- A recent report says ten state pollution control boards in the polluted Indo-Gangetic plain have a financial surplus every year because of low spending. The surplus funds are invested in fixed deposits instead of strengthening the workforce and infrastructure.
- With government grants negligible, the boards rely heavily on consent fees charged from the industrial units and interest earned on FDs, which has hampered their ability to regulate effectively.
- Experts call for overall restructuring in the working of pollution regulators in India to improve their administrative, financial, and technical capacity.
Ten state pollution control boards across the Indo-Gangetic Plain, which faces severe air pollution, have a surplus of funds each year, finds a recent report by the Centre for Policy Research (CPR).
This is contrary to some past reports and a widespread perception that state pollution control boards have challenges related to finances and their management, which leads to ineffective delivery of services.
The Delhi-based think tank, CPR, studied the financial health of state pollution boards using information collected under the Right to Information Act and interviews of regulatory staff of different states. The ten pollution control boards it reviewed were from Punjab, Haryana, Delhi, Rajasthan, Uttar Pradesh, Bihar, Chhattisgarh, Uttarakhand, Jharkhand, and West Bengal.
According to the CPR report, a majority of the pollution control boards had surplus funds over the three financial years (from 2018 to 2021) that the report focussed on. It found that many of the boards did not spend the entire amount they collected and the surplus was invested in bank fixed deposits.
The research team estimated the amount of money invested by each board by using the data on interest income accrued by each board in each year, which they received through their RTI responses. A standard interest rate for each financial year was used, based on which the approximate principal amount invested was calculated.
The estimated investments, the study found, amounted to Rs. 29 billion, during the 2020-21 fiscal year. West Bengal topped the list with deposits of Rs. 7.7 billion, while Jharkhand had the lowest amount of investment at Rs. 235 million, as per the indicative estimates.
Other states’ pollution control boards also invested surplus funds in bank fixed deposits during the 2020-21 fiscal year. Haryana invested an estimated Rs. 6.08 billion, Rajasthan invested Rs. 5.74 billion, Delhi invested Rs. 3.75 billion, Punjab invested Rs. 2.15 billion, Uttarakhand invested Rs. 1.73 billion, Chhattisgarh invested Rs. 1 billion, Bihar invested Rs. 630 million, and Uttar Pradesh invested Rs. 540 million, according to the study’s estimates.
There have previously been reports that have suggested that lack of financial resources and inefficient financial management are among the major reasons of state pollution control boards being ineffective in improving air quality as well as failing on their other responsibilities of water and waste management.
For instance, a 2020 study by the Centre for Chronic Disease Control cited financial constraints as one of the barriers to achieving the National Ambient Air Quality Standards. The study notes that “inadequate funding is a major reason behind the insufficient staff and consequently the infrequent inspections and focus on matters of air pollution control“. The interviewees for the report also cited the lack of funding as a challenge to carry out their daily responsibilities and hire trained staff.
Another report, from 2009, by the Centre for Science and Environment, a New Delhi-based think tank, recommended an increase and improvement in the financial resources of these boards. It noted that in some cases, financial constraints and budgetary restrictions were stated, by the interviewees, as a reason for staff shortages. “A multi-faceted approach is required to increase and improve the human and financial resources of the boards,” the report recommended.
Low fund utilisation
While interest from the bank fixed deposit investments helped the pollution regulatory boards maintain positive balance sheets, which means more assets that liabilities and hence a better value, there was low expenditure of the funds by the boards, shows the CPR report. The average fund utilisation rate across the ten boards was 48% during the three fiscal years from 2018-19 to 2020-21. The average fund utilisation rate was the highest in Punjab at 71%, while it is the lowest in Uttarakhand at 25% across the three study years. The report mentioned that fund utilisation in the national capital, which often experiences bad air pollution days, was at most 35%.
The report points out that the low utilisation indicates a lack of financial expertise within these institutions to predict annual income and expenditure accurately and to create spending plans accordingly.
While there is inefficient management of funds on one hand, on the other, the boards face staff shortages and inadequate infrastructure for pollution monitoring and lab testing.
The report states that despite low spending, staff salaries and allowances comprised over half of the expenditure during these three fiscal years.
