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June 2013 Vol 57

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YOJANA June 2013 1

C O N T E N T S

INTEGRATING SUSTAINABILITY INTO INDIAN PLANNING

Ashish Kothari ..................................................................................5

CLIMATE RISK: CRITICAL CHALLENGES

Anil Kumar Gupta...........................................................................11

CHANGING DYNAMICS OF CENTRE-STATE FINANCIAL

RELATIONS

Pravakar Sahoo, Amrita Sarkar ..................... ........................ ..........18

DO YOU KNOW? ........................................................................24

CONSTRUCTING CHANGE BY ADVANCING

ENERGY EFFICIENCY

Radhika Khosla ...............................................................................26

INDIAS URBAN ENVIRONMENTAL CHALLENGES: LAND

USE, SOLID WASTE AND SANITATION

Kala Seetharam Sridhar, Surender Kumar ........................ ..............30

WESTERN GHATS AND WILD LIFE PRESERVATION

P K Sujathan ....................................................................................36

PROBLEMS IN FLOOD-PRONE RIVER BASINSDinesh Kumar Mishra .....................................................................41

BEST PRACTICES

PIPES OF PROSPERITY

Ranjan K Panda...............................................................................46

URBAN BIODIVERSITY :

GROWTH AND DEVELOPMENT OF NCT DELHI

Meenakshi Dhote ............................................................................49

NORTH EAST DIARY

PANIDIHINGA PARADISE OF BIRDS

Mouchumi Gogoi ............................................................................55

PROTECT INDIGENOUS BIODIVERSITY AND KNOWLEDGE

Vandana Shiva ................................................................................60

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YOJANA June 2013 3YOJANA June 2013 3

You are, Therefore I am

It may be a little surprising to know that the rst civilisation in the world to collapse due toecological factors was Sumer in Mesopotamia more than 4000 years ago. You may perhaps bethinking that it was some natural disaster that led to the extinguishing of the Sumerian civilisation.

But the reality is different. In fact it was ,in a great measure, a man made catastrophe caused by the

increasing salinity in the extensive irrigation channels built by the Sumers for cultivation. Indeedhistorical and archaeological evidence points out that ecological factors played a crucial role inthe collapse of a number of ancient civilisations like the Indus Valley, Greek, Phoenician, Romanand the Mayan. Today again, a similar possibility is staring us in the face threatening to begin theEndgame.

Apparently, the mankind has come a full-circle over this period so far as its relationshipwith nature and the surroundings is concerned. It has been argued that the chief causes of theenvironmental destruction do not lie in individual choices like higher consumption. These arerooted in the social and historical realities arising out of the specicities of the modern industrial world and the gamut ofeconomic relations arising out of it between individuals and the nations at large. Whatever view you may hold about thecauses of the environmental crisis we face today, there is no doubt that in the modern quest for conquering the earth weare clearly in the danger of overstepping the critical thresh holds whether it is the fossil fuel consumption, exploitation ofrivers and under-ground water, Green House Gases emission and similar other indicators.

Environment is an issue that does not really obey the boundaries we have erected on the map. The interconnectednessof the human existence on the earth is most clearly reected when we discuss questions of environment and ecology.The long debate about environment and development is not yet settled even while the nations struggle to nd a model ofsustainable development without destroying the ecology. Despite the universal nature of environmental issues, when itcomes to equitable burden sharing of the carbon footprint left by the countries, the debate between per capita emissionapproach and the total emission approach continues to be deeply contentious. It becomes an important fact in internationalclimate change negotiations when we nd that the developed western countries contribute more than 50 percent to thetotal carbon emission in the world. It is difcult to convince a developing nation not to invest in setting up factories andindustries to improve the living standards of its citizens in the name of environmental concerns alone.

The range of issues concerning environment and ecology is truly complex and bewildering. From the existing

economic structures to our consumption choices, tribal rights over natural resources to imperatives of economic development,common environmental resources of the mankind vs national priorities all have trade-offs and require choices to be madefor which there exists no consensus. The policy responses to these issues are often difcult to make and involve a long andarduous process of consultation with the stake holders at multiple levels. The multitude of movements, many of which arepolitical and some times violent also, centred around the issues of environment reect on the one hand the lack of consensuson these issue and on the other, the vibrancy and resilience of India as a democratic nation.

While we ponder over the issue of environment and sustainable ecology, we realise that the scale of transformationof nature by man has been unprecedented, its rate of change staggering. The great thinker and proponent of IntermediateTechnology E.F. Schumacher asserted that the problem of environmental deterioration is not just technical but it stemsfrom the life cycle of the modern world, its most basic beliefs-its metaphysics. We must realise the essential unity of theuniverse and the interconnectedness of the existence of all life forms, indeed all of nature. It is the time we adopted the

Zulu philosophy of Ubuntuwhich translates into You are, therefore I am.q

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NDIAS ATTEMPTS

a t i n t e g r a t i n g

e n v i r o n m e n t a l

sus ta inab i l i ty in toeconomic planning have

so far been piecemeal

and hesitant. They have done

little to stem the rapid slide

into ecological devastation and

consequent livelihood, cultural, and

economic disruption. At the root of

this lies the stubborn adherence to

a model of economic growth that

is fundamentally unsustainable

and inequitable, even more so in

its globalised form in the last two

decades.

The 12th Plan process could

have been an opportunity to change

course, especially given its explicit

commitment to sustainability,

inclusiveness and equity. Indeed

there are some glimpses of a different

approach, e.g. making economicactivities more responsible in

their use of resources and in the

wastes they produce, promoting

urban water harvesting and public

transport, providing organic inputs

to agriculture use, encouraging

recycling, making tourism more

Integrating Sustainability into Indian

Planning

ENVIRONMENTAL PLANNING

Ashish Kothari

POLICY

Peoples

movements,

civil society

organizations,

academic think-

tanks, and

progressive political

leaders will have

to lead the way,

both by resistingtodays destructive

processes and by

building on existing

alternatives

environmentally responsible

and community-based, moving

towards low-carbon strategies, and

protecting the commons (lands andwaters that are used by the public),

giving communities more secure

rights to use and manage these. Yet

the Plan falls far short of signicant

reorientation, mostly staying within

the confines of assuming that

more growth will help achieve

these goals. It does not use any

available framework of sustainable

development, including the targets

that India agreed to at the 2002

World Summit on Sustainable

Development (Johannesberg). It

does not contain indicators to gauge

whether India is moving towards

sustainability, e.g. improvement

in per capita availability of natural

forests, reduction in the levels of

various kinds of pollution, improved

access to nutritious food and clean

water, or enhanced availability of

public transport. Environmental

considerations do not yet permeate

each economic sector.

There is in fact a palpable lack

of urgency with regard to the

ecological crisis we are already

I

The author is Founder-member of Indian environmental group Kalpavriksh, and coordinated Indias National BiodiversityStrategy and Action Plan process, has served on Greenpeace International and India Boards, He is also the author or editor

(singly or jointly with others) of over 30 books, the latest a detailed analysis of globalisation and its alternatives.

