Day 1 – Inaugural Session

·  The proceedings of the Roundtable started with Shri Indu Kumar Pande, Additional Chief Secretary, Government of Uttarakhand welcoming the participants of the Roundtable taking them through the religious history of the city and the natural beauty of the State. He lauded the efforts of the Inter-State Council Secretariat in bringing the roundtable to Nainital. He was sure that the deliberations would benefit from the Chief Minister’s long years of experience in various positions held both at political and non-political levels. He also spoke about the possibility of the State Government representatives benefiting from the experience and suggestions of the distinguished participants comprising Administrators, Professionals, Academicians and Representatives of non-governmental organizations. He hoped that the meeting would go a long way in achieving the objectives set out by the Inter-State Council Secretariat (ISCS).
 

·   Shri Amitabha Pande, Secretary, ISCS while providing an overview of the Regional Roundtable thanked the host government for enabling the participants to enjoy the beauty and quitetude which only the mountains can provide. He also thanked the Additional Chief Secretary Shri I. K. Pande of the Uttarakhand Government for the courtesies extended. He eulogized the contribution of Uttarakhand in the context of development of Indian federalism. While Uttarakhand along with Jharkhand and Chhattisgarh was one of the youngest of the federating units it was the oldest claimant to separate statehood as a demand for recognition for a distinct unit within the Indian state. Uttarakhand has always had very strong civilization and cultural integrity with the Indian national identity and the demand for separate statehood was genuinely federal rather than a confederal impulse. The second distinctive characteristic the Uttarakhand movement was driven primarily by the region’s sensitivity to nature, to terrain, in geography and to history and culture and less by economistic and bureaucratic consideration. The people’s aspiration for an alternative paradigm of development in Uttarakhand has been grounded in a long history of environmental federalism of which the Chipko movement was one eloquent example. He informed that in the deliberations of the next day and a half therefore, we intend to devote some time exclusively to the issue of the uniqueness of mountain states and mountain people as stewards of global ecological assets and the implication this has in a federal context. The primary objective of this workshop was to reintegrate the federal agenda and reiterate the importance of the federal approach to the governance and to generate an agenda for discussion in the International Conference proposed to be held in November. He also said that in the context of a more democratic and a more federal approach to policy making, the role of the Inter State Council becomes more significant than ever before.
 
He referred to the second purpose of this workshop which was to re-introduce the states to the usefulness of the Council and by proving its usefulness in making consultative and participatory policy formulation the central feature of our democracy. The Constitution of India recognized the Inter State Council as the only agency for policy and action coordination both between the centre and the state and among the states. He said that federalism is seen as one of the most significant strategic instruments especially in situations of resolving conflicts related to diversity. It has been felt that India has a very vibrant success story to narrate to an international audience and therefore India should start taking a more active role in shaping the international agenda on federalism. He hoped that the practitioners from the region would be integral part of the international conference where we are expecting at least almost a dozen of Heads of States and Heads of Governments to participate and many Heads of Constituent Units like Chief Ministers and Governors from provinces of several federations.
 

·  Mr. B K Joshi, the Chairman of the Uttarakhand State Committee for the formulation of the 11th Five-year Plan and also member of the Uttarakhand State Finance Commission provided some perspectives on the federal issues relating to the region. He said that the referred region was a nation in microcosm as it mirrors the full range of diversity and complexity that characterizes our nation. He said that this region in a sense exemplified the notion of unity in diversity that defines Indian nation and forms the bedrock of Indian federalism. It covers tremendous variety of geological, geographic and climatic conditions. Even within each of these regions there is tremendous diversity. For instance the Himalayas extend from the foothills and the Shivalik range at the southern end (we can also include the bhanwar in the tarai areas) to the high peaks of the outer Himalayas and the trans Himalayans areas covering the alpines pastures and the cold deserts of Ladakh and Lahaul Spiti at the northern end. There is a diversity of social and cultural life. However, despite differences in appearance, social life and customs, dress, food, languages etc. there is a remarkable acceptance of each other. There is synergy within the region. For instance, the Himalayas are the source of the major rivers that feed the Indo-Gangetic plain. And without a strong understanding between the Himalayan States and the states downstream there will be all kinds of problems arising. Hence, the health of the Himalayas is crucial for the areas downstream. The Himalayas also moderate the climate and influence the monsoon for the entire country. Then we can characterize the states on the basis of agro ecological regions. The issue is what this diversity signifies for federalism? In terms of federalism the issue really is how does one start addressing the differences that emerged at various levels. Essentially, the challenge in terms of federalism is to provide a forum and a practice of regular meetings where the issues start being discussed among the units. By and large the Indian experience has been that the federal dialogue is normally between the Central government and the units and the federal unions. There is very little dialogue on issues among the federal units as a collective unit and the Centre. He suggested that for robust intergovernmental relations among the members of the region, the best forum constitutionally mandated is the Inter State Council. And therefore it is emphasized that the Inter State Council can and should play a major role in providing such a forum for the various states at the national level and at the regional level to get together and start debating issues of common concern and interest.
 

