CSE welcomes pollution tax on cars—higher on diesel cars and SUVs; doubling of cess on coal and lignite; and LPG connection for poor women to protect health

March 02, 2016

But CSE questions the design of the tax sop for affordable housing; no hard money for bus transport; and claims of highest ever allocation to MNREGA

New Delhi February 29, 2016: Centre for Science and Environment welcomes the move by Union Finance Minister Arun Jaitley to integrate pollution concerns with the Union budget and send fiscal signals to discourage polluting technologies.

It has not only made polluting technologies and fuels such as diesel cars and coal pay more for causing pollution, but also proposed expanding LPG subsidy and connection to poor households to protect public health.

However there are several concerns, including the proposed tax sops for developers to provide affordable housing. This tax sop can end up being a stimulus package for the real estate industry without meeting the objective of keeping the housing stock affordable for the economically weaker section. The cap of Rs 50 lakh for individual unit without defining the affordability range can be self-defeating. Similarly, though the rural sector has got a boost through allocation for the MNREGA programme and the new crop insurance policy, Pradhan Mantri Fiscal Bima Yojana, these programmes are still underfunded compared to what is needed today.

CSE’s quick reaction to the budget proposal on critical issues in the areas of environment and equity:

Pollution cess on cars and higher cess on diesel cars and SUVs is a welcome step: The Union budget has made explicit reference to the “pollution and traffic situation in Indian cities” as a “matter of concern”. To address this, an infrastructure cess will be levied on all cars—1% on small petrol, LPG and CNG cars; 2.5% on diesel cars and 4% on other higher engine capacity vehicles and SUVs. In addition, a 1% tax will be imposed on all luxury cars exceeding value of Rs 10 lakh. This differentiated tax based on pollution potential of technologies and polluter pay principle is an important step forward. This revenue should be spent on pollution control measures.

Doubling of clean energy cess on coal and lignite is a step forward but needs robust plan for spending to speed up clean energy transition: The Union budget has renamed the clean energy cess on coal as Clean Environment Cess and doubled the cess amount from Rs 200 per tonne to Rs 400 per tonne. This has enormous revenue potential that can be made available for clean energy transition and environment management. Till 2014-15, almost Rs 17,000 crore was raised for Clean Energy Fund through this cess on coal. With the increased cess to Rs 400 per tonne, the government will collect an additional Rs 25,000 crores in 2016-17. However, there are concerns that this fund is not being effectively utilised for clean energy transition. Till August 2015, not a single rupee was disbursed for renewable energy projects. This fund should be used for renewable energy, clean coal technology, and pollution control for power plants. The doubling of cess demands clear protocol for spending for effective results.

Good move to expand LPG connection among rural poor. This is urgently needed to cut down household air pollution to save lives: The budget aims to cover 1.5 crore households below poverty line in 2016-17 and 5 crore more below poverty line households in next two years and achieve universal coverage of cooking gas. This is also a pollution control and a health measure as the budget speech states that this will protect their health, reduce drudgery and time spent on cooking. About 75 lakh households have given up LPG subsidies. This is a critical measure that will have to be taken forward as indoor air pollution is the second largest killer in India.

No hard money or tax support for bus transport: The Union budget has not put any hard money to promote bus transport, which is carries up to 40-60% of all travel trips. The budget proposal is designed to stimulate private investment in bus transport sector. It states that the Union government will amend central motor vehicles act to open up passenger road transport sector to bring entrepreneurs and investments to operate buses on many routes. About Rs 10,000 crore has been allocated to metro projects. But there is no fiscal support for buses. Metro projects have got more money – 37 per cent more than the entire scheme of urban rejuvenation (AMRUT and Smart city projects).

Tax sop for affordable housing should be linked with affordability of the unit and not area. Finance Minister has proposed 100% tax rebate for profits to an undertaking from a housing project for flats up to 30 sq. metres in four metro cities and 60 sq. metres in other cities approved during June 2016 to March 2019, and completed within three years of the approval. For the ‘first-home buyers’, deduction for additional interest will be allowed provided the value of the house does not exceed Rs 50 lakh. 
This is a stimulus to developers to undertake housing projects with smaller dwelling units but this is not linked with what economically weaker sections can afford. This may not deliver the intended objective without being more explicitly linked with well defined affordability range for the economically weaker sections. For instance 30sqm flat in the 4 metros and 60sqm in rest of the cities can be developed as high-end studio apartments of cost range higher than Rs 15 lakh. But that will not meet the requirement of the low income groups. It may be noted that 95% of housing demand is in urban centers is in economically weaker sections. EWS family is defined with annual income of less than Rs 1 lakh and low income group is defined as families earning Rs 1 lakh to Rs 2 lakh. This category cannot afford units costing Rs 50 lakh.

The claim of jump in allocation for MNREGA programme hides underfunding:  While the actual increase in allocation for the MNREGA programme has been from Rs 34,699 crore in 2015-16 to Rs 38,500 crore, in reality this is much less than the actual demand and also less than what was actually spent last year. Due to extreme climatic stress and drought last year, the actual spending on the programme was Rs 41,169 crore. The additional spending of Rs 6,470 crore is the pending liability and if adjusted the actual allocation this year drops to Rs 32,030 crore—less than what was allocated last year. If the weather events continue and there is deficit in monsoon, rural crisis will persist. The allocation for this programme should have been higher.

Need stronger support for Pradhan Mantri Fiscal Bima Yojana: Rs 5,500 crore has been allocated to Pradhan Mantri Fiscal Bima Yojana to protect farmers from adverse consequences of nature. The budget speech mentions that farmers will pay a nominal insurance premium and get the highest-ever cover. However, Rs 17,600 crore is the amount that was originally estimated to cover all farmers under the scheme. The present allocation of Rs 5,500 crore is substantially lower. According to the scheme, the cost will have to be shared 50:50 with state governments. From this standpoint, the Centre’s allocation should have been at least Rs 8,800 core. Also the scheme guidelines say that the Centre will fund up to 90 per cent if a state fails to allocate funds for the scheme. The budget is silent on this. This is worrying because the scheme is critical in ensuring that farmers are financially shielded against extreme weather events, which have been on the rise in the recent past.