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6 YOJANA June 2013

in. Natural ecosystems are under

stress and decline across most

of the country; some 10% of the

countrys wildlife is threatened with

extinction; agricultural biodiversity

has declined by over 90% in many

regions; well over half the available

waterbodies are polluted beyond

drinking and often beyond even

agricultural use; two-thirds of the

land is degraded to various levels

of sub-optimal productivity; air

pollution in several cities is amongst

the worlds worst; modern wastes

including electronic and chemical

are bring produced at rates far

exceeding our capacity to recycle

or manage. Annual EconomicSurveys of Government of India,

and the Ministry of Environment

and Forests annual State of

Environment reports occasionally

acknowledge the widespread

environmental damage; more is

found in independent reports such

as the State of Indias Environment

reports by Centre for Science and

Environment. A 2008 report bythe Global Footprint Network and

Confederation of Indian Industries

suggests that India has the worlds

third biggest ecological footprint,

that its resource use is already twice

of its bio-capacity, and that this bio-

capacity itself has declined by half

in the last few decades.

Economic globalisation since

1991 has significantly increased

rates of diversion of natural

ecosytems for developmental

purposes, and rates of resource

exploitation for domestic use and

exports. Climate change impacts

are being felt in terms of erratic

weather and coastal erosion, and

the country has little in the way of

climate preparedness especially for

the poor who will be worst affected.

Projections based on the historic

trend of materials and energy use

in India also point to serious levels

of domestic and global impact on

the environment, if India continues

it current development trajectory

modeled on already industrialized

countries.

One opening provided by the

2013 Economic Survey towards

redressing the situation is the

following paragraph: From

Indias point of view, Sustainable

Development Goals need to

bring together development and

environment into a single set of

targets. The fault line, as ever

in global conferences, is the

inappropriate balance between

environment and developmentwe

could also view the SDGs and the

post 2015 agenda as an opportunity

for revisiting and ne-tuning the

MDG framework and sustainably

regaining focus on developmental

issues.

Framed in 2000, the MDGss e t a m b i t i o u s t a r g e t s f o r

tackling poverty, hunger, thirst,

illiteracy, womens exploitation,

child mortality, disease, and

environmental destruction. They

are supposed to have guided the

developmental and welfare policies

and programmes of governments.

Countries are individually, and

collectively through the United

Nations, reviewing progress

made in achieving the MDGs.

Simultaneously discussions

have been initiated towards new

development frameworks that

could more effectively lead to

human well-being while ensuring

ecological sustainability. India too

needs to engage in a full-scale review

of its achievements (or failures),

which can become an opportunity

to work out a new framework for

the post-2015 process, best suited

to Indian conditions. Here are some

ideas on what such a framework

could look like.

Elements of a New Global

Framework

A fundamentally different

framework of well-being has to

be built on the tenets of ecological

sustainability, as much as of

equity. This is clearly pointed to

in the outcome document of the

UN Conference on Sustainable

Development (Rio+20) of 2012.

A new set of global goals could

include:

(1) E n s u r i n g e c o l o g i c a l

conservation and resilience,

and the basis of equitable access

to nature and natural resources

to all peoples and communities

(respecting natures own rights)

(an expansion of current MDG

7);

(2) Providing adequate andnutritious food for all, through

production and distribution

systems that are ecologically

sustainable and equitable

(currently part of MDG 1);

(3) Ensuring adequate and safe

water for all, through harvesting

and distribution systems that

are ecologically sustainable

and equitable (currently partof MDG 7);

(4) Safeguarding conditions for

prevention of disease, and

maintenance of good health,

for all, in ways that are

ecologically sustainable and

equitable (currently partly in

MDG 6)

(5) Providing equitable access to

energy sources in ways that

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are ecologically sustainable

(as much as technically and

economically viable) (currently

missing from the MDGs);

(6) Facilitating equitable access

to learning and education

for all, in ways that enhance

ecological sensitivity and

knowledge (as much as cultural,

technical, technological, socio-

economic, and other aspects)

(an expansion of MDG 2);

(7) Ensuring secure , safe ,

sustainable, and equitable

settlements for all, including

adequate and appropriate

shelter, sanitation, civic

facilities, public transportation

(currently partly in MDG 7,

partly missing)

In all the above, the special

needs of women and children

will need to be secured, through

rights-based and empowerment

approaches (currently in MDGs

3,4,5).

Such a framework needs tobe based on a set of universal

principles, including:

l The functional integrity and

resilience of the ecological

processes and biological

diversity underlying all life on

earth, respecting which entails

a realization of the ecological

limits of human activity, and

enshrining the right of natureand all species to survive and

thrive in the conditions in

which they have evolved.

l Equi table access of all

people, in current and future

generations, to the conditions

needed for human well-being

(socio-cultural, economic,

political, ecological, and in

particular food, water, shelter,

clothing, energy, healthy

living, and socio-cultural

sustenance); equity between

humans and other elements of

nature; and social, economic,

and environmental justice for

all.

l The right of each person

and community to participate

meaningfully in crucial

decisions affecting her/his/

its life, and to the conditions

that provide the ability for

such participation, as part

of a radical, participatory

democracy.

l Linked to the above, governancebased on subsidiarity and

ecoregionalism, with local rural

and urban communities (small

enough for all members to take

part in face-to-face decision-

making) as the fundamental

unit of governance, linked

with each other at bioregional,

ecoregional and cultural levels

into landscape/seascapeinstitutions that are answerable

to these basic units.

l The responsibility of each

citizen and community to

ensure meaningful decision-

making that is based on the

twin principles of ecological

integrity and socio-economic

equity.

l Respect for the diversity ofenvironments and ecologies,

species and genes, cultures,

ways of living, knowledge

systems, values, economies

and livelihoods, and polities,

in so far as they are in

consonance with the principles

of sustainability and equity.

l Collective and co-operative

thinking and workingfounded

on the socio-cultural, economic,

and ecological commons,

respecting both common

custodianship and individual

freedoms and innovations

within such collectivities.

l

The ability of communitiesand humanity as a whole, to

respond, adapt and sustain the

resilienceneeded to maintain

ecological sustainability and

equity in the face of external

and internal forces of change.

l The inex t r icab le in ter -

connectednessamongst various

aspects of human civilisation,

and therefore amongst anyset of development or well-

being goals: environmental,

economic, social, cultural, and

political.

A Framework for India

Following from the above, the

following goals would comprise

a new sustainability framework of

planning for India:

Macro-economic policy: The

macro-economic framework must be

radically altered to put ecological

sustainability, human well-being,

and socio-economic equity at

the core. This would include

development of macro-economic

theories and concepts that put at

their core the twin imperatives

of ecological limits and socio-economic equity. It would also

entail reorienting nancial measures

such as taxation, subsidies, and

other scal incentives/disincentives

to support ecological sustainability

and related human security and

equity goals. A long-term national

land and water use plan needs to

be framed, based on decentralised

and participatory processes. Also

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8 YOJANA June 2013

needed are human well-being

indicators, through appropriate

tools, to replace the current GDP

and economic growth-related

ones.

Political governance: Equally

important as above, a new polity isneeded. Principles and practice of

radical or participatory democracy

need to infuse all decision-making,

with the smallest rural and urban

settlements as the basic units,

and landscape level institutions

bu ilding on these. Panchaya t,

urban ward, and tribal council

institutions would need not only

strengthening but modificationsto ensure they are functioning

at these basic units in which all

residents/members can take part.

Ways to ensure accountability of

representatives (e.g. through right

to recall) at larger levels, upto the

national level, have to be built

in. An immediate step could be

creating institutions of independent

oversight on environmental

matters, such as an office of an

Environment (or Sustainable

Well-Being) Commissioner who

has a Constitutional status similar

to the CAG or Chief Election

Commissioner.

