[Answered] Discuss the role of the Finance Commission in promoting forest conservation in India. How has its approach evolved over the years, and what impact does this have on fiscal federalism?

The Finance Commission is a constitutional body established under Art 280 of the Indian constitution. Its primary function is to recommend the distribution of financial resources between the central government and the state governments. The Finance Commission (FC) responsible for fiscal federalism in the country, has in the past provided incentives to states to maintain and improve their forest cover.

Role of FC in promoting forest conservation in India

• Allocation of Funds: FC allocates funds to states based on various criteria such as population, area, and socio-economic indicators. States with larger forest cover or those actively engaged in conservation efforts may receive additional funds.
• Incentivizing Conservation: FC can incentivize states to prioritize forest conservation by linking financial grants to the implementation of conservation measures. This could encourage states to allocate resources for afforestation, biodiversity conservation, and sustainable forest management.
• Impact on Fiscal Federalism: FC plays a crucial role in maintaining fiscal federalism by ensuring a fair distribution of resources. If the commission recognizes and rewards states for effective forest conservation, it reinforces the idea that environmental sustainability is a shared responsibility and an integral part of overall development.

How has the approach evolved over years and impact on fiscal federalism

• Past allocation: The 12th FC dedicated Rs 1,000 crore for forest conservation, and the 13th FC enhanced this allocation to Rs 5,000 crore. The 14th FC replaced the grants with a more prominent placement for the forestry sector — it dedicated 7.5 percent of the divisible central tax pool to ecology and forests.
• New parameters: 16 FC can make climate vulnerability and emission intensity of states a key parameter of the tax devolution formula that can nudge action towards achieving India’s NDCs under the Paris Pact.
• Performance-based grants: 16 FC can recommend sector-specific grants based on the performance of states towards achieving the objectives of India’s NDCs and SDG goals. E.g., such sectors are decarbonise energy & transport, air pollution management & sustainable land and forest management.
• Deal with new challenges: FC can help tackle issues of crop burning, mangrove restoration, and forest fires in several states. The 16th FC can be pivotal in creating a basis for a National Carbon Market and a National Green Credit Market.

Conclusion

FC is best suited to be the institutional mechanism to combat ecological challenges and bring scientific understanding into how to ascertain both the vulnerability of states and how they are doing to mitigate them.