14th Finance Commission and Environment

Aiming to increase forest cover of India the 14th Finance Commission for the first time has recast its fiscal transfer formula, according to it the share of central tax revenues will be distributed between the 29 states on how much forest they have maintained. For this an annual forest finance incentive has kept Rs 55,000 crore ($ 9 billion). Such spending on forest conservation will be the higher than any other country in the world.

Forest-cover shares in 14th Finance Commission

Finance Commission in direction of greening of fiscal federalism has allotted 7.5 percent weight for forest cover. This step envisages benefits for forest-based livelihoods, strengthening capacity to combat climate change & protection of environment. It should be noted that recently, the 14th FC has increased the share of central tax revenues to the states from 32 per cent to 42 per cent for strengthening cooperative federalism.

Implications of new Formula

Recognizing the critical role of forests and trees the 14th FC new allocation formula is no longer based merely on population, income & area but also factors in the state’s forest cover.  According to it the forested states will be proportionately compensated for the opportunity cost of forest area not available for other economic activities and the lesser forested states will be encouraged to enhance their forest cover.

Considering the annual fiscal transfer of about Rs. 55,000 core for forest is much higher than the annual budget of MGNREGA the mega employment program, will compel the state governments to focus their effort on how to increase their forest cover for ensuring a greater share of the green fiscal pie.