Safeguarding the natural basis

of life: The integrity of natural

ecosystems, wildlife populations,and b iod ivers i t y , mus t be

safeguarded, by reducing and

eventually eliminating resource and

biodiversity loss, and regenerating

d e g r a d e d e c o s y s t e m s a n d

populations. This would include

providing rights to nature and non-

human species in the Constitution;

expanding the coverage of areas

specially dedicated to or helping to

achieve biodiversity conservation

through fully participatory and

democratic means; integrating

conservation principles and

practices in land/water use activities

across the board, in both rural and

urban areas; and phasing out the

use of chemicals in agriculture,

industry, and settlements, that

lead to irreversible ecological

degradation and the poisoning of

wildlife.

Ensuring basic needs for

all: All people must have access

to safe and adequate resources

to fulfill basic needs, in ways

that are ecologically sustainableand culturally appropriate .

This includes safe and adequate

drinking water to all, largely

through decentralised harvesting

and distribution systems; safe

and adequate food to all, focusing

primarily on agro-ecologically

sound practices and localized

production/distribution systems

including localized procurementfor the Public Distribution System

and other food schemes for the

poor; unpol lu ted ai r and sa fe

sound levels for all; safe, adequate

and sustainable shelter/housing to

all, facilitating community-based,

locally appropriate methods;

energy security for all, optimizing

existing production sources and

distribution channels, regulatingdemand (denying, especially,

luxury demand), and focusing most

new production on decentralised,

renewable sources; and adequate

sanitation facilities to all families

and communities.

E n s u r i n g u n i v e r s a l

employment and livelihoods:

All fa mi lie s and commun iti es

must have access to dignified

livelihoods that are ecologically

sus ta inab le and cu l tura l ly

appropriate . This includes

encouraging natural resource

based livelihoods (forest-based,

sheries, pastoralism, agriculture,

crafts, and quarrying) that arealready ecologically sustainable;

replacing unsustainable, unsafe

and undignified livelihoods in

all sectors by dignied, green

jobs (which according to ILO

would yield more employment

than conventional sectors); and

investing heavily in livelihoods

relating to ecological regeneration

and restoration.

E n s u r i n g s u s t a i n a b l e

production and consumption:

All production and consumption

must be ecologically sustainable

and socio-economically equitable,

using a mix of incentives and

d i s i n c e n t i v e s . Th is means

c o n v e r t i n g a n d r e p l a c i n g

unsus ta inab le agr icu l tu ra l ,fisheries, mining, industrial,

and other production processes

to sustainable ones; ensuring

extended producer responsibility

for sustainability at all stages from

raw materials to disposal/recycling/

reuse, through incentives and

legislation; curbing unsustainable

c o n s u m p t i o n i n c l u d i n g

advertising that encourages suchconsumption (perhaps creating

an Above Consumption Line

measure as counterpoint to

Below Poverty Line measure;

encouraging innovations in, and

making mandatory the use of,

technologies of sustainability

including those that reduce

resource-intensity of products

and processes, and discourage

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YOJANA June 2013 9

(eventually eliminating) those that

are inherently unsustainable and

inequitable; and moving towards

a zero-waste society.

E n s u r i n g s u s t a i n a b l e

infrastructure:All infrastructure

development must be ecologicallysustainable and socio-economically

equitable.This entails integrating

practices of sustainabili ty into

existing infrastructure, replacing

unsustainable practices with

sustainable ones (e.g. focus on public

instead of private transportation);

and ensuring all new infrastructure

is built on principles of ecological

sustainability.

Ensuring sus ta inabi li ty in

services and welfare:All service

and welfare sectors must integrate

principles and pract ices of

ecological sustainability. Health

services should focus on preventing

ill-health due to environmental

degradation (e.g. unsafe or

inadequate food and water), and

on curative practices that are

ecologically sound (including

nature-based indigenous systems).

Local and wider ecological,

cultural, and knowledge systems

need to be integrated into education

policies and practices, ensuring that

ecological sensitivity becomes a

part of every subject. Tourism and

visitation need to be converted

to practices that are ecologically

sustainable, culturally appropriate,

and local community driven.

Each of these goals will contain

specic targets and actions, and

indicators to assess levels of

success and failure. A set of tools

are also needed that can help

in the assessments. There are

already several sets of indicators

and tools being used or proposed

around the world (including within

India), from which we could

develop a set of indexes that is

robust, relatively easy to calculate,

amenable to public understanding

and participation, and capable

of integrating complexity and

nuances. Some of the exciting

new work being done outside

India, such as the Happy Planet

Index proposed by the New

Economics Foundation, Bhutans

Gross Nat ional Happiness ,

Environment Vulnerability Index,

and others could be examined.

Tools such as Ecological/Carbon

Footprints, National Accountsof Well-being, Environmental

Accounting and Budgeting, and

so on could be combined to assess

progress towards sustainability and

equity. But this should not simply

become an exercise in numerical

target-setting, and mechanical

enumeration of what targets have

been met ; it needs to integrate

into a holistic vision that hassustainability, equity, and well-

being as its pillars.

Overcoming the hurdles

There are several hurdles to

achieving the above: inadequate

understanding of the impacts of

human activities on the environment,

continuing tension between various

knowledge systems hamperingsynergistic innovation, a political

leadership that for the most part lacks

ecological literacy, unaccountable

corporate and military power, and

a feeling of helplessness or apathy

amongst the general public.

If we are to surmount these

hurdles, we have to support and

learn from alternatives already

existing on the ground or in policy,

in India or globally. Information

already available on trends in

sustainability and unsustainability

should be collated, and further

information generated to ll gaps in

understanding. Public discussions

and consultations, involving allsections and in particular local

communities in rural and urban

areas, should be initiated on the

contours of a new framework of

well-being. Such a framework

should underlie the 13th 5-Year

plan.

Of course, this will not happen

if left to todays political and

bureaucratic leadership, though

undoubtedly their role is vital.

Most crucial is public and political

mobil izat ion and pressure .

Peoples movements, civil society

organizations, academic think-

tanks, and progressive political

leaders will have to lead the way,

both by resisting todays destructive

processes and by bu ilding onexisting alternatives. Partnerships

with similar sectors in other

countries will help.

India already has thousands of

initiatives at solving food, water,

energy, health and other problems

through sustainable means; it also

has crucial policy breakthroughs

like the Right to Information Act.

But these are dispersed and often

isolated, not yet forming a critical

mass sufficient to bring about

fundamental changes in the system.

A framework vision of the kind

outlined above is beginning to

emerge from, and could help bind

together, these currently dispersed

processes. q

(E-mail :ashishkothari@vsnl.com)

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RECALL MY first

national publication

in Yojana in June

1993 issue whichr e v i e w e d t h e

efcacy and status of

Indias environmental legislation,

following the strategic article

by then Prime Minister Late Sri

Narsimha Rao depicting the concern

on environment and extrapolating

it for sustainability of economic

growth. India has a prestigious

history on environmental fronts

be it the Stockholm Conferencein 1972 which was attended by

Late Smt. Indira Gandhi, or the

UN Conference on Environment

and Development, 1992 at Brazil

where Indias contribution and eco-

concerns also gured in shaping the

historic Agenda 21. It was in 1991

that the Honble Supreme Court

issued a directive for compulsory

environmental studies in allundergraduate programmes in the

country. It is regretable that it hasnt

been uniformly implemented even

with the passage of two decades.

In another article on environmental

policy concerns in Yojana in 1996

February, I tried help prioritize the

issues for immediate concerns.

