Vol 26, No 3; Article by Ashish K Chaturvedi, Manjeet S Saluja, Abhijit Banerjee and Rachna Arora; September 2014
The paper discusses the role of environmental fiscal reforms (EFR) and their application in the Indian context. Under the right circumstances, EFR can lead to the achievement of desired environmental objectives more efficiently and cost-effectively than command-and-control measures. Concepts and instruments of EFR are summarized with their pros and cons. Substantial experience in European Union countries in implementing EFR is highlighted, noting that overall, environmental performance was improved without significant economic burdens. In the Indian context, there is concern about EFR potentially conflicting with poverty reduction goals but evidence shows that carefully designed policies can offer win-win solutions. India has experimented with EFR instruments in isolated cases including a coal cess, removing subsidies on petrol, and subsidizing common effluent treatment plants for small and medium industries. However, to expand EFR more ambitiously, it will be necessary to analyze its pros and cons, engage stakeholders to create political support, choose the right instruments, and build capacity for implementation. Compensatory mechanisms for negatively affected groups may be needed in some cases.
A panel discussion by experts at IIM Bangalore is also summarized, which focussed on the EFR context in India. The experts pointed out the dominance of criminal law in environmental regulation and inadequate understanding and collaboration among policy makers as major obstacles to EFR in India. Another gap acknowledged was inadequate analysis of the consequences of various EFR instruments in the Indian context. Suggestions included a deposit-refund system on beverage containers, a green cess on electricity, increased VAT on coal, and decreased VAT on green fuels and green building materials - many of which state governments can implement on their own. The need to integrate environmental taxes into the upcoming Goods and Services Tax (GST) regime was also highlighted. Experts urged policy makers to build on limited successes rather than expecting immediate transformative change.
