Context
The Uttarakhand government recently announced it will initiate valuation of its natural resources in the form of ‘Gross Environment Product’ (GEP), said to be along the lines of Gross Domestic Product (GDP).
The idea of valuation of the components of environment is not new. But it got impetus following rapid degradation of ecosystems, which led to adverse impacts on more than 60 per cent of services we get from the ecosystems.
Several attempts were made to find ways to address environmental issues. The term “ecosystem services” was coined in 1981 to attract academics towards this aspect.
Later, American ecological economist Robert Costanza contributed several publications defining and elaborating aspects of ecosystem services. According to Costanza, ecosystem services are the benefits human populations derive, directly or indirectly, from ecosystem functions.
The definition is still in the process of evolution. In 1997, a group of 13 economists and ecologists led by Costanza showed that at global level the value of ES is about twice as much as the global GDP.
The concept received attention and now is part of global knowledge. The Millennium Ecosystem Assessment was called for by the United Nations Secretary, General Kofi Annan, in 2000.
Ecosystem services is now well-defined field of research worldwide.
The Himalayan context
A majority of publications are from the United States, followed by China. Other countries including India contribute little to the field. On implementation front, Mexico has emerged prominent in fostering ecosystem services and payment mechanisms.
In India, SP Singh, a Himalayan ecologist, published the first conceptual paper on ecosystem services narrating Indian perspectives. He also published a monograph titled Himalayan Forest Ecosystem Services.
The Himalayas contribute substantially to the sustainability of the Gangetic Plains where 500 million people live. It may be pointed out that on the recommendation of the ecologists like Singh, the Union government incorporated the value of ecosystem services of its states in national accounting.
According to the recommendation of 12th and 13th Finance Commissions, grants were transferred to forest rich states in amounts corresponding to their forest covers. However, considering only the forest cover in transferring funds to states is inadequate.
Ecosystem services represent the benefits humans get: Forests, lakes and grasslands; timber and dyed; carbon sequestration and nutrient cycling; soil formation and productivity; and tourism.
If the payments are to reflect the true value of the services provided, then these services need to be measured and assigned unit values, which would require two separate types of analysis. Singh introduced the concept of service providing (example, the Himalayas) and receiving zones (example, the Gangetic Plains).
It should be understood that while valuing ecosystem services, the population size served is important. That is why Uttarakhand, which substantially serves Gangetic Plains, is far more important than Sikkim, which has only a small population to serve in plains.
Singh and his team suggested a system to valorise ecosystem services in the Himalayan states of India in a way that is consistent with the national mission on Himalayan ecosystems. According to them, ecosystem services of a state benefiting the rest of the country and world should be valued, and these values should be incorporated into national accounting.
The main argument is that since the market does not perform money transfer from regions that benefit from ecosystem services to regions which produce them, the central government should perform this transfer.
It may be emphasised that because of the river connection, Uttarakhand has a special place in providing soil and water to the Gangetic plains. Carbon sequestration is a global ecosystem service; biodiversity is regional, national and global.
It also needs to be understood that Himalayan rivers not only drain down water but also carry millions of tonnes of sediments. River connections are being considerably altered. The ecological regime of the hills of Uttarakhand and other Himalayan states is being destroyed with little or no benefit to regions from where they are being harnessed.
On the initiative of late RS Tolia, the then chief secretary, Singh wrote a document for the 12th Finance Commission. The Government of India partially accepted the recommendations of this document and started transferring the funds to states.
Uttarakhand state holds a distinct position historically on social awareness towards importance of ecosystems. The origin of world famous CHIPKO Movement of led Srimati Gaura Devi and famous activists like CP Bhatt and Sundarlal Bahuguna was primarily initiated with the objective to protect forest rights of local communities, and has its roots in the hills of Uttarakhand.
Later on, under the leadership of well-known environmental activist Jagat Singh Jangli, social workers marched to Delhi with the demand for payment for water and oxygen produced by the forests of Uttarakhand covering about 65 per cent of the state’s land.
It may also be pointed out that in 20010-11, the than chief minister Ramesh Pokhriyal Nishank had mooted the idea of green bonus for the state. So, it is obvious that the state should be steady in its approach and focus on ecosystem services that has global acceptance and a strong knowledge base.
The Confusion
The decision of Uttarakhand government to incorporate GEP appears to be a welcome step. But going ahead with the jargon raises serious doubts on the intent of the government. It may confuse policy makers and negate the past efforts.
The purpose of introducing GEP is not transparent. Is it a process of simple valuation of state’s ecological wealth, or to assess that what part of the GDP it contributes. It is an attempt to claim budget from the centre against ecosystem services the state provides to rest of the country and / or it is a process of providing benefits to its own residents.
Instead of introducing a well-defined concept of ecosystem services, planting a new term with no clear-cut narrative invites serious doubts on the intention of the government. So, it is important that the state should be steady in approach, focusing on Ecosystem Services, which has global acceptance and a strong knowledge base.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.