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Reconciling Growth and Environmental Protection: How to Achieve a Win-Win for All?

India has embarked on a high growth path that will require substantial acceleration of infrastructure development. The Integrated Energy Policy of the Planning Commission projects a six to seven fold increase in power generation between 2003-04 and 2031-32. The McKinsey Study “Environmental and Energy Sustainability: An Approach for India” projects a five-fold increase in electric power demand and a seven-fold increase in the vehicle fleet between 2005 and 2030 assuming a growth rate of 7.5 per cent per annum. This will require a five-fold expansion in power capacity and major investments in road transport. Add to this the demands that would arise for freight and port capacity from the double digit growth in industrial production and more rapid urbanisation and the scale of new infrastructure construction would perhaps be nearly an order of magnitude larger than at present. These infrastructure construction demands will also lead to an increase in the demand for cement to 860 million tonnes and for steel to 300 million tonnes. All of these activities have a substantial environmental impact.

All large scale projects involving the exploitation and use of natural resources have what could be described as non-marginal environmental consequences. Major projects for water resource, hydro and thermal energy, rail transport, highway, port and urban development, have an impact on the environment which is of particular concern because they may involve one or more of the following:

  • Large scale land use changes often in ecologically sensitive areas;
  • Displacement of large numbers of people from their homes and livelihood sources;
  • Extensive interventions in natural hydrological regimes;
  • Disruption of local biotic regimes, including, often loss of forest cover; and,
  • A substantial increase in air and water pollution load, which may be of local, regional, national or even global concern.

These concerns are not unique to infrastructure projects. They are relevant also for mining development and industrial projects for resource intensive products like metals, cement, paper, and so on. Hence much of what we say about how environmental impact of infrastructure projects should be managed will also apply to these industrial projects. But there is one major difference. In the case of industrial products, the environmental consequences of production can be avoided, if they are deemed to be too high, by resorting to imports. With infrastructure projects, which generally provide a non-tradable service, often location bound as with urban development, the import option is not available. Hence the focus has to be as much on alternatives for managing unacceptable environmental impacts as on decisions about whether to proceed with them or not.

The most important challenge is to integrate supply and demand management in infrastructure planning, have procedures and criteria for approving or rejecting projects and decision making processes that hear all voices

In what follows some suggestion are offered for a process of planning and decision making that can go some way to addressing these concerns. The most important challenge is to integrate supply and demand management in infrastructure planning, have procedures and criteria for approving or rejecting infrastructure projects that consider all impacts regardless of when and where they arise and decision making processes that hear all voices and allows all stakeholders a say.

Policy Coherence

Infrastructure planners tend to work from a given estimate of demand, whether it is for energy or water or transport or urban municipal services and then proceed to identify viable supply options. The management of environmental consequences is added to the project after planners are more or less committed to a particular supply option. The framework for project analysis is generally restricted to what is described as the project area. This approach is a near certain guarantee that the choices made will be sub-optimal from a sustainability and eco-system perspective.

Infrastructure services like electricity, transport connectivity and communications are intermediate goods whose demand can be influenced without any loss of production or physical amenity. The same is true of services like water supply and sewerage, which could be thought of as final goods. Often demand management is a more cost effective option than increasing supply. For instance, flattening the load curve by persuading electricity users to shift demand to off-peak hours may be a more cost effective option than increasing peaking capacity. Providing consumers with appliances and fixtures that save water or reduce waste loads in sewerage systems may be more cost effective than expanding water supply and sewerage systems.

From an environmental perspective reducing energy, transport, water and sewerage demand is generally desirable as it reduces the load on ecosystems. Acting on the demand side is also desirable to contain the large investment needs of the infrastructure sector. Hence all large infrastructure projects should be based on an optimised demand pattern rather than a mechanical extrapolation of past trends.

