Ecology, Environment and Sustainable Development in Indian Fiscal Federalism

This paper argues that the incorporation of new references in the Thirteenth Finance Commission mandate relating to ‘ecology, environment and climate change’ and ‘quality of public expenditure’ pose new challenges. The challenges arise because the operationalization of these items require various reforms-legal, administrative, costing, valuation, institutional, and monitoring which require political will as well as reorientation in public expenditure management techniques. In this regard, there is a need for the Commission to look at the issues in a holistic manner, integrate environment considerations in public policy making and initiate ecological fiscal reforms, thereby achieving the sustainable development. The paper also suggests that for sustainable management of shared environmental resources like river basin, forest etc. the regional governance structures need to be established. The Commission should provide financial incentives for regional cooperation. This paper also reviews the UN’s environmental policy and India’s pollution prevention and control policy and discusses various ecotaxes on polluting inputs and outputs and provides rationale for such taxes.