WRI provided analysis to help inform India’s 15th Finance Commission’s fiscal recommendations. The Commission increased India’s national budget for air quality governance and committed to ecological fiscal transfers and forest protection.

The Challenge

Reducing air pollution and protecting forest cover are major developmental challenges for India. Air pollution threatens India’s climate and water security, public health and agricultural yields. Protecting and restoring forests can be a financial burden, since the cost to maintain forests that provide critical ecosystem services is placed disproportionately on states with high forest and tree cover. The country is developing new governance approaches to address these challenges and financing frameworks are a key part of the solution.

In 2020, the 15th Finance Commission a constitutional body appointed every five years to propose a framework for tax sharing between the center and each state, received a mandate to recommend steps toward inclusive growth in India, with a focus on equity, efficiency and transparency. This presented an opportunity to support efforts to advance sustainable development policies and governance in India.

WRI’s Role

WRI was offered an opportunity to submit an analytical piece on air pollution which provided the 15th Finance Commission with insights on the sources, causes and impacts of air pollution. More specifically, it proposed effective governance models to reduce emissions and air pollution. WRI suggested ways to address the transboundary nature of air pollution, as well as its ties to urban growth patterns and the infrastructure choices made by cities.

In parallel, WRI India worked in partnership with representatives from other local and global research organizations to form an expert consultative group and discussed how the forest cover criteria can be strengthened and retained to support forest-related climate, social and development goals. For example, WRI India conducted studies showcasing how states in India innovatively used funds from previous ecological fiscal transfers to spur restoration efforts and enhance livelihood opportunities for local communities. Through regular meetings, the group synthesized their findings and submitted a discussion paper to the 15th Finance Commission highlighting the role of fiscal transfers in supporting India’s forest sector goals.

The Outcome

The 15th Finance Commission is the first Commission to specifically discuss and set budget allocations for improving air quality. Based on recommendations from the interim FC report, India’s 2020 national budget for air pollution was 10 times greater than in previous years.

Additionally, the Commission’s final 2021-26 report increased the weightage for forest cover from 7.5% to 10% within its tax devolution formula, a calculation that identifies the amount of money states receive from the union government. This means that forest cover carries more “weight” when the government is determining how to distribute funds. India’s central government transferred an estimated 85,526 crores ($11.1 billion) to states based on their forest cover in 2020-21, allowing states to fund a range of public services, including health care, education, sanitation and infrastructure development.

The 15th Finance Commission continues to show leadership and commitment to ecological fiscal transfers and is taking critical steps towards improved air quality governance. These budget recommendations signal that sustainable development remains a national priority.