The complexity of green transition

Inaction on generating new revenue as fossil fuel taxes dry up will harm India's economic prospects

- LAVEESH BHANDARI

As climate change plays out and India prepares to transition towards lower carbon emissions and a greener economy, a range of challenges needs to be addressed. One such area is the impact on government revenues. An inordinately high proportion of state and central government revenues, which according to one estimate, account for above 3 per cent of India's gross domestic product (GDP), emanate from fossil fuels. To illustrate, tax and non-tax revenues from fossil fuels are greater than India's entire defence Budget and also exceed what the central government spends on education and health.

But it is not just the quantum but the complexity of change that will be India's biggest challenge. Multiple sources of funds will dry up as we consume less fossil fuel, revenues from public sector enterprises (PSES) involved in fossil fuels will fall, and those requiring subsidies, such as for renewable energy, will require more. The dependence on revenues also differs from state to state. Some states, such as Odisha, have higher royalty revenues due to coal mining, while others such as Maharashtra rely more on tax revenues.

The problem, therefore, is not merely of generating additional government revenues from non-fossil sources, but also about sharing these revenues in a manner that is satisfactory for the many stakeholders. Take, for instance, the issue of state autonomy over tax generation. One of the key reasons why petroleum products could not be included in the goods and services tax (GST) was that the current value added tax (VAT) regime enables state governments to decide on the level of taxation autonomously. GST, for all its benefits, does not score high on state autonomy considerations. Any movement away from VAT will rightly be a cause for concern to states interested in maintaining some autonomy over their revenues.