·   Shri B.C. Khanduri, Hon’ble Chief Minister of Uttrakhand, complimented the Inter State Council for having taken initiative to organize the International Conference on Federalism and in taking a proactive stand to resolve various issues concerning the states. The whole rationale for having a body of this kind is to address the concerns of the states and to arrive at a consensus that is beneficial to the states and the nation. Maintaining Unity in Diversity is the single greatest indicator of the success of federalism in India. This unity can be further strengthened if economic, financial, social, regional cultural and linguistic differences are removed to pave way for a liberalized, globalized and growth-oriented India. He pointed to the common issues faced by certain states with similar geography and topography like the Himalayan States which, while they have large forest wealth, cannot economically exploit it and where other developmental works are held up because of the need for environmental conservation in the larger interest. He said that for any developmental work, the States have to pay a compensatory amount and eventually developmental activities become very costly. Recently it has to come to notice that in the sector of roads alone nearly 400 projects were held up in Uttarakhand on account of non-grant of environmental clearance. A solution is therefore to be found so that development activities and the need for forest and environmental conservation work are not at crossroads. He wished that the issue were discussed threadbare during the ensuing sessions to come out with methods to expedite and hasten the developmental activities. He suggested that a suitable compensation mechanism similar to Carbon trading at international level needed to be worked out for this.

He also said that our federal structure is result of an actual process of decentralization of fiscal authority. The Constitution provides for setting of a Finance Commission to redress the imbalances in the revenues, expenditures of the Union and the State Governments arising out of mismatch between the powers to raise revenue and functional responsibilities of the governments. After the 73rd and 74th amendments to the Constitution, there is a provision for compulsory creation of State Finance Commission for the third tier of the government i.e. rural and urban local body. There is no standard format of federal financial arrangements with a universal application. The fiscal relations in our country have evolved over a period of time through political, constitutional and functional changes within the ambit of the constitutional provisions. The debate on Centre and States financial relations still continues. There have been suggestions to widen scope and jurisdiction of Inter State Council to cover some areas relating to financial relations between the centre and the states. There has been discussion regarding setting of National Loan Council, National Equity Council, National Economic Council and National Expenditure Commission which could layout the policies with regard to the credit supplied to the state and policy relating to commerce and industry both for centre and the state. He wondered whether in the emerging scenario, it would still be desirable to continue with a distinction between plan and non-plan expenditure. A serious look is required to be given to this issue on resource sharing among the Centre, States and UTs even though the system of Inter-State fiscal arrangements has worked reasonably well over the years in the country.

He suggested that while the Inter State Council is mandated to act as a forum for resolving issues between the Centre and the States, it should also increasingly take up issues arising between the States. There are issues regarding sharing of resources, inter-state trade, transport etc. for which the Inter State Council can act and should act as a forum where discussions can take place and issues may be resolved. He lamented that the Zonal Councils or Regional Councils, which have been constituted for the purpose, have been almost dormant for last three years. He thought that more meaningful discussions could take place and the mechanism of zonal or regional councils needs to be utilized more frequently and effectively for resolving Inter State issues.

Session I: Challenges of accommodating the needs and aspirations of states with varying size and resource endowments and making special dispensation for states that make a special contribution to national interests, in a federal structure

Chair: Dr. Prodipto Ghosh, Former Secretary, Ministry of Environment
Co-chair: Mr. R S Tolia, Former Chief Secretary, Government of Uttarakhand

Dr. Prodipto Ghosh, gave some insights into the nature of the problem, what theory has to say, what are the complexities that need to be addressed in resolving these issues. He made a presentation that explained what exactly do we mean by environmental services - Watershed protection, flood moderation, soil formation and conservation, conservation of genetic resources. But what is typical about such environmental services that they are public goods and therefore are non-excludable. He also said that the producer of the environmental services have to actually incur costs for e.g. tangible investment needed for maintenance of forests apart from the opportunity cost in not diverting the forest wealth to other use. He said that there exists a debate on who actually has the rights over environmental services. It is here, he suggested, that the parties if they are brought together by a forum like the Inter State Council, can bargain among themselves without interference of any other third parties to reach solutions which both agree on. We need to solve these problems as to how the property rights over these environmental services or alternatively how the resources which produce environmental services are to be allocated, addressing the issue of equity at the same time through a process of bargaining. He also drew attention to the issues which mess-up this question of property rights. The first thing is that past trends of human settlement globally have revealed concentration around places rich in relevant environmental services. Some reallocation of resources away from environmental services to conventional goods is also required. The limitation to exploitation of natural resources tends to be rather strong. He suggested that the Inter State Council could facilitate the process of bargaining in respect of allocation of the property rights, which is essentially political bargaining.
 
The difficulty, however, was that there was no clean and simple principles of jurisprudence or law which can enable you to arrive at the assignment of these property rights. He also pointed to the other complicating problems towards such bargaining solutions. For example, forests and river water flows even though being concurrent subjects it is the Central legislation and policy guidelines that override those of states. Second is that operationalising any solution requires difficult political choices. For example, say Uttar Pradesh may in principle agree to pay Uttrakhand for its river water flows, which are attributable to the forest in Uttrakhand. But in order to operationlise this it has to make the UP farmers pay and the Government of Uttar Pradesh would baulk at the political cost of making the farmers pay. Then there are important issues of a scientific nature of complexity in attributing particular environmental services to specific resources. He cited the example of flood abatement. How much flood would have happened? What would be the extent of floods if the forests are denuded? We don’t have sufficient data and that exacerbates the problem. Fourth issue according to him was that the demand side is dynamic not static. Resources which have a particular value at one point of time, given one pattern of settlement and economic activity will change with change in technology and resultant economic patterns. Other resources can become extremely valuable. For example, he suspected that with the implementation of the global protocol for access in benefits from genetic resources, immediately these resources would gain primacy. He gave two examples of somewhat complex solutions to these problems. One was the issue of compensating states for maintenance of forest cover. Interim solutions were prescribed by the 12th Finance Commission in the shape of an assignable kitty of one thousand crores which would be divisible through some formula. He said that the interim solution, even though complex, marks a start towards the principle of compensation. The second example he cited concerned genetic resources. There has been conferment of rights over genetic resources and traditional knowledge to States even though no mechanism has been set in place by which the property rights can be operationalised. This issue he suggested could be looked into by the current session. India has come up with its Biodiversity Act, 2002 which retains the property rights of genetic resources with the Centre but it provides a means for sharing of the rents from genetic resources of the states. The National Biodiversity Authority is operational but is still in early phases of its work of developing norms for sharing with the states.
 

