Impact Of Climate Change On The Indian Economy

SOCIO-ECONOMIC IMPACT OF THE CLIMATIC CHANGE IN INDIA Dr. Tarun Das*, Professor (Public Policy) Institute for Integrated Learning in Management Lodhi Institutional Area, New Delhi110003. Formerly, Economic Adviser, Ministry of Finance, India

30 October 2008 ______________________________________________________________________ * The paper expresses personal views of the author and should not be attributed to the views of the organizations he is associated with. The author would like to express his gratitude to the Poverty and Development Division, UN-ESCAP, Bangkok for providing an opportunity to prepare this paper. ** For any clarification and additional information, EMAIL [email protected]

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COUNTRY REPORT ON INDIA: PART-B SOCIO-ECONOMIC IMPACT OF THE CLIMATIC CHANGE IN INDIA Professor Tarun Das, IILM, New Delhi-110003. CONTENTS 1. Introduction 2. Climatic Change and its Socio-Economic Impact in India 2.1.Soil degradation and crop/ production loss 2.2.Water pollution 2.3. Air pollution 2.4.Poverty, population and environment 2.5.Bio diversity 3. Natural disasters (such as tsunamis, floods, storms, hurricanes etc.) 3.1. Natural disasters in India in the recent past (5 to 10 years) 4. Disaster management systems and precautions 4.1 Natural disaster management measures 4.2 Acts and laws 4.3 Financial planning for natural disaster management

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COUNTRY REPORT ON INDIA: PART-B SOCIO-ECONOMIC IMPACT OF THE CLIMATIC CHANGE IN INDIA Professor Tarun Das, IILM, New Delhi-110003. 1. Introduction Climate change is one of the greatest challenges facing the world’s environment, society and economy today. Its impact can already be seen across the globe, and no country will be immune. As climate change impacts on the economy and growth are inevitable, the need to adapt to the changing climate becomes more pressing, not just in the way we live, but in the way we do development. Natural disasters Natural disasters are the most adverse outcomes of climatic changes. Since the dawn of civilization, human society and the natural disasters have been closely interlinked. These natural disasters lead to heavy losses of human lives and property and are serious threats to sustainable environment. In the past twenty years, earthquakes, volcanic eruptions, landslides, floods, tropical storms, droughts and other natural calamities killed over 3 million people, inflicted injury, disease, homelessness and misery on another one billion people, and caused billions of dollars of material damage. Statistically, 90% of the total disasters and 95% of the total disaster related deaths worldwide occur in developing countries whereas the fraction of GNP lost is estimated to be twenty times greater than in industrialized countries. By the year 2025, 80% of the world's population will reside in developing countries, and it has been estimated that up to 60% of these people are highly vulnerable to floods, severe storms and earthquakes. Natural disaster areas are well known. Yet, the response to disasters and environmental threats are reactive and are characterized by increased defensive activities. As a result, when a disaster strikes there is an evidence of lack of trained persons to coordinate disaster relief activities. The issues of immediate concerns are availability of potable water, restoring of food and fuel supply lines, re-establishing transport and communication links, providing medical relief and rebuilding of key infrastructure such as health centers, food storage godowns etc. The medium and long-term concerns of reconstruction and rehabilitation of disaster victims is a even more challenging task, since it involves continuous support for a number of years. What is however needed to tackle natural disasters is a comprehensive approach to disaster management. The approach involves four phases: mitigation, preparedness,

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response and recovery. A pro-active mitigation approach is more effective and economical compared to rebuilding efforts in the recovery phase. Further, the decentralization of decision-making is important in strengthening of organizations for disaster preparedness, prevention and mitigation, particularly given the need for rapid and localized responses in the face of swiftly occurring catastrophes. Indian Situation India shares the global concern about the threat to the atmosphere due to the climatic change caused by depleting ozone layer and rising average temperatures. It also recognizes the urgent need for regional and global cooperation in addressing this concern. In June 1991, India became a Party to the Vienna Convention for the Protection of the Ozone Layer, and in September 1992 to the Montreal Protocol on Substances that Deplete the Ozone Layer. It signed the United Nations Framework Convention on Climate Change (UNFCCC) in June 1992, and ratified it in November 1993. India has to fulfill its obligations under the Montreal Protocol but is not required to adopt any emissions reduction targets as India’s contribution to ODS consumption and to GHG emissions in the atmosphere is not significant. The emission of GHGs is, however, expected to increase significantly in the coming years. At per capita levels, though, these emissions would remain much below the global average. The per capita level of the consumption of ODS is also below the level permitted under the Montreal Protocol. India’s consumption of ODS in 1991 was about 10370 tonnes. Of this, about 85% was produced domestically and 15% was imported. In ozone-depleting potential (ODP) terms, the total consumption was 13111 tonnes. 2. Climatic Change and its Socio-Economic Impact in India There is growing evidence that the Earth is heating up. The 1990s have seen some of the hottest years in the world since the Industrial Revolution began. Nine of the hottest years since 1860, when scientists first started taking measurements, have in fact taken place in the last 11 years. When the global average temperature of 1997 is compared with the estimates that scientists have made of world temperatures over the last 600 years, it turns out to be the hottest year on record with 1995 and 1990 following 1997. The year 1997 was some 0.43°C hotter than the average temperature for the period 1960 to1990. And now 1998 is likely to break the record of even 1997. The Intergovernmental Panel on Climate Change, an international committee of scientists set up the United Nations to track global warming says that the average global surface temperature has already increased by 0.3-0.6°C in the last one hundred years which is beginning to alter the climate2. Scientists are reporting that the spring is now coming a week earlier in the northern hemisphere, the treeline in the northernmost forests of the world are moving towards the pole, the level of the atmosphere at which the temperature reaches 0°C has been rising by five metres annually, and ice shelves on Antarctica’s northern fringe are disintegrating. Unfortunately, though we know that the heating up of

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the Earth will definitely change the global climate, scientists cannot yet forecast with any precision how a particular region like South Asia or a particular country like India will be affected. But scientists are already pointing out to several possibilities that are of great concern to India: (1) Studies show that the heating up of India will not be uniform across the country. While the average annual increase will be about 1°C, the winters of north and northwest India may be more than 2°C warmer by the middle of the next century and there could be a cooling of over 1°C in the Northeast. The monsoon season is likely to about 1°C warmer on average. (2) Some studies have also indicated a decline in monsoon rainfall over the north and central plains of India in the decades ahead because of the general weakening of the monsoon. This is because there will be a decrease in the land-sea thermal gradient. No significant rainfall decrease is expected during the winter season. But the average annual levels and monsoon season levels of soil moisture could decline significantly in the central plains. There will also be a significant decline in surface runoff in these plains leading to less water in the rivers. Thus, global warming could have a significant impact on the country’s water resources. (3) Yet another study has calculated that rice yields could drop by as much as 15 to 42 per cent and wheat yields by 1.8 to 3.4 per cent and agricultural prices in relation to non-agricultural prices could increase by 7-18 per cent. Even if the increased carbon dioxide in the atmosphere stimulates plant growth, because of an effect known as carbon fertilisation, there would still be reductions in yields. (4) Other experts argue that the carbon dioxide concentration in the atmosphere has grown by 25 per cent in the period between 1900 and 1980 but no noticeable change in productivity of several crops has occured, except due to improvements in varieties and new management practices. Therefore, carbon fertilization may have no or very limited effect. A 2°C increase would be intolerable in India. The heating up of the Earth will melt the polar ice caps and thus raise the level of the world’s seas. This could drown the entire country of the Maldives and nearly one-third of Bangladesh resulting in unmanageable migrations into the higher lands of India. The worst affected areas in India are likely to be the low-lying areas of Goa, West Bengal and Gujarat. The heat will also lead to glaciers melting and becoming smaller in the Himalayas and thus there will be reduced water flows in Indian rivers during the summer period. There are more than 5218 glaciers in the Himalayan mountains which occupy nearly 9 per cent of its total area or about 3.822 million hectares. Already, there is evidence that several Himalayan glaciers are receding. Between 1977 and 1990, the Gangotri glacier retreated by as much as 364 metres or about one-third of a kilometer.

