Editorial of the Day (13th Jan): A Green Fiscal Blueprint

Context: The article discusses India’s role in global environmental efforts and the importance of the Finance Commission in supporting the country’s climate readiness.

India’s Steps to Tackle Climate Change

• Conservation of standing forests and increasing forest cover density helps lock carbon underground contributing to mitigation of global warming.
• Forest resources and their conservation directly impact the revenue capacities and expenditure needs of the states.
• A National Carbon Market and a National Green Credit Market are also on the government’s anvil.

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Fiscal Federalism

• The Finance Commission (FC), responsible for fiscal federalism in the country, has in the past provided incentives to states to maintain and improve their forest cover.
  • The 12th FC (2005-10) dedicated Rs 1,000 crore for forest conservation across states
  • The 13th FC (2010-15) enhanced this allocation to Rs 5,000 crore.
  • The 14th FC (2015 to 2020) dedicated 7.5 percent of the divisible central tax pool for ecology and forests.
  • The 15th FC (2021-22 to 2025-26) extended this share to 10 per cent. Having mobilised and distributed over Rs 4.5 lakh crore to states against not only their forest cover but also forest density.

Issues To Forest Cover

• Innovations to tackle the seemingly intractable problem of crop burning will require funds. So will mangrove restoration, a key necessity given the weather vagary-induced floods in recent times.
• At the same time, increasing dry spells have led to forest fires in several states.

Such incidences are not part of the forest’s regenerative cycle but a result of changing climate patterns.

Recommendations To Further Strengthen Policies

16th Finance Commission (FC) plays a pivotal role in India’s efforts to tackle climate change and achieve its Paris Agreement commitments.

• Make climate vulnerability and emission intensity of states a key parameter of the tax devolution formula. This would incentivize states to take action towards reducing greenhouse gas emissions and building carbon sinks.
• Consider performance-based grants for different sectors
• Use scientific data to design a performance-based system for fund apportioning
• The FC should transform from a traditional fiscal arbitrator to an orchestrator of India’s climate readiness:

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