[Analysis] Developers should pay a higher Net Present Value for cutting forests

India has multiple laws to govern its forests including the Forest Conservation Act 1980 which deals with the diversion of forests for non-forestry purposes. Photo by Paul Hamilton/Wikimedia Commons.
  • In January 2022, a Supreme Court-appointed committee criticised the current method of evaluating forests, calling it outdated. It recommended a substantial revision of the Net Present Value (NPV) of forests, fixing compensatory afforestation practices, and the creation of a new body to regulate forest diversion.
  • However, in January 2022 itself, the union environment ministry revised the formula to calculate the NPV and increased it only by 1.5 times. The ministry ignored even the recommendations by another expert group that had asked for increasing the NPV by four times.
  • Forest-sector experts have maintained that the non-revision of NPV for the past 15 years had led to “an undervaluation” of forests being diverted. Factors such as ecosystem services were not being considered. They believe that the latest revision ignores all such concerns once again.

The revision of the formula to calculate how India assesses the value of its forests was long pending. In January 2022, an expert committee appointed by the Supreme Court of India filed a report criticising how the Indian government measures the value of the country’s forests – the Net Present Value (NPV). It recommended a substantial increase in the price that project developers must pay for chopping down forests. The ministry, however, had a plan of its own and within days okayed a nominal hike of only 1.5 times to ensure the project costs do not go up.

Under the Forest Conservation Act, 1980 (FCA), developers who use forest land for their projects are required to pay a one-time monetary valuation, called Net Present Value (NPV), to the government in lieu of cutting down forests. It depends on factors such as the quality and type of forests. Since 2009, the government has been charging between Rs. 438,000 and Rs. 1.04 million as the NPV for diverting every hectare of forest.

According to a 2008 Supreme Court order, the NPV was supposed to be revised by the Indian government in three years. But it failed to do so despite recommendations from several committees.

In January 2021, the Union Ministry of Environment, Forest and Climate Change (MoEFCC) proposed to hike the NPV by 1.51 times which was based on the Wholesale Price Index (WPI). However, while doing so, it set aside the recommendation of a four-time increase in the NPV by another expert group the ministry had constituted earlier in 2014.

Subsequently, in March 2021, the Supreme Court appointed an expert committee chaired by M.K. Ranjitsinh, wildlife expert and former chairman of the Wildlife Trust of India. Other members included environment ministry officials and renowned environmentalists. Its report was submitted to the apex court on January 4, 2022.

The report is yet to be made public but Mongabay-India analysed it and found that the SC-appointed committee was critical of the union government. The committee told the court that the method proposed by the environment ministry to revise the NPV was “not scientific” and claimed that the NPV rates were based on outdated data and methods. It also warned that a “blind” use of the WPI to revise the NPV “will defeat the purpose” – as it is not a true reflection of the social costs incurred.

The SC committee was tasked with the appraisal of existing practices of diverting forests and asked to frame scientific policy guidelines to govern the cutting of trees. However, even before the court could have taken note of the committee’s report, on January 6, the government of India went ahead with only a nominal hike in the price for cutting the forests to ensure project costs do not go up, shows the review of the documents.

The MoEFCC informed all the states that a 1.53 times increase of the NPV would now be applicable for all types of forests. The SC-appointed committee had suggested a substantial increase in the NPV rates and recommended a separate committee to calculate appropriate the NPV.

Queries to the environment ministry – secretary, the Director-General of Forest, Assistant Inspector General of Forest and the scientist-in-charge of NPV policy, respectively – regarding decisions on the NPV policy and committee recommendations remain unanswered.

Read more: The state of India’s forests: Losing forests, gaining plantations

Ministries want low project costs

So far, there isn’t any official answer about the low revision of the NPV but a review of documents and reports over the past 10 years shows it is no surprise. In fact, the SC-appointed committee isn’t the first body of experts that recommended an upward revision of the NPV. At least two more expert groups had asked for a substantial increase in NPV.

An Indian Institute of Forest Management (IIFM) study in 2014, which was commissioned by the MoEFCC in March 2012, suggested a four-fold increase in NPV. In August 2014, a committee led by former cabinet secretary T.S.R. Subramanian, which was formed to review environmental laws, recommended a five-time increase in the NPV.

Documents show that while the environment ministry initially considered implementing the four-fold increase suggested by the IIFM report, several ministries and departments, including the ministries of coal, steel and power opposed the move fearing an abrupt increase in project costs. The ministry of coal argued that “the proposed NPV rates shall increase from 77 percent to 437 percent” and therefore “new projects would become unviable.” It further added that “frequent revision of NPV rates affect the economic viability of projects.”

After a discussion between the ministries, the environment ministry decided in January 2021 that it would not go ahead with the abrupt four-time increase as suggested by the IIFM report.

The SC-appointed committee, however, considered the four-fold increase justified. It found the method proposed by the IIFM report more advanced.