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Scientists believe that extreme weather events will increase when the world warms up. In other words, there could be even more intense cyclones,more intense rainstorms and more intense drought periods. All of these weather-related problems already exist in India and but if they intensify, they could lead to havoc. This will have serious economic and political impacts on the Indian subcontinent. We must not forget that the political process leading upto the creation of Bangladesh was triggered off by a cyclone which ultimately led to nearly ten million people fleeing to India. More than 1,000 people died in the Andhra Pradesh cyclone in 1996. Preliminary results suggest more frequent heavy rainstorms over the Northeast which could mean even more flash floods in that region. The World Health Organisation has warned that several diseases like malaria, dengue and cholera will become more intense in tropical countries like India because breeding conditions for mosquitoes and various other germs will improve. The United Nations Inter-governmental Panel on Climate Change (IPCC) has warned that, in economic terms, the consequences of climate change will be far more severe for developing countries because they will have less financial resources to deal with its illeffects. If the carbon dioxide concentrations in the atmosphere were to double, the IPCC has calculated that the resulting economic damage would wipe out only 1-2 per cent of GDP for industrialised countries whereas developing countries could see 2-9 per cent of their GDP wiped out. Why is there so little investment in research on impacts? Compared to the research that has gone into understanding the process of climate change, little effort has been made to understand how different countries and regions will be affected by climate change. At a few international conferences, scientists concluded that there appears to be a ‘conspiracy of silence’ on this count because it may show that most damage will take place in the developing world whereas it is the Western world which has largely caused the problem. If this turns out to be true, there is a danger that public pressure in Western nations may become so low that these countries may not want to do much about the problem. The heating up of the Earth will be maximum towards the polar regions. This does mean that whereas agriculture will become more prone to pests and water shortages in the developing world, there will be greater scope for agriculture in the Northern countries cause their winter will become shorter and less intense. The northernmost forests of Siberia and Canada are already said to be extending further towards the North Pole. A US economist has, in fact, publicly stated that the US should not worry too much about global warming as it will suffer only a very small impact. Unfortunately, there is very little researcher impacts of global warming in developing countries. The heating up of the Earth will melt the polar ice caps. This could drown the entire country of the Maldives and nearly one-third of Bangladesh resulting in unmanageable migrations into India.

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2.1 Land Degradation, Soil Erosion and Crop/ Production Loss On the basis of land-use classification, the land use statistics is available for roughly 306 million hectares (mha) of land which accounts for 93% of the 329 million hectares of the total geographic area. The area under barren and uncultivable land (such as deserts, snowbound and remote, saline land, weed infected and ravine land etc.) is unsuitable for cultivation. About 263 million hectares are available for agriculture, forestry, pasture and other biomass production. The area under agricultural land has also decreased due to increase in developmental activities; e.g. housing, transport system, irrigation, etc. The land use in India, over the last five decades, has undergone drastic change. Land under agriculture has almost doubled, forest cover has dwindled to less than half, large tracts of fertile agriculture and forest land have been diverted for urbanization and settlements. Deforestation contributes to loss of precious top soil which amounts to about 35 percent of the global sediment load going to oceans even though water flowing through our rivers is only about five percent of the flow of rivers in the world. Land Degradation Land is degraded when it suffers a loss of intrinsic qualities, decline in its capabilities or loss in its productive capacity. Land degradation may be due to natural causes or human causes or it may be due to combination of both. Soil erosion is the major cause of land degradation. Soil Erosion Soil is the non-renewable natural resource which supports life on earth. It is estimated that one-sixth of the world's soils have already been degraded by water and wind erosion. This has two important consequences: the reduced ability of society to produce sufficient food due to loss of quality and depth of soils; and resulted in off-site pollution associated with erosion. These include siltation of dams, pollution of water-courses by agricultural chemicals and damage to property by soil-laden runoff. On-site issues of declining soil quality tend to be spatially dispersed occurring on many different soil types whereas offsite pollution issues tend to be locally concentrated. Soil erosion problems are not confined to the Developing World. In the last two decades, there has been a growing appreciation of the threat to European soils as a result of intensification of agriculture, overgrazing and climate change. The threat is most apparent in the Mediterranean Region where the term "desertification" has been used to describe a series of interrelated changes which include soil erosion. The EU-funded Mediterranean Desertification and Land Use (MEDALUS) project is currently addressing these latter issues for much of Southern Europe. In India, about 130 mha of land (45% of total geographical area) is affected by serious soil erosion through ravine and gully, shifting cultivation, cultivated wastelands, sandy areas, deserts and water logging. Soil erosion by rain and river that takes place in hilly

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areas causes landslides and floods, while cutting trees for firewood, agricultural implements and timber, grazing by a large number of livestock, over and above, the carrying capacity of grass lands, traditional agricultural practices, construction of roads, indiscriminate (limestone) quarrying and other activities, have all led to the opening of hill-faces to heavy soil erosion. Wind erosion causes expansion of deserts, dust, storms, whirlwinds and destruction of crops, while moving sand covers the land and makes it sterile. Excessive soil erosion with consequent high rate of sedimentation in the reservoirs and decreased fertility has become serious environmental problems with disastrous economic consequences. Of the 16 rivers of world, which experience severe erosion and carry heavy sediment load, 3 Indian rivers, namely; Ganges, Brahmaputra and Kosy occupy the 2nd, 3 and 12th position, respectively. rd

