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Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

Green devolution formula for taxes

For the first time, forest cover itself has been incorporated into the formula for the allocation of the single, divisible pool of taxes among the states

The Fourteenth Finance Commission (FFC), which is very much in the news these days, was set up by the United Progressive Alliance government in January 2013 under Article 280 of the Constitution.

It made a bold recommendation (with one dissent note) that 42% of all taxes collected should be shared by the Union (a better term certainly than central) government with the states, up from the present share of 32%.

Governments always accept the “awards" of the Finance Commissions, and a huge virtue is being made out of what is normal practice and convention, since the commission is a quinquennial constitutional body.

The terms of reference of FFC included a paragraph that said, “In making its recommendations the commission shall have regard, among other considerations, to the need to balance management of ecology, environment and climate change consistent with sustainable economic development." This followed the decision to make rapid, inclusive and sustainable growth the objective of the Twelfth Five-Year Plan (2012-17).

Incidentally, the Thirteenth Finance Commission for the period 2010-2015 also had similar terms of reference relating to ecology, environment and climate change. FFC has taken this responsibility seriously.

For the first time, forest cover itself has been incorporated into the formula for the allocation of the single, divisible pool of taxes among the states. The formula has five elements: (i) population as of 1971 with a weight of 17.5%; (ii) demographic change reflecting population shifts between 1971 and 2011 with a weight of 10%; (iii) area with a weight of 15%; (iv) fiscal capacity measured by the income distance method (difference of a state’s per capita income from that of the state with the highest per capita income) with a weight of 50%; and (v) forest cover with a weight of 7.5%.

The formula used by its predecessor was: (i) population as of 1971 with a weight of 25%; (ii) area with a weight of 10%; (iii) fiscal capacity with a weight of 47.5%; and (iv) fiscal discipline with a weight of 17.5%. The Thirteenth Finance Commission had provided for a special grant of 5,000 crore spread over five years and shared among the states depending on the quality of forest cover and conservation efforts. It was untied for the first two years and conditional thereafter.

India has around 70 million hectares of its geographical area under forest cover, which works out to around 21%. But 42% of the country’s forest cover falls in the “open forest" category where the quality is poor. The very dense forest category accounts for around 12% of the area under forest cover and about 46% is in the medium density forest category. If the area under tree cover is added to the area under forest cover, the “green" area of the country is approximately 24% of its geographical area.

FFC has used “very dense" and “medium density" forest cover. The states with the largest such area (as a proportion of the national area) are Arunachal Pradesh (13%), Madhya Pradesh (11%), Chhattisgarh (10%), Maharashtra (7.5%), Odisha (7%) and Uttarakhand (5%). Not surprisingly, the share of these states in tax devolution, barring that of Odisha, has increased in the FFC award.

The policy ever since the 1950s has been to bring one-third of the geographical area under “green" cover; sometimes “green" cover has been defined as forest cover, but more recently it has been reckoned as forest cover plus tree cover.

Given the huge demographic pressures in our country as well as pressing developmental imperatives, physical expansion of the area under forests is very difficult and therefore, the priority here must necessarily be to protect what we have and also vastly improve its quality. The area under tree cover can, however, certainly increase—for example, all along the 400,000km of rural roads built under the Pradhan Mantri Gram Sadak Yojana so far and another 200,000km or so that remains to be built.

India certainly does not fall in the category of countries that are seeing massive deforestation. What is now happening here, worrisome as it may be, cannot be compared with loss of forests seen in countries like Brazil, Indonesia and the Democratic Republic of Congo.

The Forest (Conservation) Act, 1980, pushed through by Indira Gandhi almost single-handedly has played a key role in preserving and protecting our forests, but it is under assault now and it is by no means certain that it will survive in its present form.

In the current ruling dispensation in New Delhi, there is a firm belief that compensatory afforestation offers a way out. It does not. Monoculture plantations can never substitute for loss of natural forests. FFC should be applauded for making forest cover an explicit indicator in the formula for allocating tax resources among the states, although there is no provision for linking it to actual performance.

However, there is a downside—this could also be one reason why the devolution share of poorer states like Uttar Pradesh, Rajasthan and Bihar has gone down sharply. Nevertheless, it is a step forward. Even with its poor quality, India’s forest cover sequesters perhaps around 7-8% of its annual emissions of carbon dioxide. This must increase significantly in the years ahead as our emissions also rise.

The Modi sarkar has unveiled an aggressive strategy for solar energy. It needs to bring in the same aggression to the implementation of the Green India Mission, which is one of the pillars of the National Action Plan for Climate Change that has been floundering so far. Also, like Brazil has done, India must deploy its satellite design and launch capabilities to measure, monitor and manage its forests better on a real-time basis.

The author is a former Union minister and Rajya Sabha MP.
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