·  Dr. R.S. Tolia, State Chief Information Commissioner, Uttrakhand, complimented the initiative taken by Uttarakhand Government by way of supplementary memorandum to the Finance Commission. The Finance Commission for the first time provided for Rs. 1000 crores for allocation to States providing environmental services. The strains of maintaining natural resources like forest need to be compensated. Secondly when we look at the other natural resources particularly hydropower there is hope in the new initiatives being allowed for their economic exploitation. He said that there was a need to do more hard research both in terms of policy and in terms of hard science in respect of ecosystem services to evolve integrated views on how to compensate. He emphasized need for a systematic hard look at the mountain hydrology in order to be prepared for disasters and the effects they have on both the upstream and the downstream states. This is where the Inter-State Council could definitely have a clear agenda. Providing for environmental services has found mention in two major documents namely the 12th Finance Commission and the mid term appraisal of the 11th Plan Assessment. The Inter-State Council could possibly take off from where 1000 crores have been earmarked for assistance of majority of forests owning states. This consensus building process could end up in finally arriving at some form of equations based on which the division of the corpus could be made. He emphasized the need for institutional mechanism which can look at more deeply into the issues which are at stake legally, constitutionally, administratively apart from considering the hard sciences that would go on define ecosystem services. He also stressed on the need for such states to come together and put forth their demand collectively.
 

·  Mr. Chandi Prasad Bhatt, thanked the organizers for having invited him and cited an instance to highlight the enormous difference in perceptions in respect of issues of the environment, water resources and disasters amongst the upper riparian and the lower riparian states. He cited the example of the 1977 flash floods in Alaknanda triggered by siltation of its tracts where the nation’s attention was reduced to loss of irrigation facilities in Uttar Pradesh. There was no talk of damages inflicted on the regions of upper reaches. This example he cited was necessary to evolve a consensus among the upper and lower riparian states to effectively use the available resources. Similarly, he said the answer to the woes of annual floods in UP and Bihar lay in an appreciation of the ecology of the upper riverine areas. He wanted a holistic appreciation of the complete Himalayan ecosystem and its river systems for these cover 43 % of the whole land area.

Another equally important area of concern is that of Glaciology. Even though the entire thought process is concentrated on retreating glaciers, efforts also need to be made on locating through satellite imagery the changes in the flora of the system, whether or not cracks have developed in the glaciers, they being located in earthquake prone areas and the effects these would have on the rivers and the lower areas. The upper ecosystems consists of features like the alpine meadows and the lower deciduous forests that act as water sponges. There are no occurrences of landslides here. The need is to conserve the tiniest of water bodies. The need is to start planning and conserving at the micro level and educate about the positives of environment conservation.

There are numerous projects that are coming up in the Ganga/Bhagirathi. The effects of these on the ecology and the resultant effects on the lower states are beyond imagination. There is need for projects but scientific evidence of its effects must be provided to the locals and the entire nation because the effects of retreating glaciers, erosion and landslides are meant to be dealt with immediately. This need for conservation of trees was felt by the proponents of the Chipko movement apart from the locals who were aware of the ill effects of denudation out of experience.

There is tremendous power in people’s participation in conservation efforts. He requested that since the source of surface water is mainly the mountain rivers, emphasis should be laid on conserving the specific eco sytem which extends from the mountain tops to the evergreen forests in the valleys. Recent depletion of the ecosystem has resulted in interrupted water flow. The catchment areas need to have effective and practical conservation programmes and these in turn could be supported by the lower riparian states in terms of compensation to resource bearing states. The requirement is to keep conservation of the Himalayan ecosystem central to all policies and programmes. It is also necessary to involve the people living close to the sources of the rivers, confer them with rights and responsibilities and create van panchayats in order to conserve small water bodies. There is need to evolve a policy on displacement being caused by big projects. The states utilizing the water resources need to share the resources needed for conservation of water bodies. An international network needs to be built to develop warning systems in the event of disasters arising out of ecosystem degeneration.
 

·   Dr. Mohit Gera, TERI made a presentation that revolved around the premise that upstream mountainous ecosystem states provide the benefits of watershed and biodiversity conservation to the downstream states. An attempt needs to be made to put in place a framework for compensation for these services. Should they be compensated to the extent they are losing in terms of opportunity cost or in proportion to the benefits being enjoyed by the downstream states. Because the downstream states will also be interested in compensating to the extent of the benefits. The mechanism itself suffers from Constitutional limitation. The valuation of these costs again in itself is a big challenge since funds for carrying out such studies are paltry. The valuation and the pursuant quantification of the amounts to be compensated suffer from the expanse of the benefits that could be local, regional or global. He cited the example of carbon sequestration where we have the mechanism in place by which these states can really encash the benefit of raising forestry interventions like afforestation and reforestation. But unfortunately these mechanisms and the methodology and procedural requirements are so complex and stringent that not even a single project from our country could be registered. Fortunately we have another mechanism in place which is the initiative of Chicago climate change which comes under voluntary carbon trading, where there is no need for raising fresh plantations. Whatever plantations which have been raised after 1st January, 1990 and there is an intent to keep these plantations for a long term can be converted into the benefits which are going to be as per the price of verified emission deduction.