Soil erosion results in huge loss of nutrients in suspension or solution, which are removed away from one place to another, thus causing depletion or enrichment of nutrients. Besides the loss of nutrients from the topsoil, there is also degradation through the creation of gullies and ravines, which makes the land unsuitable for agricultural production. Subsidence of the land in some areas and landslides in the hilly tracts are problems affecting highways, habitations and irrigation dams. The use of pesticides above permissible limits enters the food chain, causing health hazards. A major concern particularly about chlorinated hydrocarbons like DDT is their persistence in soil. Among fertilizers, the conversion of fertilizer-N to gaseous formsammonia (NH3) and various oxides of Nitrogen lead to atmospheric pollution. The presence of ammonia and sulphur dioxide leads to acid rains which ultimately degrade the soil. Atmospheric ammonia contaminates water bodies, impairs visibility and causes corrosion. Nitrous oxide also contributes to global warming. Mining and Quarrying The activity of mining and quarrying covers underground and surface mines, quarries and wells and includes extraction of minerals and also all the supplemental activities such as dressing and benefaction of ores, crushing, screening, washing, cleaning, grading, milling floatation, melting floatation and other preparations carried out at the mine site which are needed to render the material marketable. The mining activities in India are governed by the Mineral Conservation Development Rules (MCDR), 1988. Every license holder of mining lease shall take all possible precautions for protection of environment and control of pollution while conducting prospecting, mining beneficiation or metallurgical operations in the area. Specific provisions for proper removal and utilization of top soil, storage of over burden and waste rocks, reclamation and rehabilitation of lands, precautions against air pollution, noise and ground vibrations, restoration of flora, discharge of toxic liquid, control of surface subsidence have been provided under the MCDR. The Indian Bureau of Mines collects the statistics on all these aspects under the above rules.

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2.2 Air pollution Air pollution in Indian cities is also growing by leaps and bounds. The Central Pollution Control Board (CPCB) released the air quality data for 1997 for 70 cities. At that time Shillong was the only town in India where the air quality in terms of suspended particulates - the most threatening air pollutant in Indian cities – was clean round the year and there was no single day either when the air became even moderately polluted. In all other 69 cities, the air quality was moderately, highly or critically polluted – terms used and defined by the CPCB - round the year. In some, the air was moderately poor round the year but reached high or critical levels of pollution during certain days in the year. In 33 cities, that is, in about half of all the cities monitored, the air was critically polluted round the year and they had days when the air quality was nothing short of disastrous (see Table: Air Quality in Indian cities in 1997). Another 40 per cent of the cities had high or moderate levels of pollution round the year but had certain days when the pollution reached critical levels. Table 2.1: Air Quality in Indian cities in 1997 (Based on measurements of Total Suspended Particulate Matter) Level of Air Quality

No. of towns with air quality round the year

% of towns where air quality is monitored

No. of towns with air quality on most polluted day

% of towns where air quality is monitored

Critical Pollution (above 1.5 times the standard) High Pollution (between 1 and 1.5 times the standard) Moderate Pollution (between 0.5 and 1 times the standard) Clean Air (below 0.5 times the standard) TOTAL

33

47%

61

87%

18

26%

6

9%

17

24%

2

3%

2

3%

1

1%

70

100%

70

100%

Source: 1997 Air quality data from the Central Pollution Control Board Today, about a million die each year because of water pollution – and this is still largely because of the traditional form of pollution which results from human filth. The new water pollution will add to this all kind of horrendous diseases like cancers and neurological disorders. It is estimated that at least 0.1 million die each year from urban air pollution. Thus, at the least one million or more will continue to die from pollution each year in India. This figure will rise to probably 2-3 million a year with growing pollution. But tens of millions will suffer from high rates of illness and a very poor quality of life.

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The main sources of atmospheric pollution include a) The combustion of fuels to produce energy for heating and power generation both in the domestic sector as well as in the industrial sector. b) The exhaust emissions from the transport vehicles that use petrol, diesel oil, etc. c) Waste gases, dust and heat from many industrial sites including chemical manufacturers, electrical power generating stations, etc. Environment Pollution due to Energy Use A considerable amount of air pollution results from burning of fossil fuels. Fuels are mainly derived from fossilized plant material and consist of carbon or its compounds. The household sector is the largest consumer of energy in India. More than 60% of Indian households depend on traditional sources of energy like fuel wood, animal dung and crop residue for meeting their cooking and heating needs. Out of total rural energy consumption about 65 per cent is met from fuel wood. Fuel wood consumption during 2001-02 is estimated at 223 million tones, 180 millions tones of which is for household consumption and the balance for cottage industry, big hotels etc. The environmental effects of various fuels, namely, coal, oil, nuclear etc. are of growing concern owing to increasing consumption levels. The combustion of these fuels in industries and vehicles has been a major source of pollution. Coal production through opencast mining, its supply to and consumption in power stations, and industrial boilers leads to particulate and gaseous pollution which can cause pneumoconiosis, bronchitis, and respiratory diseases. Another major impact of coal mining is land degradation, especially of forest areas. Industrial Emissions Air borne emissions emitted from various industries are a cause of major concern. These emissions are of two forms, viz. solid particles (SPM) and gaseous emissions (SO2, NOx, CO, etc.). Liquid effluents, generated from certain industries, containing organic and toxic pollutants are also a cause of concern. Road Transport Road vehicles are the second major source of pollution. They emit CO, HCs, NOX, SO2, and other toxic substances such as TSP and lead. Diesel engines are much less polluting than petrol engines. Both types of engines are not very efficient converters of fuel energy. However, diesel types with a conversion efficiency of around 30% must be more efficient and use less fuel than petrol types with a 15-20% conversion efficiency. Harmful Effects of Emissions The high concentration of particulates in the atmosphere over large urban and industrial areas can produce a number of general effects. Smoke and fumes can increase the atmospheric turbidity and reduce the amount of solar radiation reaching the ground. The

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overall effect of air pollution upon the biosphere and the built environment can be broadly considered under 3 headings: The adverse and damaging impact on (i) buildings and materials, (ii) soil, vegetation, crops and animal life, (iii) human beings. Ambient air quality Sulphur dioxide (SO2) Annual average concentration of SO2 levels are within the prescribed National Ambient Air Quality Standards (NAAQS) at almost all the locations as per reports of the Central / States Pollution Control Board.. A decreasing trend has been observed in sulphur dioxide levels in many cities. Nitrogen dioxide (NO2) Annual average concentration of NO2 was also within NAAQS at most of the locations. Table 2.2: Major Polluting Industries Industry Aluminum Caustic Cement Copper Distillery Dyes and dyes intermediates Fertilizer Iron and steel Leather Pesticide Petrochemicals Pharmaceuticals Pulp and paper Refinery Sugar Thermal power plants Zinc

