Fiscal health of the State Pollution Control Boards

The Indo-Gangetic Plain (IGP) in India is one of the most polluted regions in the world. A densely populated region, with many sources emitting a range of pollutants, regulating air pollution here is an extremely difficult and complex task. Several measures are afoot to improve air quality in this region, and the State Pollution Control Boards and Pollution Control Committees (SPCBs/PCCs) are playing a key role.

However, these frontline agencies in pollution regulation are faced with several institutional constraints and challenges in discharging their mandate effectively. In a recently published working paper series, the Centre for Policy Research explored some of the key institutional issues faced by Boards through three papers:

• “Who has a seat at the table?” – Examines the composition of the Boards and their ability to engage in policymaking and take decisions in furtherance of statutory goals;
• “Who is at the helm?” – Analyses the qualifications of the Boards’ leadership and whether they are well-placed to guide the Boards’ functioning; and
• “Who is in the field?” – Evaluates the adequacy of the Board’s capacity – particularly technical capacity – to perform critical functions like consent granting, inspection, monitoring, and enforcement.

In the fourth paper of this series “The State of India’s Pollution Control Boards - Are they in the green?”, the authors train their lens on the fiscal health of the 10 SPCBs/PCC located in the Indo-Gangetic Plains. Poor fiscal health is often cited as an antecedent cause of the various institutional challenges of the SPCBs/PCC discussed in the three previous working papers.

Whether it be the inability to fill the huge number of vacancies, especially in technical roles, investing in necessary infrastructure, or implementing modern pollution monitoring or control mechanisms, the lack of adequate financial resources is cited by officials as a key stumbling block. The resultant failure to effectively meet their statutory mandate is directly linked to the fiscal health of these institutions, a relatively understudied aspect of SPCB/PCC functioning.

Based on information collected from state governments and pollution control boards through applications filed under the Right to Information Act, 2005 (RTI Act), and from various government websites, along with information and views shared by senior Board officials during interviews, this paper describes the means through which SPCBs/PCCs collect revenue and analyses their approach to expenditure and investment. It also analyses the extent of financial support provided to these SPCBs/PCCs by the Central and state governments, and how that then affects their financial decision-making.

The analyses reveal the following key takeaways:

• Most Boards are turning a surplus every year: Most of the Boards examined turned a surplus for each of the 3 years for which we reviewed their finances, with many struggling to spend the entirety of the amount they collect through fees and other sources.
• Surplus funds are directed to investments: The substantial surplus generated each year by SPCBs/PCCs is directed toward short and medium-term fixed deposits rather than investments in manpower, infrastructure, and equipment. Overall, the authors conservatively estimate that Rs. 2893 crores are invested in fixed deposits by the 10 SPCBs/PCCs as of 31 March 2021. The interest earned from these investments plays a significant role in the fiscal health of the SPCBs.
• SPCBs do not receive financial support from the Government: For all but two states, there was no financial support provided by state governments to their respective SPCBs/PCCs. Central Government funding is sparse and is tied to funding linked to existing centrally sponsored schemes.
• Conservative expenditure stems from unreliable government funding: The lack of consistent untied funding from the government leads to Boards depending on funds raised independently through consent fees and accruing interest from investments. This creates additional concerns as most Board staff then tend to focus only on revenue-generating consent management functions.
• Expenditure skewed in favour of staff pay and away from infrastructure and research: Pay and allowances for staff comprise over half of SPCB/PCC expenditure, with some skewing upwards of 80%. Despite the poor state of infrastructure in many States, spending on new infrastructure including lab facilities is low, with some exceptions. Spending on research, development and studies comprises a tiny fraction of overall expenditure across the board.

The analyses also raises the following overarching questions with respect to the functioning of SPCBs that bear consideration.

• SPCBs lack absorptive capacity: Low median fund utilisation across the SPCBs indicates a lack of fiscal expertise within these institutions to accurately predict income and expenditure on an annual basis. This is mirrored even in programs where there are clearly laid out guidelines on expenditure such as the NCAP.
• Board member engagement on finances is insufficient: Strengthening the fiscal functioning of the Boards will require greater engagement from Board members on financial matters. However, as seen from the first working paper of this series, there is minimal focus on substantive issues such as finance in Board meetings.

Reliance on consent fees and third-party inspections surface the principal-agent problem in regulation: The overreliance on consent fees as an income source coupled with the lack of internal technical capacity means many Boards outsource regulatory functions such as inspections to third-parties paid for by Industry. This raises questions around conflict of interest and the ability of the SPCBs to effectively regulate.

• Income sources, financial and functional autonomy: In the absence of regular funding either from the Central or State governments, income gained from investments play a key role in keeping SPCBs in the green every year. In our analysis, we find that without the interest income, 6 out of the 10 States studied would turn a loss for at least one of the three years. This reliance on interest income constrains the ability of the Boards to allocate funds towards anything besides routine expenditure.

Conclusion

The research reveals that while many SPCBs are adequately financed, this is a necessary but not sufficient condition to ensure that the SPCBs/PCCs fulfil their mandate. While the framework by which the SPCBs were established and the finances they can generate indicate de jure autonomy, questions remain over de facto autonomy given the dependence on interest income and the various issues raised in the previous working papers in this series. This has manifested in many ways including through the worry of SPCB leadership over authorising large expenditures on equipment, manpower or research for fear of being questioned. These funds instead find their way to investments.

In the interviews, several respondents indicated that the NGT’s order empowering SPCBs to impose environmental compensation provided a much-needed replacement for revenue lost when the water cess was subsumed under the GST regime. The Chairperson of a state praised the transformative move which in his words reformed the otherwise “toothless, poison-less” nature of enforcement, and provided a means for the Boards to invest in environmental restoration and protection programmes.

The proposed amendments to the Air Act and the Environment Protection Act in the Jan Vishwas Bill currently tabled in Parliament envision significant changes to the regulatory regime, with adjudicatory powers to be placed in the hands of the Central Government, appointed bureaucrats and fines accruing to the environment protection fund of the Central Government. It is unclear at this stage (in the absence of any appended rules) what this means for the current regulatory regime and the role of SPCBs. It would no doubt have ramifications on their role in the regulatory state and affect their ability to generate revenue from environmental compensation.

Given that the SPCBs are unable to meet their statutory mandate effectively under the current fiscal and regulatory conditions, there must be greater debate about what form SPCBs take and what role they have in a forward-looking regulatory regime that aims to substantially reduce air pollution from the current levels by leveraging modern approaches and regulating at the level of airsheds, not States.

The full working paper is available here