The mountain ecosystem is hampered by imprudent development, urbanization and industralisation. He explained the direct benefits accruing from forest ecosystem for e.g. the consumptive benefits like timber which can be sustainably harvested and consumed and non-consumptive direct benefits like recreation and eco-tourism. There are functional benefits like watershed benefits, ecosystem services and evolutionary processes that impart forests the heritage value. Adding up all the values helps in arriving at the value of an ecosystem. These, in turn, could be traded by using direct market approaches of trade or on indirect valuation method. Alternatively there are methods of contingent valuation based on biodiversity constituents or heritage values etc.
 

·   Mr. Anirban Ganguly of TERI then took over from Mr. Gera to show the kinds of arguments which a mountain rich state can potentially make to claim compensation from either central funds or inter-state, intra state funds. The first in terms of ecological arguments are the rich irreplaceable biodiversity which forests in mountain states nurture and the functions an ecosystem provides like pollination services & habitat. The second set of arguments are economic and relates to maintainence of benefits which are non local, regional, even global as a result of local level conservation effort with opportunities foregone. Economic incentives and disincentives need to be provided for maintaining high-level ecosystem functions as the regions with high forest cover are markedly affected by poverty and poor infrastructure growth. The gains from ecological security, flood control benefits, biodiversity benefits, climate moderation are not distributed even while the whole country gains from it. The mountain regions are also repositories of traditional practices and knowledge which are important for broader social good. The demand for compensation is also justified politically to ensure a balance between the quest for development, and conservation.

He also apprised of the challenges in implementing a real compensation scheme which are (a) lack of scientific knowledge about ecosystems and the value they wield, (b) premature valuation techniques of the benefits provided, (c) lack of institutional capacity to utilize compensation, and (d) lack of political will to effectuate a compensation regime. He suggested that in order to strengthen the compensation regime, one must start with contextualizing the ecosystem goods and services in to separate bundles. He emphasized the need to evolve workable principles of compensation.
 

·   Dr. T. S. Papola, Institute for Studies in Industrial Development, New Delhi, said that he would view the subject from the angle of a developmental economist. The simple assumption was that provision of these services requires the people living in the resource - rich areas to make certain sacrifices. The discussions he said are not talking of the payment to the provider but to the communities. Here, thus, a market-based principle is not going to work except in cases like provision of ecotourism. The community and the State has to ensure that mechanism for compensation is accepted and provided. The other issue is allocation of resources once it has been agreed that the resource bearing states are to be compensated. The allocation of 1000 crore fund by the 12th Finance Commission for the purpose needs to be distributed on principles of politico-economic considerations. The current distribution is done on a pro rata basis. Any other basis would also be fruitful if the funds allocated to the States are utilized properly. The States have the option of making the contribution a part of their state resources or allocate the amount specifically for purposes of conserving resources and incentivizing individuals and organizations. He made suggestion of payment to the Van Panchayats in Uttarakhand. He suggested that this was not the only method to compensate for environmental services provided by the mountain states or areas. One method is inter-governmental transfers. The other is subsidizing goods and services in the mountain areas for e.g. subsidization of LPG cylinders to ensure clean fuel and thereby incentivizing less logging for fuelwood. The other method lies in promotion of technologies of infrastructure development that create minimal disturbance in the mountain ecology. Yet another method could be providing tax exemption on organic products that are environment-friendly. He suggested that a host of such incentives could be provided together with the direct inter-governmental transfers prescribed by the Finance Commission.
 

·   Mr. S.P. Bhave, Principal Resident Commissioner, Jammu & Kashmir, observed that the subject of compensation for protecting the environment makes tremendous sense. Some states like the Jammu and Kashmir are sacrificing their development potential for the benefits of others. He cited the example of construction of the Mughal Road which is hanging for a number of years because of the pending clearance of the Environment & Forests Department. The essence of federalism lies in States growing together and when a particular group of states is being put to a disadvantage because of the importance of protecting the environment, compensation to them makes tremendous sense. He emphasized the need to evolve different types of approaches for valuation of the compensation to be paid and mechanism for transfer of these resources. The States in turn needed to clearly evolve methods to utilize the incentives effectively.
 

·  Mr. T.R. Raghunandan, Joint Secretary, M/o Panchayati Raj observed that it is necessary to move from the half-baked solutions towards the good solutions. He also remarked that compensatory schemes and equalizing fiscal transfers don’t work in isolation where you have a myriad of compensatory transfers, each based on different formula. The net effect of such schemes could be at variance with what has been originally planned. Difference in absorptive capacities of communities and local governments can also make huge difference to the outcomes.
 

·    Mr. R.K. Gulati, Irrigation department, Government of Himachal Pradesh, observed that over a period of time there has been a divide between the upland communities and the low land communities who are now duty bound to pay for the clean services and benefits for e.g. hydropower, that they are getting. The term for it should be ‘payment from the low land communities’ instead of calling it compensation. He emphasized the need to debate on the mechanism of compensation – who to pay and to what extent? He said that the resources could be better maintained if the communities who are the custodians of these resources are paid directly. He also said that the states providing eco-friendly environmental services should work together on the issue, and for this we could have a Himalayan Environmental Action Plan on lines of the National Forestry Action Plan. In addition there should be integrated river basin data systems and plans for identification and preservation of a few biodiversity hotspots and gene pools through communities’ participation. On the ways to involve local communities, he suggested linking their livelihoods to ecotourism activities and preservation and commercial use of medicinal plants and herbs. He said that instead of lamenting the rigours imposed by the Forest Conservation Act, it would be beneficial to all if we work within the spirit of conservation imbibed in the said Act.
 