Key Environmental Aspects Disposal of red mud, bauxite tailings and other hazardous waste, dust emissions and high energy consumption. Water pollution due to disposal of brine mud, mercury, and chlorine emissions. Fugitive dust emissions from materials and air emissions from energy consumption. Sulphur dioxide and dust emissions; water pollution from electrolytic bath and other processes; disposal of slag from smelter. Water pollution due to highly organic effluent from spent wash; soil contamination. Water pollution due to toxic azo-dyes, organic colored and phenolic substances. Water pollution due to heavy metal, ammonia and fluoride bearing effluent, ammonia emission, fluoride bearing dust and hazardous material. Water pollution from cyanide, fluoride and heavy metal bearing effluent, dust emission from sintering, pelletization, pig iron plants; slag and dust disposal. Water pollution, particularly from hexavalent chromium and salt in discharge. Air pollution due to particulate and volatile organic compounds; effluent containing pesticides residues. Water pollution due to phenol and benzene containing effluent; fugitive emissions of toxic and carcinogenic and volatile organic compounds (VOC); hazardous material disposal. Water pollution due to organic residues bearing effluent; VOC and particulate emissions; hazardous waste containing process sludge and spent catalyst. Water pollution from organic/ inorganic substance and chlorinated compounds in black liquor; highly malodorous emissions of reduced sulfur compounds and VOC. Water pollution from effluent containing organic/ inorganic material, oil, solvent; air emission of particulates, sulfur dioxide, “benzene, toluene, and xylene”, VOC. Water pollution due to high biological oxygen demand (BOD) and chemical oxygen demand (COD) effluent and spillage of molasses; air pollution due to combustions of bagasse, coal, etc. Air emission from combustion, coal handling, water pollution due to discharge of boiler blow down, overflow from ash pond; land contamination due fly ash disposal practices. Air pollution due to fugitive zinc dust, water pollution containing residues, disposal of solid and hazardous waste.

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Areas of Concern a) Air pollution exists in major cities where vehicles are the major sources. b) There are 24 critically polluted areas where industrial pollution is predominant. Action plan have been formulated and implemented by the Central/States Pollution Control Board in these problem areas. Steps taken to Control Air Pollution from automobiles include the following: Measures taken for Control of Air Pollution from Vehicles A) Setting Vehicular Emission Norms in major cities B) Setting Fuel Quality Specifications for all automobiles and making pollution checks compulsory at regular intervals. .

Noise Pollution Of late, noise has been recognized as a pollutant which until recently was considered only as a nuisance. The Central Pollution Control Board (CPCB) has notified the ambient noise standards. 2.3 Water Pollution India is rich in surface water resources. Average annual precipitation is nearly 4000 cubic km. and the average flow in the river system is estimated to be 1880 cubic km. whereas, some regions are drought affected, others are frequently flooded. With the rapid increase in the population, the demand for irrigation, human and industrial consumption of water has increased considerably, thereby causing depletion of water resources. River Water Rivers are the lifeline of majority of population in cities, towns and villages and most of these are considered as sacred. Most of the Indian rivers, especially the smaller ones, are today toxic drains: Sabarmati, Bhadar, Yamuna, Damodar, Chaliyar, Betwa, Noyyal, Bhawani, to name just a few. Groundwater, too, is becoming polluted, which is a major source of drinking water – and most of it is drunk without any treatment. For maintaining the quality of river water, the pollution levels in rivers have been detected by monitoring limited number of the physico-chemical parameters, which could only determine the changes in chemical characteristics of water bodies. Deterioration in water quality, over the past several years has gradually rendered the river water quality unsuitable for various beneficial purposes. Monitoring of Rivers The Central Pollution Control Board in collaboration with State Pollution Control Board is operating the Water Quality Monitoring Network comprising of 784 stations in 26 States and 5 Union Territories spread over the country for monitoring of aquatic resources. Government has introduced Biological Water Quality Evaluation and Criteria. 12

Water Pollution The types and sources of water contamination include “point” sources of pollution which usually refers to wastes being discharged from a pipe; and “non point” sources, which means all other sources such as storm water runoff (which picks up oils and other contaminants from various areas), irrigation (which carries fertilizers and pesticides into groundwater), leaks from storage tanks and leakage from disposal sites. The non-point sources are technically the most difficult to regulate in India. Water pollution comes from Three main sources: domestic sewage, industrial effluents and run-off from activities such as agriculture. Water pollution from domestic and human wastewater causes many severe water borne diseases. The problem of water pollution due to industries is because of the inadequate measures adopted for effluent treatment than to the intensity of industrial activities. The 13 major water polluting industries have been identified and are closely monitored by the Central Pollution Control Board. Access to safe drinking water remains an urgent need as about 70.5% of the households in the urban area and 8.7 % in rural areas receive organized piped water-supply and the rest have to depend on surface or ground water which is untreated. The diseases commonly caused due to contaminated water are diarrhea, trachoma, intestinal worms, hepatitis, etc. The most common contamination in the water is from the disease bearing human wastes, which is usually detected by measuring fecal coliform levels. Inadequate access to safe drinking water and sanitation facilities leads to higher infant mortality and intestinal diseases. An uncontrolled disposal of urban waste into water bodies, open dumps and poorly designed landfills, causes contamination of surface water and ground water. For industries, surface water is the main source for drawing water and discharging effluents. Industrial wastes containing heavy metals such as mercury, chromium, lead and arsenic can threaten or destroy marine life besides polluting aquatic food resources. 2.4 Poverty, Population and Environmental Incidence of poverty is estimated by the Planning Commission on the basis of quinquennial large sample surveys on household consumer expenditure conducted by the National Sample Survey Organization (NSSO). The Uniform Recall Period (URP) consumption distribution data of NSS 61st Round yields a poverty ratio of 28.3 per cent in rural areas, 25.7 per cent in urban areas and 27.5 per cent for the country as a whole in 2004-05. The corresponding poverty ratios from the Mixed Recall Period (MRP) consumption distribution data are 21.8 per cent for rural areas, 21.7 per cent for urban areas and 21.8 per cent for country as a whole. While the former consumption data uses 30-day recall/reference period for all items of consumption, the latter uses 365-day recall/reference period for five infrequently purchased non-food items, namely, clothing, footwear, durable goods, education and institutional medical expenses and 30-day recall/reference period for remaining items. The percentage of poor in 2004-05 estimated from URP consumption distribution of NSS 61st Round of consumer expenditure data are

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comparable with the poverty estimates of 1993-94 (50th round) which was 36 per cent for the country as a whole. The percentage of poor in 2004-05 estimated from MRP consumption distribution of NSS 61st Round of consumer expenditure data are roughly comparable with the poverty estimates of 1999-2000 (55th round) which was 26.1 per cent for the country as a whole (Table 2.3). Table 2.3 Poverty Ratios by URP and MRP (per cent) Uniform Recall Period (URP) Method Sector 1993-94 2004-05 1 Rural 37.3 28.3 2. Urban 32.4 25.7 3. All India 36.0 27.5 Source: Planning Commission

Mixed Recall Period (MRP) Method Sector 1993-94 2004-05 4. Rural 27.1 21.8 5. Urban 23.6 21.7 6. All India 26.1 21.8

There are concerns about vulnerability of people who have crossed the poverty line (PL) and are at present above it. Vulnerability is a relative term and could be gauged from the consumption patterns (in the absence of a better available alternative). Given meagre resources, higher share of expenditure on food items, which is the most basic of all basic needs, would be indicative of vulnerability to some extent. Food Availability and Hunger

On the basis of NSSO data for various rounds, it is observed that reporting of inadequate food has also come down between 1993-94 and 2004-05 with 1.9 per cent households reporting inadequate food availability for the country as a whole in 2004-05 as against 4.2 per cent households in 1993-94. Of these, 1.6 per cent households reported inadequate food for some months while 0.3 per cent reported inadequate food for all months. Further, rural households accounted for a predominant share of inadequate food availability. In respect of State-wise comparison, West Bengal followed by Orissa has an unusually high percentage of households reporting food inadequacy. Poverty alleviation and employment generation programs Poverty reduction has been an important goal of development policy since the inception of planning in India. Various anti-poverty, employment generation and basic services programs are being implemented at present. The ongoing reforms attach great importance to removal of poverty and addressing specifically the wide variations across States and the rural-urban divide. However, there is a need for better implementation of schemes especially NREGS, through web enabled information generation and monitoring system. The lessons learnt from earlier phases of implementation need to be utilized in the third phase of implementation of the program.