Climate Risk: Critical Challenges

ENVIRONMENT AND SUSTAINABLE ECOLOGY

Anil Kumar Gupta

CHALLENGES

No model ofeconomic growthcan sustain for

long if it doesntrespect ecology inlocal and regionalcontext, and at

the same time theenvironment asbroad concern

including theinter-relationships

of natural,human-made and

socio-culturalenvironments

There are signicant efforts to

promote green cover in urban areas

with noted success, but at the same

time vast tracts of natural greencover of forests and rural areas have

been lost owing to increasing biotic

pressure, low regeneration and

devastating side effects of poorly

planned developmental projects.

India has a new water policy of

2012 now, but without subjecting it

to a formal system of environmental

assessment , despi te having

globally accepted tool strategic

environmental assessment (EIAof policies and plans) in practice.

I wrote in Yojana May, 2000 on

water policy and integrated water

management calling for a system

approach, which in turn also calls

for coherence of water, land, energy

and forest related policies with

the broad environment policy.

Fortunately the environment policy

of 2006 at least mentioned this.The recent reinforced calls at

global level to integrate disaster

risk reduction and climate change

issues within the broad umbrella

of environmental management for

sustainability and inclusive growth

has attained momentum with the

UN led Partnership of Environment

I

The author is Senior Associate Professor of Policy Planning at National Institute of Disaster Management, New Delhi, and

President of Centre for Disaster Management, Environment and Sustainability, New Delhi.

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12 YOJANA June 2013

and Disaster Risk Reduction (UN-

PEDRR).

Climate Risk and Indias

Environment

Whereas many regions are

likely to experience adverse effects

of climate change of which some

are potentially irreversible, in some

cases certain impacts are likely to

be benecial as well. The World

Bank Study entitled Managing

Cl ima te R i sk : I n t eg ra t i ng

Adaptation into World Bank Group

Operations identied the result of

environmental changes in South

Asia as following:

l Decreased water availabilityand water quality in many arid

and semi-arid regions

l Increased risk of floods,

droughts, and water borne

diseases / epidemics

l Reduction of water regulation

in mountain habitats

l Decrease in reliability of

hydropower and biomass

production

l Increased damages and deaths

caused by extreme weather

events

l D e c r e a s e a g r i c u l t u r e

productivity, in sheries and

sustainability of ecosystems

The World Bank interpreted the

consequences of these impacts in

form of severe economic shocks,which will exacerbate existing

social and environmental problems,

and migration within and across

national borders.

So far most policy interventions

related to climate change were

mitigation centric and broadly

based on geophysical parameters.

However, the focus is now

shifting towards vulnerability

reduction centric and adaptation

approach which at the same

time facilitates climate change

mitigation-adaptation convergence

with disaster risk reduction. The

Millennium Ecosystem Assessment

(2005) that emphasized livelihood

and food security as key challengesof human vulnerability is an insight

to understand the significant

efforts of Intergovernmental Panel

on Climate Change (IPCC), in

particular the 4thAssessment Report

and the recent Special Report on

Extreme Weather Events (SREX)

to draw the concerns for South Asia

and more particularly for India.

A 4x4 assessment of climate

change impacts on India, organized

by Ministry of Environment &

Forests (2010) has concluded with

serious concerns on impacts on

agriculture, water security, health

and forests, more particularly in

Himalayan region and coastal areas.

The impacts have been observed in

terms of changing rainfall patterns,

intensity, number of rainy days,hottest and coldest days, hot/cold

waves, sea level rise, cyclonic

storms, etc., whereas improper

land use coupled with ecological

degradation has aggravated peoples

vulnerability to these climatic and

the other geophysical disasters like

earthquake, landslides, etc.

Besides the availability concern,

quality of water (be it ground

or surface waters) is critical in

health and agriculture. Air quality

is deteriorating despite the

efforts governments made over

past decades. Waste management

situation in many cities of the

country has improved but is far from

satisfactory, and urban flooding

has become a common annual

menace.

Ecosystem Services: Economy

and Livelihoods

The environmental problems

in India are growing rapidly. The

increasing economic development

and a rapidly growing population

that has taken the country from300 million people in 1947 to more

than one billion people today is

putting a strain on the environment,

infrastructure, and the countrys

natural resources. The Global

Assessment Report on Disaster Risk

Reduction: Risk and Poverty in a

Changing Climate (2009) identies

ecosystem decline as a key driver

in exacerbating natural hazards in

the future. Indian economy is likelyto grow at 6.4 per cent rate in 2013

outpacing the 6 per cent expansion in

developing Asia-Pacic economies

in the same period. However, the

current projected growth is below

its own pace of the past. The global

economic slowdown starting 2008

has made us to review on the

limitations our ecological systems

and non-renewable resourcespose to our economic growth. We

need to analyze our scal balance

sheets again for expenditures on

managing the challenges arising as

a consequence of environmental

degradation on different time-

scales.

India is now the worlds third

biggest carbon dioxide emitting

nation after China and the US. Thenew emission data from the United

Nations published in early October

2010 is a probable cause of worry

for Indias climate negations in

the future. The ecosystem based

approaches for adaptation and

mitigation are the noble options

we still have. We need to evolve

approaches where we have

mitigation values for the adaptation

options and strategies as well,

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YOJANA June 2013 13

and at the same time disaster risk

reduction as the benet. We have

not only spoiled our wetlands and

river systems, but the entire land-

soil system, making it chemical

intensive in its composition in quest

of immediate high returns.

Green revolution was needed

as India then needed food to feed

the people. Now the concept

of 2nd green revolution has to

be built up with great caut ion

and concerns for sustainability.

Natural resource related activities

form major livelihood for Indias

population. Land, water and

bio-productivity cannot be dealt

in isolation. The MillenniumEcosystem Assessment (2005)

refers to natural systems as

humanitys life support system

providing essential ecosystem

services for existence and socio-

economic well being. Twenty four

services are classied under major

four categories:

a) Provisioning services, the

material that people extract

directly from ecosystems such

as food, water, and forest

products;

b) Regulating services, which

modulate changes in climate

and regulate oods, drought,

disease, waste and water

quality;

c) Cultu ral servi ces, which

consists of recreational

(tourism), aesthetic andspiritual benets, and

d) Supporting services, such as

soil formation, photosynthesis

(food production, oxygen

generation) and nutrient

recycling.

Human Security and Disaster

Management

The World Summit on Social

Development (2005) noted the

reconciliation of environmental,

social equity and economic

demands as the three pillars of

sustainability. An imbalance in one

or more of these may exacerbate the

impact of a natural or impending

humanitarian crisis, resultingin a disaster like situation. The

challenges of naxalism may be

understood in ecological terms of

forests, people and livelihoods,

which due to our failure to address,

have grown up to emergent state in

such areas. Environmental refugees

from the regions affected by

natural calamities, insurgencies, or

due to developmental interventions

like in case of large dams, or

migrants for livelihoods are one

of key humanitarian concerns

worldwide as well as in India.

Poor , down t rodden and

marginalized people, landless,

or those occupying low cost but

hazardous locations for their housing

and occupations, are the ones most

and worst affected by natural

disasters like earthquake, oods,

drought, cyclone and diseases.

Relationships between environment

and disasters are inextricable. We

need to understand the ecology

of conicts, vulnerability, human

behavior, and thereby of the

disasters, for their effective and

preventive management.

