India's Ecological Fiscal Transfers — Forest-Cover Weighted Tax Devolution to States

In February 2014, India's 14th Finance Commission added forest cover to the formula determining how the central government's shared tax revenue is divided among states, weighting 7.5% of the divisible pool by each state's area of 'very dense' and 'moderately dense' forest (2013 data) for FY2015-16 through 2019-20 — an unconditional, recurring transfer rewarding heavily forested, revenue-poor states (especially in India's Northeast) for the opportunity cost of not converting forest land to more lucrative uses.

The 15th Finance Commission raised the forest-cover weight to 10% for 2021-26. The transfer is unearmarked, so states can spend it on anything, not only conservation.

Economists Jonah Busch and Priya Shyamsundar, with Anit Mukherjee (Conservation Letters, 2018), estimate the scheme moved roughly $6.9-$12 billion per year between 2015 and 2019, equivalent to $174-$303 per hectare of forest annually — more than global REDD+ climate finance over the same period. The World Resources Institute reports India's central government transferred an estimated ₹85,526 crore (about $11.1 billion) to states on the basis of forest cover in 2020-21 alone.

Because the mechanism rewards forest area rather than forest quality, condition or biodiversity, and because funds are unearmarked, a peer-reviewed follow-up study (IOPscience Environmental Research Communications, 2020) finds mixed evidence that the transfers actually increased state forestry budgets. Researchers cited by Mongabay India (2023) have urged the 16th Finance Commission to add forest-quality and climate variables so the fiscal signal tracks real ecological outcomes rather than raw canopy area.