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Poverty and Environment The root cause of environmental degradation in India can be attributed to rapid growth of population. India has approximately 18 per cent of the world population but only 2 per cent of the geographical area. In 1972, in the Stockholm Conference on Environment, the then Prime Minister of India, Smt. Indira Gandhi had said that poverty is a great pollutant. Twenty years later, in 1992, World Bank stated, “poor are the agents and victims of environmental degradation”. The poor become agents of environmental degradation when they are victims of it. Human development is also adversely affected by the environmental degradation. Two of the environmental indicators, viz. access to the safe drinking water and the sanitation are closely linked with two of the very important human development indicators, viz. an infant mortality rate and the life expectancy. Polluted air and poor and unhygienic conditions in settlements contribute to reduction in life expectancy and increase in infant mortality. Life expectancy in India is still on very low ebb and an infant mortality rate is much more than desirable. The poor, therefore, take fertility decisions to compensate for all those factors and to avoid risks. Larger population leads to more poverty and worsens the environment, and creates vicious cycle. Housing and Basic Services Access to safe drinking water and proper sanitation is both a right and a basic need. It has a significant bearing on the achievements of other Millennium Development Goals including poverty reduction, and gender equality. However, despite two decades of concerted efforts by national governments and international communities, equitable access to safe drinking water supply and improved sanitation for all remains elusive. It is a pressing development issue. Almost two-thirds of the world’s population without access to safe water and 80 percent without access to improved sanitation, lives in Asia. In the last decade of the 20 th century, Asian countries invested about $60 billion in water supply and about $ 11 billion in sanitation. This enabled about 585 million people in both rural and urban areas to gain access to safe water supply, and the Johannesburg Summit goal of halving the number of people without access to improved sanitation by 2015, are to be achieved, about 1 billion people in Asia would have to obtain access to safe drinking water and another 1 billion people to improved sanitation. Water is a finite resource. Conserving water is one way of ensuring that more is available for those who do not have it. The reduction of non-revenue water in Asia (currently ranging from 25-70 per cent in most water utilities) will significantly lower capital requirements for new investments and conserve. It costs far less to reduce non-revenue water than to expand capacity and perpetuate system inefficiencies. Access can also be expanded by applying the results of research in new technologies that separate water use (e. g., for cooking, drinking, bathing, sanitation), and through natural means such as rainwater harvesting and storage. In conjunction, water quality must remain a key focus.

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Slum Population A total of 42.6 million people living in 8.2 million households have been enumerated in slums of 640 cities/towns spread across 26 states and union territories in 2001 census. The slum population constitutes 4 percent of the total population of the country. . Solid Waste and Hazardous Material Management Due to a rapid growth of urbanization, there is a substantial increase in generation of solid waste in both absolute and per capita terms. It has been indicated that very little amount of waste generated is treated. The problems in management of wastes relate to its collection, handling, transport and disposal. Segregation of solid wastes is not uncommon in India as much of recycling work is being done either by rag-pickers or NGOs in few areas. Proper sanitary land-filling sites need to be developed which are effective in keeping the surface and ground water free from leachates. When this solid waste is not collected and disposed of efficiently and effectively, it attracts rodents and flies which then spread diseases. It also pollutes and degrades land and water resources. If these wastes are left untreated, they would ferment slowly and produce bio-gas which would be distributed in the atmosphere. The bio-gas contains 6570% methane gas which is a green house gas, have a global warming potential 34 times more than that of Carbon Dioxide. Therefore, development of suitable technologies for utilization of wastes is essential to minimize adverse health and environment consequences. Comprehensive guidelines are available with Central Pollution Control Board for Toxic Waste Management including hospital wastes. Plastics Waste Management Use of plastics has grown manifolds all over the world as it has many advantages. They are light, easy to mould, durable and easy to adapt to different user requirements. However, plastics are difficult to destroy and are classified as no biodegradable. On the other hand, it is easy to recycle plastics. In India the growth of the plastic industries is phenomenal. Polymer demand in India has consistently recorded double digit growth rates, trebling every 10 years. India's per capita consumption of plastics was only 4 Kg in 2000, compared to per capita consumption of plastics of Western Europe at 60 Kg. that of Japan 70 Kg. and of USA 78 Kg. in 1998. Also, about 60% of the plastic wastes generated in India are recycled which is the highest in the world. However, the remaining 40 % of the plastic wastes remains uncollected, unsegregated, strewn on the ground, littered around in open drains or in unmanaged garbage dumps. The collection of such Soiled Waste including the one recycled three or even four times earlier, is not only uneconomical for recovery of material, but also unhygienic and undermines the environmental benefits of materials recycling. These indiscriminately disposed solid plastic wastes are of concern in view of causing chokage of municipal sewers, blocking of the storm water run-offs in drains particularly in hilly areas, causing deaths to many animals, like, cows which feed on the garbage food thrown in polythene bags.

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2.5 Bio Diversity The term ‘biodiversity’ encompasses the variety of life on Earth. It is defined as the variability among living organisms and the ecological complexes of which they are part, including diversity within and between species and ecosystems. Biodiversity manifests at species genetic and ecosystem levels. Biodiversity has direct consumptive value in food, agriculture, medicine, industry, etc. It also has aesthetic and recreational value. India is one of the 12 mega biodiversity countries of the world. From about 70% of the total geographical area surveyed so far, 46,000 plant species and 81,000 animal species representing about 7% of the world’s flora and 6.5% of the world's fauna, respectively, have been described. Out of the total twelve biodiversity hot spots in the world, India has two, one is the north east region and other the western ghats. Though more than one-fifth of India’s geographic area is recorded as forest area, it is not known with certainty how much forest area actually bears forest cover. The National Forest Policies (1952 and 1988) aim at having one third of country’s land area under forest and tree cover. As per the latest State of Forest Report 2003, the forest cover in the country is 678,333 kmsq. and constitutes 20.64 percent of its geographic area. Biodiversity the world over is in peril because the habitats are threatened due to such development programs as creation of reservoirs, mining, forest clearing, laying of transport and communication networks, etc. It is estimated that in the world wide perspective, slightly over 1000 animal species and sub-species are threatened with an extinction rate of one per year, while 20,000 flowering plants are thought to be at risk. Conservation Measures Biospheres: Areas rich in biodiversity and encompassing unique and representative ecosystems are identified and designated as Biosphere Reserves. The goal is to facilitate conservation of representative landscape and India's immense biological diversity as described above. Till date, 14 Biosphere Reserves have been set up. Agro Biodiversity India has a rich heritage of species and genetic strains of flora. Overall about six percent of world species are found in India. It is estimated that India is tenth among the plant rich countries of the world and sixth among the centers of diversity and origin of agro diversity. The livestock population in the country increased from 292 million in 1951 to the current estimate of 485 million. Grazing by Livestock puts pressure on grasslands and forests. Because of excessive grazing, natural regeneration is either absent or inadequate in 52.8% of the forests in the country. An analysis of forests vis-à-vis livestock indicates continued free access to the forest area which has resulted in high rates of growth of livestock population causing land

