The Nature Conservancy supports and welcomes a bold decision by the 15th Finance Commission to enable better forest conservation across India. We are proud that the recommendations we made to the Commission on strengthening India’s forest cover are mentioned in the Commission’s main report and has in some way positively influenced this decision.
Recently, the 15th Finance Commission recommended tax devolution formula for sharing taxes between the centre and states for 2021-22 through 2025-26. The central government has accepted these recommendations. In the tax devolution formula used to calculate states’ share, the Commission recommended a 10% weightage to ‘forest and ecology’ during the next five fiscal years. This translates to a projected tax devolution of INR 4,22,476 crore (US$58 billion) over five years to states primarily due to their forest wealth. To put this in perspective, it is more than 66 times the annual budget of Pradhan Mantri Jan Arogya Yojana — Ayushman Bharat, the central government’s flagship scheme focused on free health care for half a billion people.
States with high dense forest cover would have a larger share of the forest cover-based tax devolution than their counterparts with lower dense forest cover. The top five states in India with high dense forest cover are Arunachal Pradesh, Madhya Pradesh, Chhattisgarh, Maharashtra and Odisha. Consequently, these states will receive maximum funds under the ‘forest and ecology’ criterion. As these five states are home to 49% of India’s dense forests, they will cumulatively receive the same percentage of funds in the tax devolution to states.
While 10% of tax devolution to states will be due to a ‘forest and ecology’ criterion, the rest would be calculated based on five criteria: income distance (45%), demographic performance (12.5%), population (15%), area (15%), and tax and fiscal efforts (2.5%). Illustratively, Arunachal Pradesh scores low on these five criteria but has significant area under dense forest cover (51,652 km2, or 13.3% of India’s dense forest cover). Consequently, of the gross tax devolution of INR 74,229 crore (US$10.2 billion) to the state, INR 56,198 crore (US$7.7 billion), or 76% of its tax devolution would be due to its forest wealth. Similarly, Uttarakhand (41%), Meghalaya (33%), Himachal Pradesh (32%) and Mizoram (31%) are projected to receive a significant portion of their tax devolution due to the ‘forest and ecology’ criterion. Notably, six north-eastern states (Arunachal Pradesh, Meghalaya, Mizoram, Manipur, Nagaland and Tripura) are projected to receive more than 20% of their tax devolution due to the ‘forest and ecology’ criterion.