Financing options for environmental projects

Abstract

Recent economic growth and rapid urbanisation has put considerable strain on Indian s environment and natural resources. The quality of air in most major cities is poor and the water in most major rivers remains highly polluted. The investment requirements of the sector are huge. Environment Sector expenditure in India is just about .5% of GDP, which is less than half of the level of expenditure incurred by developed countries. The public expenditure on environment has seen some growth in recent years yet it has been largely insufficient to tackle the problem. About 60% of the central government expenditure on environment has been on the water sector mainly for the various river conservation plans. An analysis of the status of these plans reveals that there have been considerable delays in project formulation and execution. The completion rate of core projects has been very low. Projects have suffered from lack of response from the state governments and the municipal bodies. O and M of the facilities created out of central assistance has been a major issue. These wage treatment capacity created during the 20 years of existence of these plans has been too little to have any meaningful impact on the water quality of rivers. It would appear that the capacity of planners in the central government and implementation agencies at the ground level has been a constraint on the growth of public environment expenditure in the country. The existing command and control system of pollution control has several lacunas and a paradigm shift in government s approach to pollution abatement is required. The new environment policy rightly recognizes the importance of economic efficiency in pollution control efforts but stays short of making concrete recommendations on use of economic instruments. This study looks at successful alternative models of financing environmental expenditures and the use of economic instruments for water pollution in select developed and developing countries and suggests a framework for introduction of these instruments in India.