·   Mr. P K Tripathy, Principal Secretary to the Chief Minister of Delhi agreed with the need to compensate the upland states. He said that the people downstream instead of bothering about the source of power are more concerned whether the same is provided to him cheap. On the issue of compensation, he said that if the Central Government transfers the amount to the States, there was no issue. If the people, benefiting from these services were to pay, they needed to be educated as to what is the opportunity cost for the services and what the upland states are foregoing in terms of economic advantages. They would also want a clear linkage between the payments being made and its utilization by the upland states.

Session II: Political economy of water-sharing and dispute resolution. Equity issues in water sharing between states: environmental costs vs. economic benefits.

Chair: Ms. Renu Sahni Dhar, Principal Resident Commissioner, Himachal Pradesh
Co-Chair: Mr. Dalbir Singh, Secretary, AICC

Smt. Renu Sahni Dhar, welcomed the delegates to the post-lunch session and introduced the Co-chair and the presenter on the issue, Mr. Ravi Chopra, Director, People’s Science Institute, Dehradun, and invited him to make his presentation on the subject.
 

·   Dr. Ravi Chopra, Director, People’s Science Institute, Dehradun said that the subject was related to the matter of water and with it was the related issue of ownership of water resources. If we look at the National Water Policy and similar policies of the states, water is stated to be owned by the State. Conventionally, the natural resources have been construed to be owned by the local communities in the sense that the use, management and conservation of the resources are given to the local communities in a practical sense. Attempts to impose government ownership have alienated the local communities from their conservation, impacting rural livelihoods and in addition, resulting in huge losses to the nation. He suggested that the ownership of local communities needed to be restored and all state rights pertaining to natural resources should devolve on the Panchayati Raj Institutions. Their role also needs to be seen in a better light as a separate tier of government rather than a mere agency for getting development works done. He cited the example of Himachal Pradesh where by written decree water is deemed to be owned by the people who are willing to negotiate in lieu of water. This willingness to negotiate leads to lesser conflicts for it helps in educating the local communities about the need to harness water.

The second issue he touched was in respect of dams. There are talks of creation of hundreds of small dams in Himachal Pradesh, Uttarakhand and the Northeast. Even though it is being projected that it would not affect the ecology adversely, taken together they assume gigantic proportions of immense influence on the ecology. They also have many related costs like the land use changes, submergence of forests, pastures, farms, habitations, loss of flora and fauna, loss of habitats, sedimentation and associated changes in the river morphology, bank erosion and floods, stream flow fluctuation affecting biotic resources, fishery, ground water, agriculture and livelihoods. These also enhance disaster risks, land acquisition and displacements, resettlement, immigration leading to erosion of ethnic cultures and submergence of religious and heritage sites. The view that such states are being provided by 12% free power also needs to appraised when we look at the examples of villages adjacent to Govindsagar Lake and Tehri reservoir going without water. The first use of reservoir water should be allowed to the surrounding communities. There is also a possibility of using the hydropower for sustaining new local livelihoods. Better still if the locals are made partners in the projects. If the government agrees to give greater priority to subsistence agriculture, ensured drinking water supply, minimum flow, and compensatory forestation apart from giving them shares instead of paying compensation, it will prove to be a win-win situation for everyone.

The third issue he dealt with was in respect of water quality. He said that water quality was also related to equity. He cited the example of the effects of effluents going into Yamuna at Delhi which renders it unusable for 100 KMs downstream. There should be ways to ensure that Delhi cleans up its effluents or compensates the downstream states otherwise. Similarly the upstream states who measure up to water quality benchmarks should be rewarded.

The quantity to be used by the water rich states needs to be revisited. The National Commission for integrated water resource development planning in the 21st Century had recommended in 1999-2000, that the water supply should be between 70 to 100 litres per person per day in variance with the accepted minimum standard of 40 LPCD. The national policy makers have increased it to 55 LPCd but why should a state which is water-rich not give the optimum level which is considered adequate.
 

·   Mr. J K Sharma, Chief Engineer, Irrigation and Public Health Department, Government of Himachal Pradesh, insisted on the need to allow the usage of water to the extent of 70 LPCD instead of the cap of 40 LPCD imposed by the Government of India. He also said that development works related to water supply, irrigation and flood control are suffering in the wake of the Forest Conservation Act. These restrictions should be done away with in case of works related to water supply. He cited the example of delay in clearance of use of 8 bighas of land for setting up a Data Centre with the help of the World Bank. In forest areas roads need to be augmented with appropriate drainage systems. In areas of heavy precipitaion and snow, lack of these coupled with ban on logging and clearing of debris have often resulted in floods.
 

·  Mr. R K Gulati, said that the presentation and the discussion till now have concentrated on intra-state water issues. He thought that inter-state issues of water resources was an equally important subject related to the topic and has been contentious. In this regard both water sharing and power sharing are important and a proper dispute resolution mechanism needs to be provided. The water policy needs to be redrafted. There should be a policy specific to the Himalayan region if the region is the source of water and the ownership rights of the Himalayan states be clearly demarcated. The next issue he dwelt upon was water conservation. Deforestation and depletion of acquifers have led to rapid flow of monsoon waters. Similarly, there should be a mechanism to treat effluents before they are discharged into the rivers.
 

·   Dr. B K Joshi, made a point about the possibility of sharing of underground water also becoming a contentious issue in the future and the need to give the matter of ground water conservation and management a serious thought. At present, the owner of the land owns the water below it. The aquifers, though, cut across state boundaries and regions. He referred to the assumption of critical dimensions by ground water depletion in Punjab.
 

