Political Economy of Greening Fiscal Federalism in India

Rohini Chaturvedi19 September 2013

Structure of Presentation

Environment & Development Trade-offs

Centre-States negotiations in the Twelfth and Thirteenth Finance Commissions

Understanding Greening of Fiscal Federalism

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?

‘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

States arguments before the 12FC and 13FC

State Spill-over Benefits Cost-Revenue Gap Opportunity Cost Carbon Credit

Andhra Pradesh - - 13FC -Arunachal Pradesh 12FC, 13FC 13FC - 13FCAssam 12FC, 13FC - -Bihar Chattisgarh 12FC, 13FC 12FC, 13FC 12FC, 13FC -Goa - - - 13FCGujarat Himachal Pradesh 12FC, 13FC 12FC, 13FC 12FC 13FCJammu and Kashmir 13FC 13FC - -Jharkhand - - 13FC -Karnataka - 13FC - -Kerala - 13FC 13FC -Madhya Pradesh 13FC 12FC, 13FC 12FC -Manipur - 13FC 13FC 13FCMeghalaya 13FC - 13FC -Mizoram - - - 13FCOrissa - 13FC - -Sikkim - 13FC 12FC -Tripura 12FC, 13FC - - -Uttarakhand 12FC, 13FC 12FC 12FC 13FC

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

Thirteenth Finance Commission

• Agenda setting: terms of reference of the Finance Commission

• Rs. 5000 crore/five years; additionality; IIFM study – formula with multiple variables

• Balancing E&D: – Year 1 & 2- 12.5% for preparation of working plans; – Years 3-5 – 25% (75% for development and 25% for forestry)

States’ shares: Twelfth and Thirteenth Finance Commissions

Andhra Prad

esh

Arunachal

Pradesh

Assam

Chhattisga

rh

Himach

al Prad

esh

Karnata

ka

Madhya

Pradesh

Mahara

shtra

Orissa

Rajasth

an

Tamil N

adu

Uttarakh

and

West Ben

gal

0%

2%

4%

6%

8%

10%

12%

14%

16%

12FC13FC

12FC

13FC

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’

Eighth Lok Sabha (1984-89)Ninth Lok Sabha (1989-91)Tenth Lok Sabha (1991-96)

Eleventh Lok Sabha (1996-98)Twelfth Lok Sabha (1998-99)

Thirteenth Lok Sabha(1999-2004)Fourteenth Lok Sabha (2004-09)

Fifteenth Lok Sabha (2009-)

0%10%

20%30%

40%50%

60%70%

80%90%

100%

National Parties Regional Parties & Independent Candidates

Percentage of Seats in Lok Sabha

Shifting Power in the Federal System

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2013

-14

2014

-150

200

400

600

800

1000

1200

1400

Central Sector Schemes

Centrally Sponsored Schemes

Total non-formulaic transfer from Plan-ning Commission

Grants-in-aid from Finance Commission tied to forest

Am

ount

in R

s. C

rore

Forest Linked Transfers from Centre to States

Comparison between outlays to selected States in the National Afforestation Programme and Forest Transfers

National Afforestation Programme (2002-13)

Forest Transfers Forest transfers tied to forest spending (2005-15)

(Rs.in crore)

Arunachal Pradesh 30 827 414Chattisgarh 227 496 262Himachal Pradesh 65 120 63Madhya Pradesh 182 605 326Maharashtra 188 379 204Orissa 139 406 218Rajasthan 59 113 63Uttarakhand 84 240 124

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…..

Diversion of forest land since 1980

Source: Centre for Science and Environment, 2011

But, can it address this? Unlikely……..

Thank you

Spatiality of trade-offs