Ranjitsinh, who was the SC-appointed committee’s chairperson, had also served as additional secretary in the union environment ministry, when Rajiv Gandhi was India’s prime minister. “When I was in the environment ministry, the PM was the environment minister and every acre of forest land required the permission of the environment minister. It is not just the area of forest land diverted that matters but the impact of it,” he told Mongabay-India.

A project developer who seeks diversion of forest area for a non-forestry project such as a hydropower dam is required to pay a fee. Photo by KSEB/Wikimedia Commons.
A project developer who seeks diversion of forest area for a non-forestry project such as a hydropower dam is required to pay a fee. Photo by KSEB/Wikimedia Commons.

Scientists and economists consider several uses of forests and ecosystems to assess their value.

Madhu Verma, who was one of the lead authors of the IIFM study, while talking about the method of calculating the NPV, stated that the present method of calculating the NPV uses the market price of carbon, which does not accurately represent its social costs. “(In our IIFM study) We picked up values which impact the livelihoods of people and the economy as a whole and did the calculations.”

Asked if a high NPV can be used to maintain the balance between environmental protection and infrastructure development, Verma stated that the NPV should “act as a deterrent” to forest diversion.

According to the January 2022 report by the SC-appointed committee, the current method of calculating the NPV is not enough because it does not accurately represent the value of the ecosystem services provided by forests such as watershed services.

The method of calculating the NPV proposed by the IIFM takes into account several other uses of forests and is therefore considered more updated than the present way of evaluating forests.  “The latest revision (the January 2022 revision by the MoEFCC) has taken into account inflation alone, which will not be sufficient,” Madhu Verma told Mongabay-India.

Read more: [Analysis] Indian forests around the size of Nagaland, thinned down in two years

Net-Present Value failed in disincentivizing forest diversion

According to the FCA 1980, for every forest land diverted for non-forest purposes – after a clearance from the environment ministry – a compensation has to be paid. This is then transferred to a fund set up under the Compensatory Afforestation (CAMPA) Act, 2016, which the states have to use for afforestation on non-forest or degraded forest lands.

In 2002, the Supreme Court while hearing the T.N. Godavarman case (which initially dealt with illegal deforestation of Nilgiri forests, and later the Supreme Court expanded the remit of the case to look at forest management across the country), ordered that developers would have to pay the NPV in addition to the amount paid for compensatory afforestation.

This was done to protect forests from development projects by increasing costs of diversion and to ensure that any loss of forests was properly compensated for. Mongabay-India’s review of the report of the SC-appointed committee reveals that several issues in the implementation of all these policies are observed.

In its report, the committee said that since developers can easily take over forest land after paying a small compensation, it is resulting in a net loss of forest land. It also pointed out that the existing compensatory afforestation mechanism has hardly led to any substitution for the forests lost. The report mentions that the environment ministry had given permission for 6.9 million trees to be cut between 2016-and 2019 alone.

In fact, over the years, the audit reports by the Comptroller and Auditor General of India and news reports revealed several implementation issues related to the utilisation of CAMPA funds: delays in land transfer for afforestation, non-existent compensatory plantations and forcible takeover of community lands for afforestation, among others.

The SC-committee’s report highlights the 2013 CAG report which had cited the union environment ministry records to show that the forest department received less than 30 percent of the land it was supposed to receive, and afforestation was completed on only seven percent of the total land.

The apex court’s committee emphasizes in its report that the non-revision of the NPV for the past 15 years has resulted “in an undervaluation of the natural capital that is being diverted.”

In fact, to ensure that NPV is assessed accurately, the committee recommended a methodology overhaul, suggesting a list of ecosystem services and data sources be included in revising the Net Present Value.

The government didn’t take any of these steps while revising NPV in January 2022. The environment ministry is yet to provide feedback on the recommendations of the committee. And the case, which triggered the assessment, remains pending in the Supreme Court.

The Hasdeo Arand forest region in Chhattisgarh. Photo by Mayank Aggarwal/Mongabay.
The Hasdeo Arand forest region in Chhattisgarh. Photo by Mayank Aggarwal/Mongabay.

Experts argue that even an increase in the Net Present Value will do little to prevent the diversion of forestland. “Processes like the NPV have become more of a distraction, instead of addressing the more fundamental questions about forest governance. The focus must be on the idea of making the process of forest diversion more transparent and consent-driven,” Kanchi Kohli, an environmental researcher with the Centre for Policy Research, told Mongabay-India.

“Over the past two decades, the Net Present Value has not disincentivized the diversion of forest land,” she said.

The author is a researcher with Land Conflict Watch, an independent network of researchers studying land conflicts, climate change and natural resource governance in India.


Banner image: India has multiple laws to govern its forests including the Forest Conservation Act 1980 which deals with the diversion of forests for non-forestry purposes. Photo by Paul Hamilton/Flickr.

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