Industries get long rope to rein pollution
ECONOMIC reforms launched in India in July 1991 were aimed at bridging fiscal and monetary imbalances and reducing the balance of payments. Associated with these conspicuous disproportions was the environmental imbalance, which economists set aside as externalities. But with increasing global concern about the environment, India, too, has started responding to the problem.
In May 1992, Union finance minister Manmohan Singh defended the new economic policy as "environmentally friendly." Envisioning more environmentally sound technologies, he hoped industries would take the lead and follow the polluter-pays principle. However, there wasn't any greenery to be seen between the lines of his 1992 budget.
Singh's concern about the environment is more evident -- though marginal -- in his 1993 budget proposals. Instead of letting industries take the lead, he has given them plenty of rope by offering a 100 per cent depreciation allowance on installation of pollution abatement and treatment plants.
While the incentive should prod industries into installing these devices, pollution control can begin only if they are operated. Most industrial units do not accord priority to operating pollution control devices, while others simply cannot run them due to shortage of water and power. The system should incorporate tax rebates or refunds, based on the utilisation of pollution abatement technologies. Hopefully, Singh will move in this direction in the next budget.
The new budget proposes tax holidays for investments in certain backward states. Such concepts are not new in India: In 1980, an expert committee headed by V M Dandekar suggested similar incentives to generate employment in backward areas. According to the government's Annual Survey of Industries, most factories in the organised sector in backward states are based on forestry, chemicals or mineral products. One can envisage clearly the adverse environmental impact of such industries. Instead of tax holidays, tax refunds based on environmental impact analyses should have been offered.
Important incentives The 1993 budget also makes significant concessions for the import of capital goods for open-cast coal mining, petroleum refining and power plant projects. But unless the import of these capital goods follow international environmental standards, the finance minister may have to introduce policies to enforce stricter environmental vigilance. Likewise, the export of iron ore and granite will have to be monitored.
The budget is certainly green-conscious because it reduces or eliminates excise duties for plywood, pulp and paper industry, forestry and horticulture. The benefits for plywood, pulp from rice and wheat straw, bagasse and jute also will help save forests. And, import duties for equipment used in solar power and wind-operated power generation have been reduced.
The budget, however, falls flat in the incentives offered for importing pesticides and staple fibres. In the long term, this will have adverse effects on ecology and biodiversity; furthermore, reversing them will require heavy investment in soil and land management.
One of the growing problems of urbanisation is the management of waste. The finance minister could have introduced certain measures at the marketing end -- and, thereby, in production processes -- to reduce waste. For instance, the various rebates and exemptions intended to expand the food-processing industry could lead to more waste in plastics, paper, aluminium foil and cans. Hence, to regulate waste, Singh could have introduced environmentally friendly standards for products (similar to those laid down by the Bureau of Indian Standards) and tax refund incentives for industry.
The emphasis in the budget on the import of technology and foreign equity participation could kill domestic research and development. Singh could have avoided this by promoting R&D on an environmental and ecological basis. The anxiety in universities and research institutions on this front is not likely to be shared by industries, which have been enabled by the budget to promote R&D that is related directly to production and marketing.
The budget is influenced heavily by domestic industrial recession, an infatuation with external competitiveness and inflation controls. The import tariff reductions and corresponding excise rate adjustments have been made with these in mind. They are welcome signs, but whether they lead to green channels or run up against red signals depends on market responses.
The green lanes that the finance minister has provided for in the 1993 budget can lead to a gateway through which India can emerge to bridge the environmental imbalance -- in the future, at least, if not immediately.
Gopal K Kadekodi is a professor at the Institute of Economic Growth, Delhi.