This Budget shows that the Government is on track to raise enough money for India to move to the low-carbon, climate-resilient development path. But fund collection alone isn’t good enough. The money must be put to work
The 2016 Budget has provided a funding stimulus for green initiatives. The NDA Government has substantially increased the clean energy cess on coal, lignite and peat from Rs200 per tonne to Rs400 per tonne, and levied a new infrastructure cess on carbon emitting cars.
Renamed now as the Clean Environment Cess, the funds collected under this label will be used to develop renewable energy sources and bolster river pollution abatement measures, among other activities. Funding is critical for the success of any environmental conservation initiative, and with the present Government increasing the cess eight times from Rs50 per tonne to Rs400 per tonne in the past two years, paucity of funds for environmental proposals can now be a thing of the past.
In the overall scheme of environmental conservation, however, the simple availability of funds is not an end in itself. Recently, the Supreme Court reproached the Government for its sluggishness in implementing the Clean Ganga Abhiyaan.
This was followed by a Parliamentary Standing Committee report on the Union Ministry of Water Resources, which pointed out that the Rs1,500 crore allocated for the National Ganga Plan in the previous Budget had not been utilised.
Collection of funds, therefore, is as important as efficiently utilising the money, within the pre-determined time period in order to have the desired impact.
The Government also needs to ensure a wider and comprehensive scope of applicability for these funds, in order to realise the objective of conserving the environment and improving the living conditions of citizens.
Deployed efficiently, the funds can help India move to a low-carbon, resource-efficient and climate-resilient development path, delivering a high economic and environmental impact besides many social benefits.
According to the Economic Survey 2016-2017, released prior to the Budget, the Indian economy is expected to grow at a healthy rate of 7.5 per cent in the upcoming fiscal year and may do better than China even. Given this scale of growth, the Government will soon require much more funds to finance the multiple green projects and initiatives that will come up in that situation, the clean environment cess, by itself, may not be sufficient.
In order to increase and augment its green fund corpus, the Government can explore the possibility of fusing public and private funds from various sources such as sovereign wealth funds and green bonds.
Green bonds are fixed-income securities issued by Governments, multi-national banks or corporations, in order to raise the necessary capital for a project, which contributes to a green economy. Off late, green bonds are emerging as the globally favoured vehicle for raising funds for environment-friendly projects.
As for sovereign wealth funds, they can be used to deploy public investment in green projects. The government can establish asovereign wealth fund from balance of payment surpluses, official foreign currency operations, and proceeds of privatisation, Governmental transfer payments, fiscal surpluses and receipts resulting from resource exports.
In addition to establishing mechanisms for raising funds, it is equally important for the Government to create an enabling environment for green investments by establishing an investor grade policy.
As a first step toward this end, the Government can realign economic drivers to support green growth and put in place a stable regulatory framework, which can help generate investor confidence. The Government can improve the interest levels of all stakeholders by designing investable projects in consultation with investors.
This will enable the Government to devise a robust finance strategy for green growth by better understanding the barriers faced by many private investors.
India’s current growth patterns are not only unsustainable but also deeply inefficient, as collateral environmental costs are high. This precisely is the reason why inclusive green growth is necessary and urgent.
Inclusive green growth increases efficiency by reducing unnecessary wasting of energy and natural resources, improving urban planning to make the best use of public transport and other services, creating multi-use infrastructure, and eliminating fossil fuel subsidies that provide greater benefit to the wealthy and are a costly way to help the poor. Green growth, paving way for a green economy, can become a reality if only adequate green funds are generated and utilised on time.