·    Mr. Chandi Prasad Bhatt, pointed towards the rich traditions of forest and water resource management in Himachal Pradesh and Uttarakhand. Ownership of such resources is a new concept as the techniques of resource management were adopted at the micro level earlier aimed at both use and conservation of resources. We need to revert back to this sytem where the matter of use and management is left to Van Panchayats. Earlier the resources were used to the extent required for by the people of upper reaches and the rest flowed downstream. It was only when indiscriminate exploitation of water in the upper reaches were allowed that the local subsitence farming was affected, distancing the local population from water management and conservation. The effects of intervention with the sources and upper reaches should be studied and a start should be made in Himachal Pradesh and Uttarakhand. He again stressed the need to conserve the glaciers of the Himalayas. What would happen if the glaciers melted completely and the source of water itself was lost?

Session III: Coordination issues (between Centre and States and among States) in dealing with Disasters and Calamities.

Chair: Mr. N. Vinod Chandra Menon, Member, National Disaster Management Authority
Co-Chair: Prof. Pushpesh Pant, Jawaharlal Nehru University

Mr. N. Vinod Chandra Menon, in his introductory remarks talked about the usefulness of the session in the wake of the country witnessing a shift of approach towards disasters from being relief-centric to a multi–disciplinary approach based on disaster preparedness in terms of response, disaster mitigation and prevention and post disaster rehabilitation, reconstruction and recovery. The subject, he said, concerned with systems for mobilizing relief, information sharing and dissemination and policy responses for the vulnerable states. The disaster management authorities formed at the Central, state and district levels would be working with two sets of funds – the Disaster Response Fund and the Disaster Mitigation Fund and thus system of devolution of funds needs to be strengthened. When we look at the issue of mobilizing relief from the Centre to the States, it means mobilizing relief to the disaster affected states and communities. The second issue is one of logistics where the needs of the disaster affected communities are appraised, and then there is the issue of identification of vendors, suppliers etc. He hoped that the national disaster policy being debated currently would lead to a professional disaster management environment.
 

·  Prof. Pushpesh Pant, in his remarks said that the subject impinged on everyone, including international diplomacy. The subject, however, suffers from a definitional problem. We need to appraise the difference between a natural disaster and a man-made disaster arising out of man-made interventions of development and adverse environment impact of policies. There are certain regions which are afflicted by the same set of disasters every year. He also said that disasters cut across regions and states. He cited the example of the flooding of the Chinese lakes and the adverse impact it had on Himachal Pradesh. Another example he cited was that of a disaster affected state that generates environmental refugees who in turn spill over to other states and affect their and the national budget as well. In this light, there was need for inter-state cooperation and international regional cooperation. Within the nation, there was need to effectuate inter-state cooperation in predicting, preventing and mitigating disasters.
 

·    Dr. Ravindra Pande, Professor of Geography, Kumaon University, Nainital made a presentation on the role of information in disaster mitigation. A lot of work has already been done in identification of hazards, their severity and magnitude and the frequency. The data pertains both to natural and man made hazards which could either have sudden impact or have a long lasting effect. The hazards when seen with vulnerability of the region and people provide a sense of the risk. Vulnerability in turn is a product of exposure, resistance and resilience. He also cited that the disaster management could be reduced to a mathematical formula i.e. hazards multiplied by vulnerability and divided by manageability. So the trick lies in either converting the hazard or vulnerability into zero in order to be at zero risk. This could be achieved with the help of manageability. He cited the examples of Bhuj and California earthquakes of similar intensity. He said that there was no casualty in the latter because they had reduced their vulnerability through manageability. In this endeavour, he said information was the most important tool. We would be able to save many lives if proper, timely and correct information is made a key element of our disaster management system. For this he prescribed that the people need to be put at the centre of disaster management. The data base and information that we have does not percolate down to the village disaster intervention teams created in Uttarakhand. In developing the information system also we are neglecting the inputs from below which makes it difficult for the district and village disaster management plans, which are drawn by experts from the top, to implement. Information is as important in responding to the disaster as in preparing for it. He cited the example of red cross volunteers in Indonesia who were able to unite 3400 tsunami survivors with their families using information technology. Good information is also vital to ensure well targeted and appropriate disaster relief. Proper information to the vulnerable people and to the relief and rescue parties is of prime importance. The next is media information which should emphasize what is needed and finally effective communication with the affected people. For e.g he saw no problems in letting the people of Uttarakhand know that they are living in zone five or in telling the people of Nainital that the town suffers from slope instability so that precautions could be taken. The next important step he said was investing in local response capacities. Instead of imposing definitions and solutions on people we should ask them about their perception because they know how to live with disasters. People of Uttarkashi, Chamoli and Pithoragarh have very interesting indigenous technology to deal with disasters. People continue to adapt to adversities e.g. the convention of keeping a month’s ration at any time of the year. Supporting resilience means more than delivering relief or mitigating hazards. Local knowledge skills, livelihood operations, access to resources are all vital factors in enabling a community to face disasters.

He also pointed out that the reief mentality is still supreme in our minds and that is reflected in the name of Contingency Relief Fund whereas the fund should have been known as Disaster Management Fund. It has been left to the states to generate response and mitigation funds. The Central contribution in these funds needs to be clarified.

We have created a national disaster response force consisting of paramilitary forces. The need however is to create local response capability. It is this capability that would prove to be beneficial. Community-based disaster management is definitely the way in which we have to work to get an effective response system.