It is worthwhile to mention

that our initiative in India during

2008-9 on integrated environment

and disaster risk management,

when noticed by the United

Nations Environment Programme

(UNEP), was followed by a high

level meeting at the UN Campus

Bonn in Germany, to evolve a UN

Partnership of Environment and

Disaster Risk Reduction. First

capacity building programme on

Ecosystem Approach to Disaster

Risk Reduction (ecoDRR) was

piloted in Sri Lanka and followed

by New Delhi in 2011 itself. Recent

release of Disaster Management

and Risk Reduction (2013) as

follow up to the Government of

India publication (NIDM) onEcosystem Approach to Disaster

Risk Reduction (2013), that related

to United Nations University

(UNU) bringing a special volume

entitled Role of Ecosystems in

Disaster Risk Reduction.

Issues of Critical Concern

Looking to the present state of

Indias environment and contextof climate-change, disasters

and corporate environmental

governance, following issues have

been identied for critical concern

in academia and policy planning:

1. N a t u r a l d i s a s t e r

management: Number of

natural disasters continue to

rise in India and the region,

with heavy toll on human lives,environment and economies.

Losses due to water and climate

related disasters far exceed

that of purely geophysical

ones. On the other hand,

chemical intensive economic

development has increased

the risk of industrial-chemical

disasters. Disaster management

needs to be a priority subject

for intervention as it has greathumanitarian aspects.

2. Environmental-Health:

Despite theneed, the aspects of

environmental health including

those related with water,

sanitation, waste management,

t o x i c o l o g y , h a s b e e n

inadequately addressed due

to lack of policy intervention.

We need to have integrated

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14 YOJANA June 2013

policy direction on preventive

and social health issues in the

country.

3. Natural Resource Systems:

Be it a river, a wetland, forest,

land or soil, urban area or a

crop field, the management

of natural resources need to

be evolved with consideration

of these as system and with

the scientic understanding of

resource rather than treating

them primarily as source.

4. Environmental liability:

E n v i r o n m e n t a l p o l i c y

implementation cannot be

effective unless the concept of

absolute liability is enforcednot only in context of industrial

hazards or pollution but equally

in relation to ecosystem

integrity, sustainability and

natural resources. Liability

should be integrated with

accountability and must also

include the Government,

monitoring agencies and

decision makers.5. State/District Environmental

Action Plans: We have

Nat ional Environmental

Protection Act (1986) but could

not regulate the mandate for

environmental action plan at

state, district and local levels.

This is an emergent need. Plan

should have a time frame,

6. EIA and SEA improvements:E n v i r o n m e n t a l i m p a c t

assessmentis an effective and

noble instrument of policy

and legal enforcement but,

however, is under question in

India due to its marketplace

image. It requires scientific

and academic community

to come forward together

to intervene and take up

research studies on validation

of such reports. Another

approach where EIAs are

done by Government agencies

responsible for decision making

may also be thought of, but

with xing accountability for

their interpretations. Strategic

Environmental Assessment(SEA) is a recognized tool for

environmental screening of

policies, plans and programmes

in practice in particular in

advanced countries. On

initiative of UNU and UNEP,

we have worked out a protocol

for EIA and SEA application

in disaster management.

Recently, Sri Lanka carried outan SEA of its North Province

before launching post-conict

developmental plan. We need

to learn and evolve to scrutinize

our economic and other

strategic decisions for their

impacts on different aspects

of environmental quality and

resources.

7. Environmental Audit :Environmental audi t in

mandatory terms is a formal

procedure in India, except big

industries and corporations

conducting detailed audits

voluntarily. Practice of

comprehensive environmental

auditing must be compulsory for

all industries, establishments

including housing complexes,municipalities, and institutions

with signicant water, energy

and material balance or

involving hazards.

8. N a t u r a l R e s o u r c e

Accounting: The concept and

practice of natural resource

accounting or green accounting

was mooted and pilot studies

undertaken during 1990s.

However, the practice didnt

continue to grow. The concept

of green accounting and green

GDP must be integrated

with nat ional and s ta te

environmental action planning

as well as with developmental

planning.

9. Economic evaluation of

environmental impacts: In

the absence of proper economic

evaluation, environmental

impacts and hazards are

not given due importance

in planning and decision

making. For example, the

environmental damages and

losses due to disasters andenvironmental needs following

a disaster situation havent

been evaluated on economic

terms. This results in their

undermining. The practice of

ecological economics needs

to be promoted in research,

planning and monitoring of

developmental plans and

policies.10. Ecological Auditing (Eco-

Audit): This is rather a new

tool, extended from the

principle evolved a decade

ago. This focuses on auditing

of natural resource systems

and environmental quality

aspects on ecosystem approach.

This takes into account the

ecosystem capacities, services

and related sustainability

parameters in the context of

internal, external and human-

induced factors.

Revisiting Economic Growth to

Sustainability

Sustainability is the capacity

to endure. In ecology it describes

how biological systems remain

diverse and productive over time.

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YOJANA June 2013 15

For humans, sustainability is the

potential for long-term maintenance

of well being, which has ecological,

economic, political and cultural

dimensions. Healthy ecosystems and

environments are necessary to the

survival and ourishing of humans

and other organisms. Chennai basedCentre for Development Finance

has developed Environmental

Sustainability Index 2011 for

Indian states considering the

achievements, challenges, priorities

and present state of environment.

The study found the north-eastern

states as most sustainable whereas

the least sustainable states are

Bihar, Haryana, Gujarat, Punjab,

Rajasthan & Uttar Pradesh.

Poverty, disparity and inequality

are key factors that aggravate

peoples vulnerability to hazard

be it of a natural, human-induced,

technological or socio-political

origin that may result in a devastating

situation or crisis. These factors are

in turn aggravated by ecological

deprivation and poor management

of natural resources, coupled with

infrastructure disparities brought in

by the techno-scal intensication.

No model of economic growth can

sustain for long if it doesnt respect

ecology in local and regional

context, and at the same time the

environment as broad concern

including the inter-relationships of

natural, human-made and socio-

cultural environments. Unless weunderstand the ecological basis of

conflicts and evolution of local/

regional terrorism, we often fail to

nd sustainable ceasere solutions.

Alternative models of sustainable

land use economies need to be

worked out taking care of climate

change adaptation and disaster risk

concerns as well.

Sustainability interfaces with

economics through the social and

environmental consequences of an

economic activity. Sustainability

economics involves ecological

economics where socio-cultural,

economic and health-related aspects

are integrated. Now, in the times

when we are calling for Integrateddistrict planning process, we

need to evolve the models and

protocols for ecological compatible

integrated planning at state, district

and local levels. At the same time,

it is important to recognize the

ecosystem relations between urban,

rural and industrial development

planning. Figure 1 shows economics

as a function within social arena of

the environment as recognized

by Scott Cato (Green Economics,

2009, Earthscan). Adams (2006)

enumerated the pressure balance

among environment, economics and

social functions under a sustainability

framework (International Union for

Conservation of Nature, Figure 2).

However, environmental economics

new focus is on the economic

valuation of ecosystem services

in immediate and long-term

parameters that helps understand

need for ecological sensitive

developmental planning process.

In India as well, the concept of

Green GDP is upcoming which

should help promote sustainability

concerns into developmentaleconomics as well.

N a t i o n a l E n v i r o n m e n t a l

Protection Agency

Disaster management is a state

subject, whereas environment

is a broad concern divided and

shared between central, states and

concurrent lists, in the schedules of

Indias Constitution. In most casesStates enjoy the powers delegated by

Central Government. Therefore, an

apex agency should not be only an

authority to develop broad policies

and guidelines but also its own

standards, and need to be responsible

and accountable for their proper

and effective implementation at

the ground levels as well. We need

to learn from the United States

model of Environmental ProtectionAgency. Pollution Control Board

concepts are obsolete and need to be

abolished to bring a cultural change

in environmental management, by

replacing it with Environmental

Protection Agencies with a uniform

institutional framework at State,

district and Urban local bodies

level. It is also important that a

standard ratio of scientic, technical

and social experts is maintained in

these agencies at all the levels.

