Budget for low-carbon economy

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: The Budget of any government makes a powerful statement of its priorities and signals the political will for reform. World over, fiscal policy is addressing itself to environmental concerns through the introduction of eco-taxes, but more importantly by internalising the environmental consequences of expenditure budgets, taxes, subsidies and pricing policies across sectors.

In India, fiscal instruments are underutilised in tackling pollution, being limited to allocations for specific government schemes and odd sops for pollution control equipment. By and large, the approach to pollution control has relied on regulatory instruments—violation of environmental quality standards is punishable by criminal prosecution that can be pursued only under the authority of the courts. Thus, the cost of complying with regulation is often higher than the penalty for violation because of protracted legal cases and low fines. The need to introduce economic charges linked to violation of environmental standards is long overdue, as is the need to provide the pollution control boards the civil administrative authority to levy these charges. There is enough evidence to show that such charges are feasible and effective in developing countries. China, Columbia, Philippines, Indonesia, Malaysia have all overcome a number of obstacles—imperfectly functioning markets, weaknesses in monitoring and enforcement and shortage of resources—to implement such instruments with a fair degree of success. At the same time, pollution control boards watchdogs of India’s environment should receive higher priority in budgetary allocations.

Fiscal policy can provide economic signals for green decisions by individuals that can add up to substantial economy-wide benefits, for instance, by linking taxes to the energy-efficient rating of equipment and appliances. These measures are much-needed in the transport sector to arrest the trend in the growth of fuel-guzzling SUVs. It is hoped that tax brackets would reflect fuel-efficiency standards being developed by the Bureau of Energy Efficiency for private vehicles. The real challenge for the Budget, however, would be to augment resources for public transport, given that out of approximately 400 class-I cities, only 20 odd have organised public transport. The provision of reform-linked incentives for public transport under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is a welcome step, but allocations to states need to be clearly linked to parallel efforts at discouraging private vehicles.