The share of spending on new infrastructure, including lab testing facilities, was as low as 11% during these years despite the inadequate state of infrastructure in many states.
The report then added that the spending on research, development, and studies, which otherwise help regulators to make positive interventions, comprised just 2% of their overall expenditure.
Industry-dependent revenue model
For pollution boards in the region, consent fees charged from industrial units along with interest earned on surplus fund investments, are the primary revenue sources, the CPR report mentioned. Earlier, pollution control boards had diverse revenue sources, such as water cess, but this revenue source was stopped after the launch of the Goods and Service Tax (GST) regime. Government grants to the boards are also negligible.
According to the report, on average, 53% of the total income of the ten boards, during the three fiscal years studied, came from the consent fees charged to industries that were given permission to establish and operate their units in the state.
Another 23% of their income during these years came from interest they earned from their investments of surplus funds in fixed deposits, savings accounts and advances.
As per the report, these two components – consent fees and interest income – contributed significantly to the overall revenue of the boards, but have reduced their ability to regulate effectively.
Explaining this further, Bhargav Krishna, the report’s co-author and CPR fellow, told Mongabay India that since the investment of surplus funds helps the boards earn almost one-fourth of their revenue each year, the boards do not want to forgo it by increasing the expenditure on workforce hiring and other required infrastructure like technical labs, etc., even though there is an urgent requirement.
This, in turn, impacts regulations. Since the boards do not have sufficient technical ground staff, they have outsourced regulatory functions, such as mandatory periodical inspections of industrial plants and factories, to third-party auditors. But the boards have no internal mechanism to cross-check if these audits are accurate, reflect ground realities and whether or not industrial units are complying with the environmental standards, said Bhargav.
He quoted a study done in Gujarat in 2013, which provided evidence that the functioning of third-party auditors, otherwise hired by factory owners, is a clear case of conflict of interest. Their reports are not always accurate and there is very little oversight of their work.
According to him, the solution is simple: the government must give dedicated funds to regulators so that they do not remain dependent on their limited source of earnings. The funds should be sufficient for them to maintain their proper administrative and technical staff and regulatory infrastructure.
“Our reports reveal that the grant in aid by state governments of these ten respective boards was a mere 4% during the three fiscal years we studied. Since it has limited income sources, it has become a tendency for regulatory bodies not to spend much on filling up vacant posts and improving their technical expertise,” he added.
The CPR report also mentioned that according to respondents the team interviewed, the NGT’s order in 2019, allowing boards to impose environmental compensation, provided a much-needed replacement for revenue lost when the GST regime subsumed the water cess.
But the proposed amendments to the Air Act and the Environment Protection Act in the Jan Vishwas Bill, currently pending before Indian Parliament, propose significant changes to the regulatory regime, with adjudicatory powers to be placed in the hands of a Central Government-appointed committee including the power to impose environmental compensation.
It is unclear at this stage what this means for the current regulatory regime and the role of state pollution control boards, the report added.
Restructuring required
Ajay Narayan Jha, member of the 15th Finance Commission, constituted in 2017, which helped launch the National Clean Air Programme in India in 2019, told Mongabay-India that it is a timely report and welcome intervention, in terms of analysing the financial performance of the state pollution control boards and various bottlenecks in their working.
“If I take the discussion forward, we need to restructure the state pollution control boards into two separate verticals. One vertical in the boards must take care of setting high scientific and technical standards. Another vertical must focus on essential aspects of regulations like inspections and enforcement of environmental norms, said Jha.
As mentioned in the report as well, he said, the inspections of industrial units is done by third-party auditors. This creates a conflict of interest since they are hired by the factory owners themselves. “I think, state boards must exclusively handle regulation. This will only be possible if these agencies are strengthened aptly,” said Jha.
He agrees that concerns are growing among a large number of people over increasing air and water pollution. Discussions are underway at various levels on strengthening the regulatory framework as well as updating scientific parameters to achieve clean air and water. It must lead to fruitful results in the future, he adds.
Banner image: Centre for Policy Research’s recent report says ten state pollution control boards operating across heavily polluted Indo-Gangetic plain are turning a financial surplus every year due to their low spending. Photo from Pixabay.