Policy Interventions: National

Environmental Council

Broad Paradigm Shift is needed

from fragmented and spontaneous

response or wait until emergent

approach to accountability and

liability based proactive culture of

prevention and infused mitigation

Figure 2: Sustainability challenge is of

the balance in a win-win mode

Figure 1: Economy as a function within

society and environment

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16 YOJANA June 2013

approach on environmental

protection affairs including

climate-change, natural disaster

management, chemical safety,

environmental health and overall

natural resource management

system. Prime Ministers Council

of Climate Change may be renamedas Prime Ministers National

Environmental Council offering

an umbrella coordination of

Ministries like Environment and

Forests, Earth Science, Science &

Technology, environment related

divisions of DST, ICAR, ICMR,

DBT, CSIR, ICFRE, ICSSR, UGC,

National Biodiversity Board, etc.

and international organizations

like UNEP, IPCC, WMO, WHO,

UNDP, UNESCO, etc.

Development and promotion of

environmentally compatible models

for inclusive growth and sustainable

economic development at village,

taluka and district levels may be a

key objective. Intensive and effective

drives of capacity building and

awareness shall be needed to attain

its objectives. A policy guidelineon environmentally compatible

integrated district-planning need

to be developed. It is ironical to

note that India as a country 'though

loud enough in global platforms

of Stockholm and Rio de Janeiro'

has missed to represent ecology

in its constitution of strategic

and planning organizations like

Planning Commission, NationalDisaster Management Authority,

National Investment Agency, etc.

The time has come when we need

to be sensitive to own long-term

sustainability and feel accountable

for all our deeds.

Education and Research

Environmental research in the

country is fragmented with much

of duplicacy, gaps and sometime

with conflicting conclusions.

The proposed National Council

and National University may be

mandated to share the strategic

responsibility of organizing and

coordinating with the relevant

agencies a broad network forum

to avoid these challenges. Someof the states/UTs have integrated

their science & technology councils

with environment, and is a welcome

move. University and college

curriculum of environmental

studies need to be diversified

to meet specialized needs for

professionals on its sub-disciplines,

viz. environmental health, system

ecology, climate change, disaster

management, EIA, law & policy,

environmental economics, industrial

hazards, etc.

Education and training in

environmental studies need be

diversied with specializations at

University/college levels to focus

on emergency issues and challenges.

Our experts and Governments

have taken a great steps towards

environmental awareness of themasses including college youth and

children, but could not mandate

a compulsory orientation of our

legislators and Government ofcials

of all levels including sub-district

and local levels who built up the

administrative priorities of the

governance. This is one reason of

increasing conicts between public

or civil society and Governmentas their perceptions do not match

at all.

N a t i o n a l U n i v e r s i t y o n

Environment and Sustainability

For more than two decades,

there has been a demand for a

central institution on environmental

research and training which at the

same time shall award degrees

and professional certification in

the areas of environment. In the

present times, when disasters,

climate change and health risks are

emergency challenges, a National

University on Environment and

Sustainability Studies (UNEST)

need to be established by the

Central Government to caterthe needs of quality research,

training and education leading to

masters and research degrees, and

will extend advisory support in

assessments, planning and policy

making. The institute may be

mandated also to host a forum

for organizations and institutions

working on environment, climate

change and disaster management

issues in the country, to facilitate

exchange of knowledge, skills, and

professional value addition.

University Grants Commission

has supported Universities and

institutions on innovative course

and research programmes on

concurrent issues in environmental

sciences and notified a model

curriculum on disaster management

for all undergraduate course in thelines of compulsory environmental

studies. Ministry of Environment

and Forests and Ministry of Earth

Sciences have also schemes

to support environment and

climate research. United Nations

Environment Programme has

expressed concern in promoting

the ecoDRR curriculum in Indian

Universities which has alreadybeen included in other countries.

Recently, UNESCO has established

a high level academic institute,

first in Asia, Mahatma Gandhi

Institute of Environment, Peace and

Sustainability which will organize

and conduct courses and research

on environment, climate and

disaster related issues of Asian

concern. q

(E-mail : envirosafe2007@gmail.com)

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YOJANA June 2013 17

YE

-45/2013

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18 YOJANA June 2013

FEDERAL SET up

is considered to be

an optimal form

of government asi t combines the

strength of a unitary

as well as a decentralized form

of government. The essence of

federalism lies in proper division

of powers and functions among

various levels of government

to ensure adequate financial

resources to each level of

government to enable them to

perform their exclusive functions.

In a federation, both developed and

underdeveloped federating units

find it advantageous to remain

within a federation due to various

reasons like unied market facility,

security and nancial cooperation.

In India, federalism has evolved

from a highly centralized system

under the British regime-Lord

Mayo nancial resolution of 1871,

to a three-tier form of federation.

Evolution of Centre-States

Relations

The present federal scal system

has not evolved in a day or two but

over a long period of time starting

from the late eighteenth century.

Changing Dynamics of Centre-State

Financial Relations

CENTRE-STATE RELATIONS

Pravakar Sahoo

Amrita Sarkar

SPECIAL ARTICLE

India has evolveda noble kind of

federation whichis completely

different from theaccepted notion

of federation. Theevolved Indian

federalism is very

unique in characterand the Union-

state relationshiphas also becomeextremely complex

over the years

Though the Government of India

Act-1919 was a major breakthrough

in the history of evolution of

fiscal federalism in India, theGovernment of India Act-1935

established a clear-cut demarcation

of subjects coming under the

Centre, States and, both Centre

and States. With the independence

of the country, the federal status

of India underwent a fundamental

change with clear division of

nancial powers and expenditure

responsibilities between Centraland State governments in the

Seventh Schedule of the Indian

constitution.

The undivided Indian National

Congress under Nehru (1947-66)

in the rst two decades led to a

strong central leadership and the

Centre developed the concept

of a patriarch controlling the

Indian federation. The Centre-staterelations were simply a reection

of relations between the state

branches of the congress party and

its central leadership. However,

over the last 60 years many changes

have been incorporated in the

Indian federation through different

const i tut ional amendments ,

A

Pravakar Sahoois an Associate Professor, Institute of Economic Growth, Delhi University. Amrita Sarkar is an intern withthe Institute of Economic Growth, Delhi.

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YOJANA June 2013 19

changes in criteria for devolution

of resources etc to fulfill the

objectives of scal federalism viz.,

reducing fiscal imbalances and

ensuring provision of equal level

of public services like education,

health etc across all states at

similar rate of taxes.

The most important aspect of

scal federalism is the division of

resources and functions between

different levels of governments.

The existence of scal imbalances

i s inherent in most of the

federations since the division of

resources goes in favour of the

central government to achievethe objectives of stabilization and

distribution. Similar is the case

of Indian federalism where there

is a mismatch of resources and

expenditure responsibilities at

different layers of government.

Though inter-governmental

transfers take place to reduce scal

imbalances and provide average

level of public services across the

sub-national governments, there

exist scal imbalances and regional

disparities across the states even

after 60 years of independence.

The transfers from Centre to

States take place through three

channels, namely, Union Finance

Commission (UFC), Planning

Commission (PC) and Central

Ministries, of which the transfers

from FC are predominant. Gross

devolution and transfers (GDT)

comprises of States share in

central taxes (SCT), grants-in-aid

and gross loans from centre. Gross

Transfers to the states have been

rising over past decades except for

a dip in 2011-12.

