There are long term hidden costs to constructing over the city’s ecologically sensitive areas and groundwater recharge zones. If true costs are accounted for, then real estate in the Aravallis will come at the expense of the city’s future water security and that is a very costly deal.
Markets are efficient. They are good at allocating resources through mechanisms of supply and demand. However, markets have their limitations. They do not account for the costs or benefits accrued to those not involved in the transaction. These are called market externalities. For example, education creates a positive externality for society, while pollution is a negative externality.
Because the cost of a negative externality (like depletion of water table) is borne neither by the soft-drink bottling plant nor by the end consumer, the market price of the soft drink does not reflect it’s true cost. But externalities are real and someone has to pay for it. More often than not it is the society.
Hidden costs are real
This is not to say that we don’t need markets. We absolutely do. But it’s important to account for the hidden costs that markets tend to ignore (by design) and then work towards a more accurate assessment of costs vs benefits.
I will continue with our soft-drink bottling plant example to explain this. In 1999, Coca-Cola set up a bottling plant in Kaladera in Rajasthan. It may sound illogical on why a bottling plant, whose main raw ingredient is water, would be set up in a drought-prone, semi-arid region with a low average annual rainfall. Anyhow, the plant was operationalized with attractive incentives from the state government. One may argue that this is also the case of state intervention skewing the market. But the point is that nobody accounted for the very real externality of depleting groundwater - the only source of water in the region.
The result was that groundwater in the area depleted to more than 500 ft by 2014 and protests ensued from 32 villages that were affected by the plant. TERI confirmed that the plant was set up in a water stressed area and recommended closure or relocation. Finally in 2016, the plant was shut down, euphemistically stating, “A plant's capacity also becomes viable or unviable on the basis of the availability of raw materials”.
An assessment of true cost vs benefits at the onset would have avoided this mess.
Accounting the true value of trees
But accounting for externalities is easier said than done. For instance, how do you calculate the benefits from a 100 year old living tree? How do you calculate the worth of the oxygen provided by a tree? Although these are not easy questions, there have been some credible attempts that have thrown some uncomfortable answers.
Recently, a committee set up by the Supreme Court of India has pegged the value of a tree at Rs.74500 times the age of the tree. With these calculations, a 100 year old heritage tree would be valued at more than a crore, overshadowing the monetary value of the project for which it would be cut. Unsurprisingly, the judges were alarmed and asked for “fine tuning” of the suggestions.
Somehow, as a society, our collective valuation of trees is much less. This reflects in the Net Present Value (NPV) charged by the Ministry of Environment, Forest and Climate Change (MOEFCC) for forest land to be diverted for non-forestry purposes. The NPV for clearing a very dense Class 1 forest is a paltry 10.4 lakhs for one hectare (2.4 acres). A recent draft note by MOEFCC in 2021 is looking to tie this value to Wholesale Price Index and revise it to about 15.7 lakhs per hectare. ( I am keeping aside the absurdity of tying the valuation of forests to WPI for now). This NPV is hardly covering the value of the land itself, let alone the trees standing on it.
Skewed incentives
Now, think about the effects of this gross undervaluation. All it does is subsidize projects which would otherwise be wasteful and unviable. Buying private non-forest land comes at market price, while forest land comes at these subsidized rates. This creates incentive to turn to forest lands rather than look for alternate sites.
This dynamic is playing out in the neighbourhood of Gurgaon where the government has amended the PLPA act, opening up ecological reserves like Mangar Bani in the Aravallis to real estate. PLPA Act was implemented in 1900 to preserve the ecologically sensitive areas of Aravalli and Shivalik ranges from degradation by prohibiting activities like real estate development and mining. Now, the act has been amended to open up 60,000 acres of previously protected land near NCR to real estate.
Now, for those arguing that “we need land for development”, it will be useful to remember that Haryana state is a water stressed region with one of the least forest cover in the country at a mere 3.62% of its area. Why can’t the remaining 96.38% of the land be used rather than eyeing the last remaining Aravallis, which are valuable water recharge zones for the NCR region? This is like buying a designer dress by mortgaging the family gold.
The long-term side-effects
This is not an environment vs development debate. This is a debate on ‘development in which direction?’.
The Aravallis are the oldest mountain ranges in the world and are ecologically sensitive areas that provide a barrier to the expansion of desert into the fertile plains of northern India. Aravallis in southern Haryana are a critical groundwater recharge zone for the whole of NCR region. But, with the PLPA amendments passed, real estate may soon be available in the Aravallis. Even at a steep markup, these lands would be greatly discounted - hillside luxury homes built at the cost of the city's future water supply. What a deal!
The Rabbit Hole
Supplementary reading recommendations
[Article]: “Investigation: Hidden water crisis behind India’s sugar dominance”, by Monika Mondal, The Third Pole (July 2021)
[Book]: Conflicts of Interest: My journey through India's green movement, by Sunita Narain
@AravalliBachao is a citizens initiative speaking on this topic extensively
References:
India Water Portal: People in semi-arid Rajasthan village battle Coca-cola (2014)
Business Standard: Hindustan Coca-cola shuts down Jaipur plant (2016)
The News Minute: How much is a tree worth? SC panel pegs it at age multiplied by 74500 (Feb 2021)
Hindustan Times: Government may tweak policy for infra projects in forest areas (Feb 2021)
HT: Haryana told to protect Aravalli foothills as water recharge zones (2016)