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Ten of the eleven Himalayan and north eastern states came together at a conclave in hill town of Uttarakhand with twin demands from the government of India viz., a separate ministry to deal with problems endemic to them and a ‘green bonus’ in recognition of their contribution to environmental conservation.  After six hour long deliberations a "Mussoorie resolution" was passed at the conclave making a collective pledge to conserve and protect their rich cultural heritage, bio-diversity, glaciers, rivers and lakes besides making their own contribution to the nation's prosperity. 
Addressing the conclave the Finance Minister said that the development of the Himalayan states is one of the priorities of the Centre and the development roadmap suggested by the participating states will be considered seriously.
This is not the first time Himalayan states have placed demand for compensation for their conservation efforts. Many of these States have represented to the Government of India earlier also for compensation in form of a “Green Bonus” during UPA-2. States like Jammu & Kashmir, Himachal Pradesh and Uttarakhand had raised these issues directly with the then Prime Minister Dr. Manmohan Singh. In this background, a Committee was constituted by the Planning Commission on November 2011 under the Chairmanship of Shri B K Chaturvedi to “study the development in Hill States arising from Management of Forest Lands with special focus on creation of infrastructure, livelihood and human development”. The National Institute of Public Finance and Policy was commissioned by the Committee for a technical study in this context. Key recommendations in the Committee’s Report especially those related to the need for infrastructure development in Hill states are yet to get the desired attention.
Hill states in India are uniquely situated in terms of the large amount of land area designated as forest land in these states. Although these states derive substantial local benefits from the forest ecosystem services they also tend to face certain developmental disadvantages. In economic terms, these can be conceptualized as opportunity costs - for not being able to use the land in alternative use that would yield the highest marginal economic value for the land. The economic rationale for this lies in the fact that forest ecosystems provide a range of services, many of which are either “intangibles” or “non-marketed” and thereby do not lend themselves to easy quantification using available valuation techniques and tools. Also, the forest ecosystem services accrue at different scales – international, national and local implying substantial uncompensated positive externalities. The net economic value of maintaining forested land in its present state of use is therefore likely to be much less than in alternative use.
Himalayan states also face disadvantages in terms of difficult terrain, severe weather conditions, dispersed habitations, small and under-developed markets, long international borders, poor connectivity and inadequate general infrastructure.
The issue of opportunity cost of forests or fiscal disability/disadvantage due to forests has been partially addressed through specific grants by the Twelfth and Thirteen Finance Commissions; and through inclusion of forest cover (stock) as an explicit indicator in the formula for allocating tax resources among the states by the Fourteenth Finance Commission -- although there is no provision for linking it to actual conservation performance. 
This clearly is not sufficient to cover the opportunity costs of forests and other biodiversity and natural resources conservation and address the poor state of strategic developmental infrastructure necessary to stimulate the limited economic opportunities in these states such as Eco- tourism, Horticulture, herbal and wellness economy, value addition in niche mountain products.  
Central government support in this context is a must. A long term plan for development of quality infrastructure with appropriate technological design, material, selection of locations, and practices is important not only to support the livelihood and human development but to minimize the vulnerability of the area to natural events, eliminate the risk of disastrous unplanned development, and minimize the environmental and ecological impacts of development in ecologically fragile and climate vulnerable Himalayan states. There is lot to learn from other country experience on this.
A strategy for infrastructure development in hill states should include, among others, (i) Setting up of an ‘infrastructure planning and technology mission’ for formulating a long term plan for development of infrastructure in consultation with respective states; and (ii) Creating an ‘infrastructure and technology fund’ which can be used for creating and upgrading strategic developmental infrastructure – especially for development of market for niche mountain products, Eco-tourism, and diversification and value addition in horticulture –  the two important factors in improving the productivity of resources and boosting the environmental and developmental performance of the hill states. 
The need for such fund should reduce overtime, so that eventually the compensation for provision of environmental services could be linked entirely to a comprehensive index of environmental externalities/performance.
The author is Senior Fellow at NIPFP, New Delhi.

The views expressed in the post are those of the author only. No responsibility for them should be attributed to NIPFP.


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