T h e U F C a n d P C t a k e

equalization as the most important

general objective while making

federal scal transfers. Thereforeas required from time to time,

different UFCs and PCs keep

changing the method of federal

fiscal transfers to ensure the

objective of equalization. Different

approaches by different UFCs

have differential impact on the

resource transfers to the states.

The tax sharing is based on the

general criteria like population,

geography, backwardness, poverty

ratio, inverse per capita income,

distance formula, revenue gap

etc. After the seventh FC, the high

(almost 90%) weightage given

to population has been gradually

lowered and alternative measures

such as inverse formula and distant

formula have been given more

importance in sharing both income

and union excise duties. However,

these criteria have been multiplied

by the scale factor population

thereby giving more importance

to population.

The dependence of states on

Central transfers varies depending

on the capacity of the states to

generate own resources. For

high income states it varies from

one-fourth to one-sixth of their

revenues, for middle-income statesbetween one-third to one-fifth

(except for Chhattisgarh and West

Bengal where dependency is much

higher, almost 40-50%) and for

low-income states it is quiet high

ranging from 42-80%. In case of

Special Category States, these

Central transfers are very high

varying from 64.98% to almost

93% of their revenue receipts.

Haryana is the least dependent

State on central transfers, followed

by Punjab, Maharashtra, Gujarat

and Goa. Given the need of the

states, FC has been trying to

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July

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August (Special Issue)

InclusiveDemocracy

July 2013&

August 2013

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20 YOJANA June 2013

transfer more resources to the

States. For example, the share

of the States in the net proceeds

of central taxes and duties have

increased from 29.5% in 11th FC

to 32% in 13thFC.

Issues between Centre andStates

With the inception of economic

reforms in 1991, the responsibility of

the States has gone up substantially

in meeting the increasing need of

the basic services of the people.

Over the years, the centre has

become stronger in terms of higher

revenue potential while states got

burdened with greater functional

responsibilities in the areas of

education, health, economic

and social infrastructure, social

security and welfare. This has

increased vertical scal imbalance

and a l so hor izonta l f i sca l

imbalances due to differential

performance of the states during

post-reforms period. As a result

inequality across the states andwithin the states has increased

with respect to providing public

services. Further, the enactment of

Fiscal Responsibility and Budget

Management Act (FRBMA) by

the Centre which directs States

to bring in discipline in the

management of public finances

has added pressure, particularly in

improving productive assets of thepoorer States. The scal discipline,

though necessary, has resulted

in decline in the share of capital

expenditures in most of the states,

particularly backward states. As

States are depending more and

more on market borrowing on the

face of declining central loans to

states that has led to reductions of

the tenure but increased the cost

of borrowing and worsening state

debt burdens.

I n c e n t r a l g o v e r n m e n t

transfers/assistance, over the

years, a substantial amount of

resources has been transferred

by the Planning Commissionand other ministries in which an

element of discretion exists. It

has been observed that there has

been increase in discretionary plan

grants in plan transfers through

Central Plan Schemes (CPS) and

Centrally Sponsored Schemes

(CSS) instead of increase in State

Plan Schemes (SPS). But more

plan grants under the state plan

schemes would ease the burden on

the states resources and at the same

time enable them to have more of

free outlay to allocate resources

according to States priorities.

The UFCs schemes of scal

transfers over the years, held

to serve the dual objectives of

equity and efciency within the

framework of scal consolidation,have been unable to ensure a fair

distribution of resources between

Centre and States and among

the States leading to increasing

regional disparities. This regional

disparity has been the basis

of formulating the horizontal

devolution (across states). The

intra-state disparity on the other

hand has been an area which lacks

in-depth research and opinion is

divided on whether FC should

consider this dimension of disparity

while designing the Centre-state

transfers. Given the varying

taxable capacity across states and

high revenue expenditure (almost

80% of total expenditure) with

rigid components like subsidies,

pensions, salaries, wages, interest

payments, UFCs keep a portion

of the revenues from union excise

duties to distribute exclusively

to the net decit states even after

devolution of taxes and grants-in-

aid which is an encouraging step,

particularly for backward states.

Generally, population andgeography are considered as the

most important criteria for tax

devolution as it is perceived to be

the most important indicator of

the general need of a state. This

approach is justied when there are

very insignicant differences in

area, distribution of population and

per capita income among states.

But, there are signicant differencesin these indicators among the

States in India. Keeping this

problem in view, more weightage

has been given to distance and

inverse formula in last few UFCs

but population has been used as the

scale factor. This high weightage

given to population may not result

in more transfers to states which

are underdeveloped and having

low population. The central plan

assistance is being given on the

basis of Gadgil formula (changes

have been made since nineties),

which takes population, per capita

income, tax efforts and special

problems into account. The criteria

such as fiscal performance, tax

efforts, prudent scal management,

and elimination of illiteracy and

successful implementation of land

reforms etc over the time have not

helped states with differential scal

and administrative capabilities.

Decentralization Issues

Following the 73rd and 74th

Amendments to the constitution,

Ind ia has become a th ree-

tier multi-level federalism.

Along with Central and State

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YOJANA June 2013 21

Governments, India has 2.5 lakh

local governments, comprising

over th ree mi l l ion e lec ted

representatives which makes

India the largest democratic and

federal country. The signicance

of the local bodies is measured in

terms of the percentage of local

governments to total public sector

expenditure and share of local

government expenditure to GDP.

Compared to other countries in the

world, India stands at the lower

end of the spectrum with a share

of local governments at only 5.1%

of total public sector expenditure

(Brazil-15%; OECD-20 to 30%).

In fact this share has declined byover 20% in last ve years (from

6.4% in 1998-99). The constitution

spells out the task to the State

Fiscal Commission (SFCs) to

provide recommendations for the

PRI institutions, both urban and

rural, so that the consolidated fund

can be augmented accordingly.

However, it appears that most

SFCs do not take their instrumentalrole seriously in helping to provide

the said services and in laying

the foundations for participatory

democracy in the country.

All UFCs have indicated several

shortcomings and omission and

commission of the SFCs. The main

reasons are non-synchronization of

the period of recommendation of

SFCs and UFCs; lack of clarity in

respect of the assignment of powers,

authority and responsibilities of

the local government; absence

of time limit to take appropriate

action; etc. The 13 th UFC has

made a signicant change in the

devolution of resources to the

third tier by assigning a share of

the divisible tax revenue. This

share is on an average 1.93% of

the divisible pool of taxes for the

period 2010-15. However, this

devolution is a weak surrogate to

cover up the failure of 13thUFC to

employ a comprehensive measure

of decentralisation. The criticism

of THFC is the use of Census 2001

numbers for calculating populationshares of local grants-in-aid.

Though there is no substantial

information available about the

administrative and financial

efciency of the PRIs in the state

to carry out the responsibilities,

it is generally believed that PRIs

cannot function on their own

due to lack of administrative and

infrastructural facilities. Given the

expenditure decentralization ratio

and revenue mobilization by PRIs

in the state, local bodies are not in

a position to carry out the assigned

expenditure responsibilities. Since

the amount of grants and share

in the taxes given through SFCs

is very low, central government

needs to transfer more funds to

the consolidated fund of the Stateto fulfill the needs of PRIs. At

the same time, as more and more

of the states expenditure of the

rural/urban local government

is met by transfers from central

government the autonomy of the

states diminish likewise showing

clear signs of the dependency

syndrome. The magnitude and

trend of the percentage of the

central transfersto expenditure of

the local bodies in 2007-08 for a

few of the states are as follows :

Andhra Pradesh 51.8%; Assam-

87%; Bihar 90.7%; MP-65%;

Orissa-71.6%; Tamil Nadu- 39.4%

and West Bengal 47.8%.