This integration of demand concerns in project analysis also brings out the importance of policy coherence. Prices and regulatory regimes are a major determinant of demand and the optimised pattern has to be promoted as much by appropriate market signals and regulatory constraints as by project choice. Thus the flattening of the load curve will require time of day tariffs. Reducing transport intensity in cities will require a re-examination of zoning and land use controls. Promoting efficiency in the use of energy and water may well require subsidy and price reform. In fact, the greatest challenge for integrating environmental concerns in infrastructure planning may well be the difficult task of securing this policy coherence across geographies and sectors.

Efficiency gains may well require significant amounts of dispersed investments by the households and enterprises that use energy, water, and sewerage and transport services. This up-front cost of new appliances or retro fitting is often the principal barrier to securing these gains. This dimension of investment and technical extension should be more explicitly recognised as part of the planning for mega projects for energy development, urban transport, water supply and sewerage.

This integration of demand concerns in project analysis brings out the importance of policy coherence. The greatest challenge for integrating environmental concerns in infrastructure planning may well be the difficult task of securing this policy coherence across geographies and sectors

Policy coherence is not limited to the simultaneous consideration of demand and supply options. The regulatory regime for common property is particularly important for large infrastructure projects that use forests, public lands and common property water resources. Infrastructure development plans have to be consistent with all of these areas of policy and that requires coherence in the way in which these policies are administered and implemented. The most important requirement is transparency so that outcomes are not determined by murky bargaining in the corridors of power.

The Cost-Benefit Framework

The standard principle of cost-benefit analysis is that all resources that are used for realising the project benefits should be valued at their opportunity cost, that is, at their value to the actual and potential users of that resource in alternate uses. For instance, the loss of forest cover has to be valued in terms of what it means to those who depend on that forest for a livelihood. Similar arguments apply to the impact of a project on water availability and quality for other uses, for land use, mineral use and so on.

Market prices will seldom reflect these opportunity costs even when the owners of the resource are in a position to assess the value of the resource to them. That is because much of the cost is borne by others, including future generations, who have no say in determining the offer price of the resource in the market. This is the central market failure that has to be handled in the decision-making system.

In the present system of cost-benefit analysis of projects, incremental benefit is measured as the value of the difference in production before and after the implementation of the project. The “before-and-after” procedure needs to be replaced by the “with-and-without” approach. This approach will take into account any improving or deteriorating trend in production that would prevail even in the absence of the project. Environmental effects like pollution, land degradation, water logging and salinity are more readily recognised in a with-and-without approach.

The most important element in the with-and-without approach is the impact on people – those who will gain from development, those who will lose through displacement or unrequited loss of opportunity or amenity. Hence a with-and-without approach has to focus not just on production and productivity changes but also on the distributive impact. The loss of income and property as also amenity suffered by displaced persons should be quantified as thoroughly as the gain in the income of beneficiary households. This is one area where much more needs to be done to go beyond a treatment of displacement as a cost to an approach which looks at it as an issue of social justice The new central guidelines on the obligations for rehabilitation and compensation can provide the basis for this. However it may be necessary to go beyond this and a public debate is necessary on the general principles which should guide policy in this area, such as,

A decision-making process in which all parties have some confidence can help to ensure that controversies and disputes are largely settled before work on the project starts rather than continuing through the phase of implementation leading to delays and even disorder

  • The principle that those whose land and livelihood is to be taken away to implement the project should share in the returns from the project;
  • Land for land compensation in the command area; and,
  • Negotiated rather than compulsory acquisition as the norm.

The with-and-without approach requires a more explicit consideration of the geography of impact beyond the project boundary. More specific guidelines need to be developed on how such system wide effects can be taken into account. One approach could be to include ecosystem based area analysis in the more traditional environmental impact analysis. Infrastructure projects must be viewed within an ecosystem approach so that one can assess their impact on three sets of services that nature provides to humans:

  • Provisioning: supplying basic necessities like food, fibre and fuel;
  • Regulating: climate, water flow, drainage, species movements; and,
  • Psychic satisfaction: sacred spots, cultural value, aesthetic pleasure.

Such a structured ecosystem approach may be a better way of integrating environmental concerns in infrastructure planning than the more mechanical environmental impact analysis that is used at present.

