Growing up in Himachal Pradesh in the eighties, I have often heard my civil engineer father lament about the lack of adequate budget with the State government to make a good hill road while also containing and managing the damage to the mountain slope. He understood the importance of forests but always spoke of the disproportionate burden on the State. He thought that since the forests provide many important services which benefit the entire country, the State should be provided more resources to protect and preserve them. His ideas stayed with me and when the concept of ecosystem services gained currency much later it instantly resonated.
Similar thoughts were expressed in a letter written by the Constitutional Conduct Group, a group of former civil servants, to the chairman of the 16th Finance commission. The letter refers to a 2025 report of the Institute of Forest Management Bhopal. It pegs the total forest wealth of Himachal Pradesh at ₹9.95 lakh crore. It calculated the annual total economic value of Himachal’s forests at ₹3.20 lakh crore; this includes ₹1.65 lakh crore for carbon sequestration, ₹68,941 crore for eco system services, ₹32,901 crore as the value of bio-diversity, ₹15,132 crore for water provisioning and ₹3,000 crore for regulatory services such as flood control and sediment retention. These contributions benefit the entire country.
The regulatory system understands the importance of forests for the ecological security of the country, and the costs mountain States incur and the support they need to pursue an eco-centric developmental model. Despite the understanding, till date, most regulatory instruments in the country do not comprehensively address these issues or adequately compensate the mountain States so that they are not unduly encumbered.
Himachal Pradesh has been a Special Category State since its inception in 1971, because of its geographical and climatic conditions resulting in limited resource generating capacity. This got the State some preferential financial treatment from the Centre till it was abolished by 14th Finance Commission (FC) in 2015 due to increase in allocation from the Central taxes devolved to the State. Himachal Pradesh like other States had to enact the Fiscal Responsibility and Budget Management Act in 2005, which imposed limits on its fiscal and revenue deficits, and influenced its expenditure patterns without adequately taking into account the limitations of its largely agrarian economy and higher developmental costs.
Some amends have been made over the years to accommodate the special circumstances of the State.
The FCs specifically evolved a mechanism to compensate the States which maintain, protect and preserve forests but the same has fallen short on delivering the intended results in Himachal Pradesh. It started with 12th FC when a total of ₹1,000 crore was allocated as Green Bonus to be distributed among States on the basis of their share of the country’s total forest area. This was changed to an incentive-based grant by 13th FC to reward States for maintaining and improving forest covers, focusing on canopy density. The 14th FC went a step ahead and incorporated “forest cover” as a criterion in its formula for horizontal tax devolution, assigning it a weight of 7.5%.
The 15th FC increased both the scope and weightage of this criterion to “forest cover and ecology” and 10% respectively, which needs to be further enhanced significantly to make any meaningful contribution. The present methodology for calculating the area under “forests and ecology” is also flawed as it only uses the data regarding dense forest, despite there being a separate mention of ecology. About a third of the State’s geographical area is permanent snow, glaciers, cold deserts, and alpine pastures where no vegetation grows but has a tremendous amount of ecological value. While calculating area under forest in the State, this area should either be deducted from the total area to arrive at the effective forest cover in the State or this area should be recognised in its own right under the head ecology.
The 16th FC needs to look into these issues. Higher allocations are needed to protect the forest and ecology of the State for the benefit of the entire country.
Archana Vaidya is a Natural Resource Management/Environment Law consultant and an advocate in the High Court of Himachal Pradesh.
Views are personal.
Published – December 23, 2025 12:27 am IST