Regional Disparity

There is wide variance in the

provision of basic services like

education, medical and other

infrastructural facilities leading

to discrepancies in major socio-

economic indicators like literacy

rate, infant mortality rate, poverty

ratio, and life expectancy etc. For

example the highest IMR (per

1000 births) can be seen in lower

income states such as Madhya

Pradesh (2009) 67, Orissa (65), UP

(63), Assam (61), Rajasthan (59)

respectively where as it is much

better in middle income and higher

income states. Similar is the case

of life expectancy and maternal

mortality rate. A few states were

able to attract investment (both

domestic and foreign) and do

better due to market reforms

as well as their fiscal abilities

to provide incentives and other

utilities during post reforms period.

Moreover, substantial changes in

sectoral origin of income without

appropriate re-distribution of

population has created inequality

both across the states and also

within the states. Infact, Indiais currently in the first phase,

the phase of increasing income

inequality, of the inverted U of

Kuznets curve. Therefore the role

of central transfers to states is very

important for ensuring provision

of public services at a similar

rate of taxation. It seems that the

central transfers or centre-states

financial relations has not beenvery successful in fullling the

the main objective .i.e. to ensure

equal provision of public services

across sub-national government by

reducing scal imbalances.

13thFinancial Commission

With the increasing inequality

and requirement for f iscal

discipline and macroeconomic

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22 YOJANA June 2013

stability, the scope of the 13 th

UFC was much wider than any of

the preceding UFCs. Besides the

usual tax devolution and grants to

ll the gaps in non-plan budgetary

expenditure, it was expected to

recommend several other grants

for local bodies, grants dealing

with environmental and non-

environmental issues, and also

design and implementation of the

GST. It has placed the centre and

more so, the states, in a multitude

of conditions to micro-manage

their scal system. These include

scal consolidation, disaster relief,

design and implementation of GST

and specific problems accruing

to specific states. If properly

implemented, the conditionalities

can be very effective in rationalizing

the spending priorities of the States

to ensure provision of minimum

amount and standard of public

services. However, complying and

enforcing the conditions is a major

challenge and some states have

questioned the conditionalitiesin terms of their scal autonomy.

THFC has enhanced the vertical

devolution from 30.5% to 32%

of the divisible pool of taxes.

The horizontal distribution of

this transfer is categorized as

area (10%), population(25%),

scal capacity(47.5%) and index

of scal discipline(17.5%). Even

after attaching high weights toscal capacity index, the horizontal

formula has failed to increase

aggregate share of devolution to

low-income states, which remains

stagnant at around 54% over the

period of past three UFCs. This is

while the shares of middle-income

states have declined from 29.28%

in 11thUFC to 25.8% in 13thUFC

and share of high-income has

increased from 9.75% to 11.19%

during the same period.

W i t h t h e o b j e c t i v e o f

maintaining long term stability

in the relative share of centre

and states in the total revenues,

13th

UFC have set the target fortransfers from all sources at 39.5%,

marginally higher than the 12th

FC (38%) which would be close

to 4% of the estimated GDP.

The centre is receiving huge

revenues from sources such as

telecom auctions of which the

states get no share. There is also

increase in the number of centrally

sponsored schemes involvinghuge expenditure which exceeds

the set limit. All this is going to

reduce the relative share of the

states sharply (Rao, 2010). The

approach followed by 13th UFC

is not very different from the past

UFCs as the recommendations are

made on the basis of projections

made on actual revenues and non-

plan revenue expenditures on abase year rather than estimating

the scal capacities and the needs

of the state for determining the

transfers, which is not right.

Deviating from past UFCs,

13 th UFC estimate entitlements

based on scal capacity accords

the factor a weight of 47.55 of the

total estimation. This approach

does not solve the issues regardingthe earlier gap-lling approach

and in fact has both conceptual

and methodical glitches. The

arguments given by 13th UFC in

this regard are not convincing and

it could have done well by using

a better measure of scal capacity

than simply taking the average

tax-GSDP ratio of the state as the

norm (Rao, 2010).

The objective of the transfers

is to enable the states to provide

comparable levels of services

at comparable tax rates. But the

13thUFC does not make enough

efforts to fulll this criteria and

in fact continues with the gap-

lling which has in the past always

affected the equity and incentives

of the states adversely. Unlike the

recommendation of 12th UFC of

debt write-offs and rescheduling

linked to scal adjustment, 13th

UFC conditions on the states do

not entail any incentive payments

except in the case of those that

did not pass scal responsibility

legislation as required by 12thFC.Thus there is a issue in design and

implementation.

Further, the 13th UFC report

and recommendations have been

criticized on many grounds. 13th

UFC has recommended different

scal adjustment path for Kerala,

Punjab, and West Bengal which

are states with high scal decits.

Among the 11 special category

states, different scal adjustments

have been suggested for Jammu

& Kashmir, Manipur, Nagaland,

Sikkim, Uttarakhand and Mizoram.

The 13 th UFC base year for

estimating scal discipline path

is selective which is not fair and

subjective in nature (Rao, 2010).

On the other hand, existence

of fiscal capacity distance and

an index of fiscal discipline in

the same horizontal distribution

formula is a contradiction to

achieving horizontal equity. This

is because while the first tries

to increase the scal capacity of

the states, the second limits their

expenditure according to their

revenue. 13th UFC prescribes a

GST model for the country which

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YOJANA June 2013 23

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does not fall in Finance Commission domain. Further,

it assumes that GST would be revenue neutral to both

centre and states, thereby ignoring to incorporate the

impact of GST on the rest of its recommendations.

Fourteenth Finance Commission

The role of 14th UFC is mandated with more

burdensome responsibilities in scal, economic and

social areas. The 14th UFC has been asked even to

suggest measures to raise tax ratios of both Centre

and States, improve performance of public sector

enterprises, tackle challenges in ecology, environment

and climate change. Also it is supposed to suggest

measures to amend the FRBMA keeping in view its

shortcomings. It has to address the rising trend of

widening inequality in government spending across

states and take action towards scal autonomy, which

has been substantially eroded over the years by the

implementation of scal consolidation path since the

10thUFC. It has got the job to assess the impact of

GST and device a compensation mechanism for both

centre and states and take the states in condence, so

that it can have higher acceptability.

Overall, though efforts have been made towards

a full-fledged federation, India continues to have

greater vertical scal imbalances at different levels of

governments and horizontal scal imbalance acrossthe levels of governments. India has evolved a noble

kind of federation which is completely different

from the accepted notion of federation. The evolved

Indian federalism is very unique in character and the

Union-state relationship has also become extremely

complex over the years. The role of PC, constitutional

mechanism and working of various institutions will

determine the future of Indian federation. The rising

inequality in an increasingly market economy demands

scientic approach for scal transfers from Centre

to states so that the objectives of scal federalism of

equality and the provision of providing public goods

across states is ensured. There are few issues which

remain in the domain of centre-states nancial relations

such as multiple channels of transfer; limited scope of

UFC transfers; methodological weakness and too much

reliance on the gap-lling approach, and multiplicity

of objectives failing to focus on main objective of

reducing disparities. q

(E-mail :pravakarrst@gmail.com

pooja_amrita@ymail.com)

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24 YOJANA June 2013

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