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Achieving the climate goal with intergovernmental transfers to the forestry sector: insights from the Indian experience

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Abstract

Forests play an important role in both mitigation and adaptation to climate change. India is amongst a select group of countries that have experimented with intergovernmental fiscal transfers to support forest conservation. Well-designed transfers have important implications for the achievement of national and international commitments for forest conservation, the well-being of communities and climate mitigation. A substantial amount, USD 51 billion was allocated for devolution from the Union (Government of India) to the subnational (state) governments against the forest cover criteria for the period 2015–2019. Evidence indicates that this substantial devolution did not guarantee fund flows to the forestry sector nor result in an appreciable increase in conservation outcomes in states that benefited the most from the transfers. We conduct an in-depth empirical analysis which demonstrates that the design of the transfer is crucial in determining outcomes. Findings indicate that conservation and afforestation outcomes are likely to be better when the ecological values, the bulk of which are carbon values, are incorporated upfront in financial allocation decisions. Indirectly incentivizing subnational entities by compensating them for maintaining land under forests is a much weaker approach that may not lead to the desired outcomes. Our findings are relevant since the next phase of allocation through fiscal transfers is under active consideration. Ensuring design compatibility in financial transfers complements and links up well with international goals to achieve climate mitigation through REDD+, as well as domestic priorities for achieving the SDGs.

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Notes

  1. Finance Commissions (FC) are set up under the Constitution of India at an interval of 5 years to make recommendations on intergovernmental transfers in the form of both untied transfers (general devolution) and tied transfers (grants), as a means of sharing tax proceeds between the Centre (Union) and the states (subnational governments).

  2. Fiscal disability refers to the relative disadvantage faced by a subnational level of government, arising from differences between its revenue base and its capacity to raise resources to meet costs of providing social sector services for the population. Capacity refers to the ability of a state to raise the required resources by itself to meet various needs of the state. The fiscal disabilities could be due to either revenue- or cost-related factors (Thimmaiah 2002; GoI 2009, 2014, 2019).

  3. All values in Indian rupees have been converted using the average annual exchange rate for the financial year 2017–2018, with USD 1 = INR 64.45 approx. (RBI 2018a).

  4. RFAs include reserved forests and protected forests constituted under the provisions of the Indian Forest Act, State Acts as well as areas designated as forests in revenue records (FSI 2015, 2017).

  5. Revenue from forestry and wildlife is referred to as revenue from forestry in the paper.

  6. India practices conservation forestry as opposed to revenue forestry as an overall goal, with categories of forests being governed by specific legal provisions on this count. The revenue potential from forestry is not of primary concern in categorizing forests. Statistically, we find that correlations between revenue collection and area under PA/RFA are insignificant.

  7. Z- test:\( Z=\frac{\beta_1-{\beta}_2}{\sqrt{{\left(s.e{\beta}_1\right)}^2+{\left(s.e\ {\beta}_2\right)}^2}} \)based on Paternoster et al. (1998)

  8. \( {\hat{B}}_1 \) and \( {\hat{B}}_2 \) are the relevant coefficients of the estimated regression specifications. The weights α1 and α2 are calculated as \( {\upalpha}_1=1-\frac{{\hat{B}}_1}{{\hat{B}}_1+{\hat{B}}_2} \) and \( {\upalpha}_2=1-\frac{{\hat{B}}_2}{{\hat{B}}_1+{\hat{B}}_2} \).

  9. PA includes the area under national parks and wildlife sanctuaries and includes data as of July 2017.

  10. The empirical analysis includes Jammu and Kashmir since it was legally a state during the period for which the historical data has been analysed. It has very recently undergone a change in its legal and administrative status.

  11. These NPV values are used for official purposes by the government, both at the Centre and by the states, for instance, in determining the rates to be charged while diverting forestlands for non-forestry purposes. The values are also revisited from time to time. These NPV values include values from ecosystem services such as carbon sequestration, timber, fuelwood, non-timber forest products, eco-tourism, fodder, bioprospecting, value of flagship species and other ecological values (CEC (Central Empowered Committee), 2007). While we are aware that these NPV values do not capture the full range of ecosystem services, these values provide a reasonable guidance, since the purpose is to illustrate the argument using a relative scale. Further, any set of NPV based values would have its limitations in capturing the entire range of ecosystem service values, due to uncertainties in the science and reliability of data/methods to capture these values.

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Acknowledgements

We are extremely grateful for discussions with several experts, including TCA Anant, Pinaki Chakraborty, Kanchan Chopra, BN Goldar, Sudipto Mandal, Sandipan Mukhopadhyay, Manoj Panda, M. Govinda Rao and Sushil Sehgal. The study also drew upon learnings from interactions with officials from state forest departments. We are grateful for the comments received from the editor and anonymous reviewers for the journal. The authors are solely responsible for the views expressed in this paper.

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  1. Purnamita Dasgupta

    Present address: International Centre for Integrated Mountain Development, Lalitpur, Nepal

Authors and Affiliations

  1. Institute of Economic Growth, Delhi, India

    Purnamita Dasgupta & Kavitha Srikanth

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  1. Purnamita Dasgupta
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  2. Kavitha Srikanth
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Contributions

Purnamita Dasgupta: conceptualization, methodology, data analysis, and writing;

Kavitha Srikanth: literature review, methods, data analysis, and writing.

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Correspondence to Purnamita Dasgupta.

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Dasgupta, P., Srikanth, K. Achieving the climate goal with intergovernmental transfers to the forestry sector: insights from the Indian experience. Climatic Change 164, 45 (2021). https://doi.org/10.1007/s10584-021-03016-0

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