Session IV: Fiscal Autonomy and assignment system

Sub-theme:

·                      Coordination in Tax Systems and harmonization of rates with special reference to VAT

·                      Promoting autonomy of local governments: Special reference to State Finance Commissions

Chair: Ms. Renuka Vishwanathan, Secretary (Coordination), Cabinet Secretariat
Co-Chair: Prof. A K Singh, Director, Giri Institute of Development Studies, Lucknow

Ms. Renuka Vishwanathan gave her views on the issue of tax systems and harmonization rates with special reference to VAT. She said that Unity in diversity was the essence of federalism. This however, raises a technical issue as to how far should we have unity and uniformity and how far should diversity be allowed to be compromised. This raises a lot of contentious issues, particularly in the sphere of fiscal federalism. In her opinion, harmonization of rates is always sought by tax payers but they don’t realize that there is an advantage in having diverse rates also, as is exhibited by the system of competitive federalism. This is particularly true for taxation on items which are movable. Here even though the transaction cost on packing up and moving from one place is added, it gives the freedom to people to shift where they like. It should be left to the local governments and the state governments to fix the rates, which naturally are guided by limitations both ways i.e. revision upwards or downwards. She cited the example of Alberta in Canada. The country has a system of royalty on petroleum going straight to States. Alberta was looked down upon by other states as living on grants from them till oil was discovered and the present situation is that the State with its added resources has the lowest incidence of income and sales tax. This example she said proved that harmonization was not the sine qua non of fiscal federalism. There is need to look at the virtues of the competitive tax rate systems as well and leave it to the wisdom of the States to pitch the rates at the appropriate level for their own growth.
 
In respect of VAT, she said that there was no need for the uniform rate. All that was needed was to specify the minimum rate. In the same way there are other taxes also. For e.g. a variable rate prevails in the matter of excise duty. Here again the wine companies are pitching for uniform rates. It should be left to the states who have the freedom to pitch the rate at the level required to provide the services in their jurisdiction. This is also the tenet that provides the base for fiscal accountability and fiscal autonomy. The Centre is trying to provide incentives to the states to adopt uniform rates in taxes that also include registration and stamp duty. This again should be left to the States and the market forces.

She pointed out the various interesting methods of coordination in a federation like Regional Councils and regional consultations. There is a need to learn from the States. In fact, all the best schemes of the Government of India are derived from some good schemes formulated and implemented by a state government and finally adopted by the Centre, and introduced to other States.

She also spoke about the role that Rajya Sabha could play in voicing the views of the States. The system, she lamented, has not developed in our country and in many other federal democracies, owing in, all probability, to the people voting on lines of party loyalty rather on the basis of loyalty to states. She said that it would be fruitful if the Upper Chambers were used as forum of discussion on issues concerning micro-economic policies, and developments in States.
 

·   Dr. A K Singh, in his introductory remarks expressed his concern about the diminishing ability of the states to raise more resources for their development. The way things have been moving on the taxes front and the associated fiscal reforms, gradually the powers of the states to mobilize more resources by changing tax rates is getting reduced.
 

·   Mr. Indu Kumar Pande, Additional Chief Secretary, Uttarakhand made a presentation on how consensus evolved with respect to VAT in the country. VAT does not discriminate between domestic production and imports and it facilitates stable tax structures. This was evolved by NIPFP through discussions held with States’ Sales Tax Commissioners and other officials. Two documents were brought out on reform of the domestic rates of taxes and on revenue implications of alternative VAT. States were reducing sales tax rates on a competitive basis in order to attract industry which ultimately got in a position to blackmail the States. All the States were losing out on revenues. An empowered committee under the chairmanship of Asim Dasgupta, Finance Minister of West Bengal was constituted pursuant to decision taken by a meeting of Chief Ministers in 1999. The first decision of the forum was to have floor rates under sales tax with certain commodities being exempted. The decision to have VAT was guided by three issues. One was evolving consensus among the states on implementation of floor rates under the Sales Tax. The second was agreement in principle to replace sales tax by VAT at the state level and lastly, consensus on implementation of floor rates and doing way gradually with the concessions being offered to the industry. The VAT regime was finally implemented on 1st April 2005. A model law was drafted, on the basis of which the states drafted their own legislation, which gave scope for certain commodities with not much of inter-state trade potential and of local consumption being exempted from the regime.

Today, VAT is only an intra-state VAT as the Central sales tax is still there. Central sales tax needs to be pahsed out over a period of time and finally have VAT all over the country both intra-state and inter-state.

The above agreement was reached by consensus through an informal arrangement of the Empowered Committee, despite the presence of a formal forum of inter-state council existing in the shape of the Inter-State Council. Similarly efforts are being made to evolve informal consensus on harmonization of rates and merger of excise and sales tax into one tax administration. Inter-State Council could also be utilized to evolve consensus on such issues.

He in the end, pointed to the recommendation of the Kelkar Commission to move towards a national VAT. This could be achieved if the States have an arrangement with the Central Government and have a national VAT where excise and sales tax and all other taxes like entry tax have been clubbed together. Till that time, we can continue with the present approach of floor rates with a built-in flexibility for the States.

