Budget 2020: Centre may announce sops for states for pollution control

Every autumn and winter, the states of North India blame one another and the Centre as smoke from crop-burning mixes with vehicular and industrial pollution, the air quality deteriorates, and Indian cities dominate the ‘world’s most polluted’ charts.

Now, states that control air, water, and noise pollution better than others can hope for additional funds if the Fifteenth Finance Commission’s (15th FC’s) recommendations on performance-based incentives to states are accepted by the central government.

Perhaps for the first time, pollution control has been considered as a parameter for incentives by the 15th FC in its interim report for 2020-21, Business Standard has learnt.

The 15th FC is said to have recommended in its report that amelioration in health care, agricultural reforms, and improvement in aspirational district rankings of the NITI Aayog are some of the other parameters on which states will be awarded.

The Commission submitted its interim report for 2020-21 to President Ram Nath Kovind earlier this month. The interim report will enable Finance Minister Nirmala Sitharaman and her bureaucrats to prepare the 2020-21 Budget, and is likely to be made public on or just before the day of the Budget.

Top sources said the Commission had held extensive discussions with the environment ministry to formalise a mechanism to measure pollution control measures by states, based on which the additional incentives could be linked.

Additionally, officials said while these parameters had been laid out in the interim report and could find mention in the s, they might take effect after the 15th FC’s final report in October next year, which would give time to states to take full advantage of the new performance parameters.

Sources said the Budget could also put in place a mechanism by which funds to states through these new incentives could be transferred.

“The amount of funds allocated for these and what percentage of a state’s share could be linked to these are yet to be finalised, but a decision has been made to incorporate this as part of the performance-based incentives for the states,” a senior official remarked.

Business Standard had first reported in June last year that the 15th FC would be bringing back performance-based incentives. Performance-based incentives were recommended by the 13th FC, but omitted by the 14th FC.

Among the original terms of reference that were provided to the 15th FC, it had been mandated with considering measurable performance-based incentives for states. Seven state and Union Territory governments opposed some parameters, including how well states implement the flagship schemes of the central government and control or lack of it in incurring expenditure on populist measures, efforts made by them to deepen goods and services tax, progress made through direct benefit transfers, and promoting ease of doing business.

The other parameters for incentives included effectiveness of capital spending, progress in increasing revenues, progress in achieving the replacement rate of population growth, and achievements in infrastructure and social sector schemes.

The 15th FC’s recommendations on these original parameters are not yet known. The new parameters could be in addition to the ones already suggested.

In the case of health care, sources said the Commission might consider incentivising states on parameters such as how many 100-bed hospitals had been upgraded to medical colleges. In the case of agriculture reforms, the incentives won’t be just restricted to reforms in marketing, but could be of any sphere, be it in production or reforms in transporting agriculture produce within the state.

The Centre has in the past few years announced a slew of measures to free up agricultural markets, including a new model APMC Act and a model Contract Act, to facilitate private investment in farming, but their adoption in states has been very low.

In the case of aspirational districts, sources said the incentives would be linked to how the states performed in the Transformation of Aspirational Districts programme of the Centre. The programme, which is monitored and run by the Aayog, seeks to expeditiously improve the socio-economic status such as health and education of 117 districts in 28 states.

The three core principles of the programme are the convergence between central and state schemes, collaboration among citizens and functionaries of the central and state governments, including district teams, and competition among districts. As many as 49 key performance indicators have been chosen to measure progress in the districts.


  • 15th FC bringing back performance-based incentives for states
  • Other parameters may include health care, agricultural reforms, and improvement 
  • in aspirational district rankings 
  • Parameters may find mention in 2020-21 Union Budget
  • Incentives may only be finalised in Commission’s final report

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