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degradation and arresting the development of markets for forage crops. Overgrazing impedes regeneration, retards growth of vegetation, and leads to extinction of good palatable grasses which are replaced by less palatable and inferior grasses. Extensive areas have been invaded by bushes which are not browsed, excessive trampling makes the soil compact and impervious and prevents circulation of air, water, thus exposing the soil to erosion by wind and water. 3. Natural disasters (such as tsunamis, floods, storms, hurricanes etc.) India is prone to natural disasters. Due to its locational and geographical features, it is vulnerable to a number of natural hazards like cyclones, droughts, floods, earthquakes, fires, landslides and avalanches. Natural disasters result in heavy economic losses, apart from the loss of human life and the hardship inflicted on the survivors. On an average, at least one major disaster hits India every year, causing irreparable damage to life and property. 3.1 Natural disasters in India in the recent past (5 to 10 years) The following tables indicate various dimensions of natural disasters in India such as: 1. 2. 3. 4.

Frequency of occurring natural disasters in India Major earthquakes in India since 1819 Flood affected area and flood damages in India during 1953-2005 State-wise details of damage due to heavy rains / floods, cyclonic storms and landslides during 2005 in India 5. India’s major natural disasters since 1980 6. Damage due to Tsunami/ tide wave in the bay of Bengal in 2004 Tsunamis hit south India; over 1,800 dead During the Christmas time in December 2004, for the first time India was hit by tsunamis, which are triggered by seismic disturbances - coastal earthquakes, volcanic eruptions or undersea landslides - that jolt the ocean floor. The result is a deep wave that stretches from the sea's surface to the floor and travels horizontally at speeds of up to 800 km/hr and rises between 50 and 100 ft. The earthquake and the resultant waves also affected Indonesia, Thailand, Malaysia, Maldives, and Sri Lanka. In India, 10,750 people were killed and hundreds went missing when tsunamis triggered by a massive earthquake - the biggest in four decades at 8.9 on the Richter scale, according to the US Geological Survey's National Earthquake Information Centre - near the Indonesian islands of Sumatra slammed into the southern peninsular coast of India, The states of Andhra Pradesh, Tamil Nadu, Pondicherry and Kerala and the Andaman and Nicobar Islands were severely affected. The Center’s Crisis Management Group met and drew up an emergency plan to carry out relief and rescue operations. The army, air force and navy launched massive rescue and relief operations, pressing helicopters, transport aircrafts and ships along the eastern coastline and in island territories to search for the dead and rescue the trapped.

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19

Ts 20

21

22

23

24

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4. Disaster management systems, policies and precautions 4.1 Measures to tackle climate change The UK-based Carbon Disclosure Project (CDP), which is "the largest investor coalition in the world", supported by 385 investors with a combined asset base of $57 trillion, conducted their annual survey of more than 3,000 companies worldwide on climatic change in 2008. According to the CDP Survey, Asian companies continue to lag in their response to climate change, with just 50% of the region's top companies. By comparison 83% of European and 82% of North American companies took part in the study of climate change practices and disclosure, the study showed. Asian companies also posted the lowest "carbon disclosure" score, 53 out of a possible 100, compared with 69 and 57 by Europe and North America respectively. "The level of disclosure for the Asian companies is significantly below the Global 500 average across almost all categories," the CDP said in its sixth annual survey. Among Asian companies that did not respond to the CDP questionnaire were well-known brands such as Sony Corp, Bank of China and China Mobile, Li Ka-shing's Hutchison Whampoa and Cheung Kong, and carbon-intensive groups Formosa Petrochemical, Hyundai Heavy Industries and China Petroleum. CDP said the poor response was probably because of the "less-developed" level of climate change regulation and the lower level of public debate on the issue compared with western economies. CDP said uncertainty surrounding climate change regulation - such as the planned introduction of carbon trading schemes - was a problem for corporations all around the world. "[A] backdrop of regulatory uncertainty is delaying strategic investment decisions and senior management is calling for greater visibility on climate change-related policy." Despite the uncertainty, 74% of Global 500 companies reporting to CDP are now disclosing emissions targets, showing companies were increasingly taking climate change mitigation seriously. The survey found that the utilities sector within the Global 500 to be the most transparent in its reporting of greenhouse gas emissions, with 93% responding. In contrast the only 69% of oil and gas sector companies responded. EMC ranked highest in the telecom-media-tech sector, beating out Cisco, Nokia, BT and Dell. 4.2 Acts and Laws to deal with climatic change India has enacted various Environment Legislation, Acts, Rules, Notifications and Amendments for environmental protection and to control climatic change. In the Constitution of India it is clearly stated that it is the duty of the state to ‘protect and improve the environment and to safeguard the forests and wildlife of the country’. It imposes a duty on every citizen ‘to protect and improve the natural environment including forests, lakes rivers and wildlife’. Reference to the environment has also been made in the Directive Principles of State Policy as well as the Fundamental Rights. The Department of Environment was established in India in 1980 to ensure a healthy environment for the country. This later became the Ministry of Environment and Forests in 1985.