The Decision-Making Process

Given the scale and depth of the environmental impact of infrastructure projects, environmental consequences must be handled more systematically in the decision-making process. If they are not, those who are aggrieved will resort to political lobbying, agitations, judicial action and other means to assert their interests.

A retrospective view of decision making on infrastructure projects would have to recognise that a significant part of the problem lies in a lack of confidence in the decision-making machinery in the state and central governments. This can be seen in the organised and persistent protests from many community and NGO groups whenever a major project is taken up and the frequent resort to judicial intervention in executive decision making. Clearly something needs to be done to raise the level of public confidence in the decision-making process.

The central challenge is to secure the engagement of all stakeholder groups in the entire process from assessment to implementation. More than that, what is needed is the agreement of all relevant stakeholders if implementation is to proceed smoothly in a political and judicial environment where people’s rights are effectively secured

A decision-making process in which all parties have some confidence can help to ensure that controversies The central challenge is to secure the engagement of all stakeholder groups in the entire process from assessment to implementation. More than that, what is needed is the agreement of all relevant stakeholders if implementation is to proceed smoothly in a political and judicial environment where people’s rights are effectively secured.

Negotiated solutions do pose some problems for infrastructure projects, which are very site specific with their location being determined by topography and geology. That is why state power is used to acquire lands compulsorily. If this is done, the least that is needed is that public authorities must be as mindful of the rights of potential losers as of the ones who stand to gain. However, a negotiated solution is possible if there is a fair sharing of gains and losses

The challenge for negotiated solutions is to determine who the relevant stakeholders are in each specific case. They will clearly include all whose livelihood or land is directly affected by the project. But when broader environmental and social effects are taken into account, this set will include many who are not necessarily residents of the project area itself. Not all stakeholders can claim an equal right to involvement in the decision-making process. For every project an effort must be made to identify the relevant stakeholders in terms of the following groups:

  • Those whose prior and informed consent is necessary;
  • Those whose views must be heard in public before a decision is taken; and,
  • Those who have a right to full information on the data and analysis, which is the basis for decision.

The people whose land is needed for the project or whose livelihood is disrupted have to have a special place in decision-making. Ideally, any acquisition or displacement should be negotiated with them so that they can question the demand made on them and get what they deem to be fair compensation. If the compensation that they want makes a project unviable and prevents implementation, then so be it. People have a right to their land and livelihood and no higher authority can challenge their valuation of this right.

What is needed is a legal framework that establishes the right to negotiate and a procedure for conciliation and dispute resolution similar in some respects to what prevails in the case of trade unions and industrial disputes.

Prior information and consent as also public hearings presume that the information base for decisions, project reports, surveys, etc, are available to the public. This requirement of transparency is now widely accepted and is embodied in the various Right to Information Acts. It must be formalised in more specific terms in the law governing the decision-making process for irrigation projects.


Infrastructure projects pose special problems in the reconciliation of growth and environment as they generally provide a non-tradable service and any shortage there can constrain growth. This has not happened in the recent high growth years because of the dynamism of the services sector. But in the decades ahead the manufacturing sector has to grow more rapidly to maintain high growth and absorb the increase in the working population. The pressure points from the environmental end will be climate change, local air quality, forest cover and forest quality, the loss of agricultural land and water availability and quality.

The next few decades will see India growing at a pace that will double GDP every seven to eight years. This will require infrastructure investments to increase at an equally crisp rate. Either that or the high growth strategy will choke on infrastructure bottlenecks. Pressures to implement infrastructure projects and short circuit environmental clearances will grow. The clash between growth imperatives and the environment will become sharper. In this frenzy of growth, it is worth remembering that the welfare of the Indians for whom this growth is being targeted also depends on the quality and integrity of their living environment. Coherent policies, a broader cost-benefit framework and a transparent decision-making process that anticipates this and puts in place a mechanism that reconciles growth and environmental protection is good both for growth and for the environment.

Nitin Desai

Nitin Desai is an economist
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