forest land since 1980
Rate of diversion doubled after 2008
Source: Centre for Science and Environment, 2011

16. Thank you

17. Spatiality of trade-offs