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Box-4.1: Key Environmental Legislations in India — An Illustrative List Policies 1992 Policy Statement on Abatement of Pollution 1992 National Conservation Strategy and Policy Statement on Environment and Development 1998 National Forest Policy 2002 Wildlife Conservation Strategy 2006 National Environment Policy Environment Acts 1927 The Indian Forest Act 1972 The Indian Wildlife (Protection) Act (amended 1993) 1973 The Water (Prevention and Control of Pollution) Act (amended 1988) 1977 The Water (Prevention and Control of Pollution) Cess Act (amended 1992) 1980 The Forest (Conservation) Act (amended 1988) 1981 The Air (Prevention and Control of Pollution) Act (amended 1987) 1986 The Environment (Protection) Act (amended 1992) 1988 The Motor Vehicles Act 1991 The Public Liability Insurance Act (amended 1992) 1995 National Environment Tribunal Act 1996 National Environment Appellate Authority Act 2002 The Wild Life (Protection) Amendment Act T 2002 The Biological Diversity Act 2003 The Water (Prevention and Control of Pollution) Cess (Amendment) Act Environment Rules 1986 The Environment (Protection) Rules 1989 Hazardous Wastes (Management and Handling) Rules 1990 Forest (Conservation) Rules (amended 1992) 1991 Chemical Accidents (Emergency Planning, Preparedness and Response) Rules 1998 The Bio-Medical Waste (Management and Handling) Rules 1999 The Recycled Plastics Manufacture and Usage (Amendment) Rules 2000 The Municipal Solid Wastes (Management and Handling) Rules 2000 The Hazardous Wastes (Management and Handling) Amendment Rules 2000 The Ozone Depleting Substances (Regulation and Control) Rules 2001 The Batteries (Management and Handling) Rules 2002 The Noise Pollution (Regulation and Control) (Amendment) Rules 2003 The Recycled Plastics Manufacture and Usage (Amendment) Rules 2003 Bio-Medical Waste (Management and Handling) (Amendment) Rules 2003 Forest (Conservation) Rules 2003 Draft Biological Diversity Rules Environment Notifications 1994 Environmental Impact Assessment Notification 1994 (amended 2002) 1998 Constituting the Taj Trapezium Zone Pollution (Prevention and Control) Authority 1999 Fly Ash Notification (amended 2002) International Agreements to which India is a Signatory 1972 The Rio Declaration on Environment and Development and the Agenda 21 1975 The Convention on International Trade in Endangered Species of flora and fauna (CITES) 1985 The Vienna Convention/Montreal Protocol on substances that deplete the ozone layer 1991 The Convention on Wetlands of International Importance (the Ram Sar Convention) 1992 The Framework Convention on Climate Change 1992 The Convention for Conservation of Biological Resources

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The constitutional provisions are backed by a number of laws – acts, rules and notifications. The Environment Protection Act of 1986(EPA) came into force soon after the Bhopal Gas Tragedy and is considered an umbrella legislation as it fills many gaps in the existing laws. Thereafter a large number of laws came into existence as the problems began arising e.g. Handling and Management of Hazardous Waste Rules in 1989. Following is a list of the environmental legislations that have come into effect: • General • Forest and wildlife • Water • Air General 1986 – The Environment (Protection) Act authorizes the central government to protect and improve environmental quality, control and reduce pollution from all sources, and prohibit or restrict the setting and /or operation of any industrial facility on environmental grounds. 1986 – The Environment (Protection) Rules lays down procedures for setting standards of emission or discharge of environmental pollutants. 1989 – Hazardous waste (Management and Handling) Rules objective is to control generation, collection, treatment, import, storage and handling of hazardous waste. 1989 – The Manufacture, Storage and Import of Hazardous Chemical Rules defines the terms used in this context, and sets up an Authority to inspect, once a year, the industrial activity connected with hazardous chemicals and isolated storage facilities. 1989 – The Manufacture, Use, Import, Export and Storage of hazardous Microorganisms/ Genetically Engineered Organisms or Cells Rules were introduced with a view to protect the environment, nature and health, in connection with the application of gene technology and micro organisms. 1991 – The Public Liability Insurance Act and Rules and Amendment, 1992 was drawn up to provide for public liability insurance for the purpose of providing immediate relief to the persons affected by accident while handling any hazardous substance. 1995 – National environmental Tribunal Act has been created to award compensation for damages to persons, property and the environment arising from any activity involving hazardous substances. 1997 – The National Environment Appellate Authority Act has been created to hear appeals with respect to restrictions of areas in which classes of industries etc are carried out or prescribed subject to certain safeguards under the EPA (Environment Protection Act). 1998 – Biomedical waste (Management and Handling) Rules is a legal binding on the health care institutions to streamline the process of proper handling of hospital waste such as segregation, disposal, collection and treatment.

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Forest and wildlife 1927 – Indian Forest Act and Amendment 1984 is one of the many surviving colonial statutes. It was enacted to ‘consolidate the law related to forest, the transit of forest produce and the duty livable on timber and other forest produce. 1972 – Wildlife Protection Act, Rules 1973 and Amendment 1991 provides for the protection of birds and animals and for all matters that are connected to it whether it be their habitat or the waterhole or the forest that sustain them. 1980 – The Forest (Conservation) Act and Rules 1981 provides for the protection of and the conservation of the forests. Water 1882 – The Easement Act allows private rights to use a resource i.e. groundwater, by viewing it as an attachment to the land. It also states that all surface water belongs to the state and is a state property. 1897– Indian Fisheries Act establishes two sets of penal offences whereby the government can sue any person who uses dynamite or other explosive substance in any way (whether coastal or inland) with intent to catch or destroy any fish or poisons fish in order to kill. 1956 – The River Boards Act enables the states to enroll the Central Government in setting up an Advisory River Board to resolve issues in inter state cooperation. 1970 – Merchant Shipping Act aims to deal with waste arising from ships along the coastal areas within a specified radius. 1974 – The Water (Prevention and Control of Pollution) Act establishes an institutional structure for preventing and abating water pollution. It establishes standards for water quality and effluent. Polluting industries must seek permission to discharge waste into effluent bodies. The Pollution Control Board (CPCB) was constituted under this act. 1977 – The Water (Prevention and Control of Pollution) Cess Act provides for the levy and collection of cess or a fees on water consuming industries and local authorities. 1978 – The Water (Prevention and Control of Pollution) Cess Rules contains the standard definitions and indicate the kind of and location of meters that every consumer of water is required to affix. 1991 – Coastal Regulation Zone Notification puts regulations on various activities, including construction, are regulated. It gives some protection to the backwaters and estuaries. Air 1948 – Factories Act and Amendment in 1987 was the first to express concern for the working environment of the workers. The amendment of 1987 has sharpened its environmental focus and expanded its application to hazardous processes. 1981 – Air (Prevention and Control of Pollution) Act provides for the control and abatement of air pollution. It entrusts the power of enforcing this act to the Central Pollution Control Board.

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1982 – Air (Prevention and Control of Pollution) Rules defines the procedures of the meetings of the Boards and the powers entrusted on them. 1982 – Atomic Energy Act deals with the radioactive waste. 1987 – Air (Prevention and Control of Pollution) Amendment Act empowers the central and state pollution boards to meet with grave emergencies of air pollution. 1988 – Motor Vehicles Act states that all hazardous waste is to be properly packaged, labeled and transported. Table 4.1: Summary of Area-Based Environmental Management and Planning Approaches in India Action Plans for critically polluted/problem areas

Programs for environmentally sensitive areas Eco-city Program City level Urban Air Action Plans