The second part of his presentation was focused on the constitutional provisions in respect of panchayati raj institutions and urban local bodies. He said that the 73rd and the 74th Constitutional amendments have been milestones in the process of decentralized administration. The amendments imply having a gram sabha in every village. In Uttarakhand there are three tiers namely the District Panchayat or the pancahayt union, the block level or kshetra panchayats and the village panchayats. There is a provision for reservation of seats for the weaker sections. Elections are prescribed with the tenure fixed for five years. Similar prescriptions have been done for urban local bodies. Constitution of State Finance Commissions has also been mandated. The local self-government has for long been justified on the grounds that they would be able to foster the cultural and linguistic diversities more effectively. However, with these amendments, the real issue that has cropped up is the devolution of functions and powers to the local self-governments, more so in the case of PRIs than in the case of urban local bodies. Opposition from the states and the elected representatives of the state legislature confronts this. This he said would be a gradual process, as was done in the case of devoltion of functions and powers to the States in the 70s. This is still an evolving area and the political conflicts will have to be gradually sorted out. The institutions of local Governments will need to be strengthened.
 

·   Dr. A K Singh, Director, Giri Institute of Development Studies, Lucknow, made remarks about the role of State Finance Commissions in fiscal decentralization. He cited the example of UP where he was a member of the second Finance Commission. He referred to the euphoria in respect of the Constitutional amendments that seek to establish a third tier of government. In reality, however, the controls remain with the States, and unwillingness to decentralize persists. He pointed out that historically a lot of functions had been devolved to urban local bodies, because they were entrusted with, apart from provision of civic services, the task of planning, development and poverty alleviation in urban areas. This is not happening in the case of the rural bodies. In UP for example the construction of school has devolved down but not the role in primary education. In UP unlike Kerala and Maharashtra, the entire planning process has bypassed the PRIs. Even though there is larger flow of funds for development, it is the Collector who makes and implements the district level plans. Local bodies have only been made agencies to implement these programmes. He said that unless we make it apart of the Constitution and create a genuine third rung of government with a mandatory third list of functions, the task of decentralization of political power and financial devolution would not be possible.

On the role of State Finance Commissions (SFC) in promoting autonomy to local governments, he again cited the example of UP. The SFC can only prescribe devolution of finances, not functions. When the Second Finance Commission recommended devolution of 12.5% it was readily agreed to because it did not involve devolution of functions. It was also marred by the incremental nature of its prescriptions as in the case of National Finance Commission. They cannot prescribe drastic changes.
 
There are certain taxes, which should rightfully belong to local bodies like the entertainment tax, profession tax, and rural house tax. Prescriptions of the SFC in regard to profession tax were not adhered to by UP Government. Thus, proper fiscal space for local bodies has not been created and the only way out is forcing it through Constitutional provisions.

He pointed to another issue of unwillingness to raise resources through taxes at all levels. Even in the case of local bodies they look towards the states, which in turn look towards the Centre, thus minimizing the chance of own resource mobilization (in case of UP local bodies were not able to mobilize even 1% of their resources). This naturally affects their quest for autonomy, and they will be forced to implement projects imposed from above.
 
The other issue he referred to was that of viability in terms of size. The minimum size of U P Panchayats is 1000 whereas the same figure touches 16-17 thousand in West Bengal. This leads to some panchayats, in Kerala, having their own revenue resource, of around Rs. one crore.

In the end, he prescribed that we should aim incrementally towards a situation where 20% of the State resources are devolved to the local bodies to make them financially empowered and capable of discharging the functions expected of them.
 

·  Mr. T R Raghunandan, Joint Secretary, Ministry of Panchayati Raj, GOI made a presentation in which he said that decentralization is a deeply political exercise. In most developing countries all the way up from South East Asia to Latin America, there have been huge experiments in devolution and decentralization. They have all been prompted by political and not economic necessities. He cited the case of dictatorial countries that have devolved powers to the local levels to diffuse political ambitions. The example of British India was quoted to burtress the same thinking. The recent examples of decentralization in Indonesia and Pakisatn were also sighted to claim how it has been the political leadership that took the initiative in effectuating decentralization. In the Indian context, however he cited the example of the efforts made by Ram Krishna Hegde in Karnataka and Digvijay Singh in Madhya Pradesh who romped home immediately after making decentralization their key motto but couldn’t sustain their regime thereafter. Similarly, in Kerala the coomunist government devolved 30% of their resources to the local bodies but the government couldn’t retain power. It is only in West Bengal that decentralization has contributed to perpetuating the CPI (M) rule but there again land reforms could be a greater contributor to their long rule. He summarized by saying that decentralization is a losing proposition for the politician at the state level.

India, he said was a ‘holding together’ federation in contrast to the ‘coming together’ character of the US federation. A large unitary institution capable of creating constituent bodies to address its diversity characterized India. Elections to panchayats have become an inviolable principle of the Indian polity. The political willingness to devolve has been exhibited. What needs to be done is to design a sustainable structure with size of panchayats, scale of delivery of a particular service, level of empowerment, and the match between functional and fiscal devolutions providing the key thrust areas.

He referred to the prescriptions of Balwant Rai Mehta and Ashok Mehta bein three-tiered and two-tiered, respectively. In the model adopted by Karnataka, one tier had been made subordinate to the other whereas in the constitution there is no mention of any hierarchy. He said that the matter whether they are subordinate or not would depend on the design of the functional devolution. In order to build a good design, he also suggested that right incentives for correct behaviour be built for officials and politicians serving panchayati raj institutions, apart from capacity building. He cited the example of Kerala where a lot of functions were devolved on to the panchayats along with provision of 30% of the state budget. Nearly a lakh volunteers were mobilized outside the panchayati raj system to provide technical inputs to the panchayats directly.

He also exhorted the need to create fiscal transparency and correct fiscal transfer. The officials could be asked resorting to the Right to Information Act about the utilization of funds for the functions they were meant for. He suggested that an Innovation or Incentive Fund could also be built in.

    The two-day meeting then concluded with the Secretary thanking the host government and the Administrative Institute at Nainital for their support.