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Indian states have a real incentive to protect the environment, create more jobs

19 August, 2016

Money, it appears, does grow on trees, at least, if you are a green, small Indian state.

Data recently released by the government, in response to a parliamentary question, show that beginning the last financial year, small, forested states, especially those in the country’s northeastern region, stand to benefit significantly more than the larger and more industrialised ones, when it comes to garnering a share of the central taxes.

In 2015, the union government accepted the 14th Finance Commission’s recommendation to increase the share of states’ revenue from central taxes from 32% to 42%. It was for the first time, that the 14th Finance Commission accorded a 7.5% weightage to a state’s forest cover while determining its share in central taxes. “We believe that a large forest cover provides huge ecological benefits, but there is also an opportunity cost in terms of area not available for other economic activities and this also serves as an important indicator of fiscal disability,” the commission said in its report while commenting on making forest cover a criterion.

This meant that while the payouts to all the states went up, those that are significantly more forested have gained far more than the others.

Sample this: In 2014-15, while Arunachal Pradesh was given Rs 1109.98 crore from the central taxes pool, the following year, the state received Rs 7075.58 crore, or more than six times, as its share of central taxes. Arunachal is the largest state in the northeast and more than 80% of the state is under forest cover. Similarly, Mizoram, Nagaland, Meghalaya and Sikkim are the other states that have seen their pay packets become heftier.

On the other hand, larger, more industrialised and urbanised states such as Tamil Nadu, Telangana and Bihar, which have a relatively shallow forest cover, have seen the lowest increments in their respective shares from the central taxes.

Population (17.5%), demographic change (10%), income distance (50%) and area (15%) are the other criteria that the commission recommended for determining how much each state should get out of the central tax kitty.

In fact, not only have smaller northeastern states benefited from having a larger green cover, they also appear to be cashing in on a demographic dividend of sorts. Between 1971 and 2011, India’s population more than doubled. During the same period, states such as Nagaland, Mizoram and Arunachal Pradesh saw their respective population numbers spike by more than three times This, even as population in states such as Andhra Pradesh, Tamil Nadu and Kerala grew at a much slower pace.

In fact, if the share of states’ population to the total population of the country is considered, an even more interesting, though skewed, trend emerges. One sees a significant rise in the relative share in the population of all the northeastern states, except Assam, which actually saw a decline in its share, possibly because of migration from the state. The share of southern states in the overall population, too, dropped during this period, because they have managed to stem their population rise.

The new formula means that despite their absolute population numbers going up over the last four decades, those large states that have either controlled the rate of increase in their population, or have seen a significant economic migration to other states, actually stand to lose after the implementation of the recommendations of the 14th Finance Commission.

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Indian states have a real incentive to protect the environment, create more jobs

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