Areas with industrial clusters

Area wise Zoning Atlas for the sitting of industries

Area wise assimilative capacity assessment Area wise carrying capacity studies

This is the major area-based program in India. To date, 24 critically polluted/problem areas have been identified by the Central Pollution Control Board (CPCB) in consultation with the concerned State Pollution Control Boards (SPCBs), for which action plans are in various stages of implementation. The Ministry of Environment and Forests (MoEF) have issued notifications prohibiting or restricting location of industries, mining operations and other development activities with environments impacts in five environmentally sensitive areas. The Eco-City Program has been initiated by the CPCB for environmental improvement in selected small and medium towns. In the first phase, it has been launched in four towns. The CPCB has identified 53 non-attainment cities where the air quality exceeds the prescribed ambient standards. The concerned State governments and SPCBs are required to prepare action plans for air pollution reduction in these cities. Several measures have been undertaken in recent years in Delhi; and action plans have been submitted for 16 other cities. Under this program, eight areas of concern due to the clusters of polluting industries (mostly tanneries and foundries but also drugs and pharmaceutical manufacturing units, and clusters of coal mining and coal based power stations) have been subjected to rigorous monitoring and pollution control initiatives. To delineate the areas that suitable for industrial sitting and for classification of areas in different categories based on their existing environmental profiles, the program for preparation of District–wise Zoning Atlas has been taken up by the CPCB in collaboration with the SPCBs (with Gesellschaft for Technische Zusammenarbeit (GTZ) support). In the first phase, 19 districts were taken up for preparation of the zoning atlas. A pilot program for assessing area wise assimilative capacity and exploring the feasibility of setting location specific standards was undertaken by the CPCB in the river stretch in Rajamundri and in the Vizag air shed area, Andhra Pradesh. Studies were undertaken in five selected areas of the country to assess the area wise carrying capacity over time, to assist with spatial planning and decision making with respect to industrial growth and other development activities based on environmental considerations.

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4.3 Financial Planning for Natural Disaster Management In addition to physical controls and measures, ex-ante Financial Planning is essential to deal with contingent liabilities of the government and risk management for unforeseen events such as droughts, floods, earthquakes, land slides and other natural disaster. Risk management and emergency response need to be clearly distinguished. Risk management calls for ex-ante planning and investments to reduce vulnerability. Emergency response involves ex-post expenditures for reconstruction, rehabilitation and restoration of public infrastructure affected by natural disaster, which can be greatly reduced through ex-ante planning and investments in prevention and mitigation. While the occurrence of natural events can not be predicted precisely and prevented fully, there is a possibility to reduce the degree of vulnerability of populations through risk management. This can be achieved in two ways: (i) planning with the purpose of the identification and reduction of risk by integrating prevention and mitigation measures into national development and financial plans and programs and (ii) financial protection provided by transferring risk partly to the private sector or spreading it over time. The latter can be achieved by strengthening both life and non-life insurance institutions. 4.3.1 The Credit System The development of commercial banks, co-operative banks, savings banks, informal and formal non-banking financial institutions, and micro-credit institutions can contribute to the mobilization of the resources needed to finance investments in prevention, mitigation, rehabilitation and reconstruction. The system of contingent credit mechanism makes it easier to obtain financing in the event of a disaster. In the case of a contingent credit, in exchange for an annual fee to a general insurance company, the right is obtained to take out a specific loan amount post-event that has to be repaid at contractually fixed conditions. In order to tackle the adverse impact of droughts in India, if any in future, a system of contingent credits or crop insurance or herds insurance can be very useful. 4.3.2 Risk Transfer Instruments Risks can be transferred by creating suitable risk transfer instruments and mechanisms currently in use in developed countries, especially insurance. Financing through ex ante credits offers even more incentives to mitigate risk because risk transfer instruments offer opportunities to contain moral hazards or adverse selection problems. Ex-ante measures to tackle unforeseen events include prevention and mitigation, insurance, contingent credit and reserve funds. Mitigation reduces the damages, whereas risk financing measures reduce losses by transferring risk or sharing risk with others. Mitigation is directed towards decreasing engineering or physical vulnerability, whereas risk financing reduces financial vulnerability (Fig. 1).

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Risk transfer provides indemnification against losses in exchange for a premium payment. Risk is transferred from an individual to a (large) pool of risks through insurance/ reinsurance, reserve funds and contingent credit systems (Fig.2). Insurance and reinsurance funds bear part of the risk. In a reserve fund arrangement, liquid funds are laid aside so that the fund accumulates over the years without unviable impact on the present budget. In case an unforeseen disaster takes place, the accumulated funds can be used to finance the losses. Contingent credit arrangements do not transfer risk, but rather spread it intertemporally. As explained earlier, in exchange for an annual fee, the right is obtained to take out a specific loan amount post-event that has to be repaid at contractually fixed conditions.

natural hazard engineering engineering vulnerability vulnerability

exposure

damage

mitigation

financial financial vulnerability vulnerability

economic loss

ex-ante instruments

Fig. 1:Mitigation and Risk Financing

Flow of Funds from Three Instruments Capital Accumulation

+

a) Reserve Fund

Fund Payment

-

+

b) Contingent Credit

Credit Payment

Administrative Costs

Debt Repayment

+

c) Insurance

Insurance Payment

Premium

Fig.2- Flow of funds from three ex-ante financing instruments Reserve Fund, Contingent Credit and Insurance

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4.3.3 Insurance and development bonds Development of insurance markets requires updating legislation and institutional set up. This requires development of appropriate rules and regulations, strengthening the independent regulatory authorities to improve monitoring of the solvency of insurance companies and eliminate conditions that favor anticompetitive practices. The possibility of introducing innovative capital market mechanisms such as catastrophe or natural calamity bonds, commodity futures and weather-related derivatives may be examined. These instruments, which may be of interest to international financial entities, avoid the major difficulties related to asset valuation and loss settlement procedures, but have to be implemented at pool or governmental levels. The same arguments hold good for life and non-life insurance. But, catastrophe or natural calamity bonds are difficult to be developed by developing countries like Mongolia which lack efficient money and capital markets. It may be easier for Mongolia to develop other kinds of bonds such as “development funds” (viz. municipal, social, urban, rural, roads, infrastructure development bonds etc.) to meet critical needs for infrastructure development. This can be helped by international development agencies. Another instrument that could be highly useful is to establish a “contingent liability fund” and to make budgetary contributions. Government of Mongolia has already established such a contingent fund, road development fund and a general Development Fund. The private sector and the community-wide formal and informal financing instruments perform a very important role at the local level by supplying resources, particularly in poorer areas. Regardless of the source of financing, the implementation of these mechanisms requires close cooperation between the public and private sectors, especially in reference to the establishment of the appropriate legal and regulatory framework. Table-4.2 summarizes various sources of ex ante and ex post disaster financing. The ex ante non-reimbursable and reimbursable financing mechanisms without risk transfer include grants and credits. The corresponding risk transfer instruments encompass insurance and natural calamity bonds, which can cover the damage based on real losses (indemnification) or the parametric payments. Ex post financing instruments include grants, taxes, emergency and reconstruction loans, and refinancing of existing loans. In the event of a disaster, immediately available and lowest-cost financing options, such as an existing calamity fund or catastrophe bonds, insurance and reinsurance, are generally used first. Similarly, part of budgeted resources from the existing programs can be transferred to meet immediate emergency needs. In some cases, existing development funds (municipal, social, urban, rural) may also be used. Government can impose an emergency cess or tax on the existing tax payers. At the same time, the government could seek as much international aid and donations as possible and resort to contingency credits.

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Table-4.2 Provisional Classification of Disaster Financing Mechanisms

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