2ND INTERNAL ASSESSMENT

START-UP AND ENTREPRENEURSHIP LAW

ARTICLE REVIEW
“Compliance To Environmental Regulations: The Indian Context”
- Keren Priyadarshini, Omprakash K. Gupta

Word Count: 1486

Luca Antony
17010125060
Division A
B.A.LLB (Hons)
Batch of 2017-22
9011534422 / 17010125060@symlaw.ac.in

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TABLE OF CONTENTS

Introduction................................................................................................................... 3

Overview of the authors’ study and reasonings............................................................ 3

Analysis of the author’s observations and conclusions.................................................5

Conclusion.....................................................................................................................6

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INTRODUCTION

The authors Prof. Keren Priyadarshini1 and Omprakash K Gupta2 have jointly penned “Compliance
to Environmental Regulations: The Indian Context” to study the reasons and main causes for low
levels of compliance with environmental laws in developing countries centering their focus on
factors such as costs of mitigation, comprehensiveness of the laws in relation to the level of
development of the society, punitive measures and the probability of detection of violation.

The paper has been published in the International Journal of Business and Economics in 2003 in its
Vol. 2, No. 1, 9-26. The paper gives an overview of the extent of compliance in the Indian context
and identifies the reasons for such a low level of compliance, studying measures for improving
compliance using market-based instruments.

OVERVIEW OF THE AUTHORS’ STUDY AND REASONINGS

The study begins in the post-independence era noting the legislative efforts through the enactment
of the Wildlife Protection Act, 1972, the Water (Prevention and Control of Pollution) Act, 1974, the
Air Act and the Environment Protection Act, 1986. 3
It observes that despite the exhaustive
legislative efforts made to control pollution, the level of compliance is abysmal.

The authors note the proactive role played by the Indian judiciary in enforcing rules relating to
environmental protection, interpreting Article 32 and Fundamental Right to Life and Personal
Liberty of Article 21 to include the right to pollution-free air and water.4

1 Indian Institute of Management, Ahmedabad, India.

2 Department of Management and Marketing, Prairie View A&M University, U.S.A.
3 Page 13, 2.1. Legislative Efforts, Compliance to Environmental Regulations: The Indian Context.
4 Page 14, 2.2 Judicial Efforts, Compliance to Environmental Regulations: The Indian Context.
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The reason the authors believe Environmental Acts and Rules have not fulfilled their objectives and
that compliance remains low is because they are too procedural in nature and typically have token
punitive measures with no clear policy guidelines.5 A lack of flexibility coupled with over-
ambitious goals by the Pollution Control Boards (PCBs) has led to a difficulty in compliance with
infeasible expectations.6

Weak enforcement is cited as another reason that low compliance is observed in India stating that
the primary tool adopted by the PCBs is inspection in a namesake manner with a reluctance to
implement the laws and utilize their discretionary powers. 7 Lack of effective punitive measures are
observed by the authors to comprise of extremely low penalties that are not attached to the quantity
and quality of emissions and a case is made for weighted penalties based on the extent of mitigation
undertaken and more severe punishments.8

The various solutions are cited by the authors. It is observed that firms are more likely to co-operate
with regulatory authorities when they realize they are in the group of firms that receive more
stringent regulatory inspection, because of the nature of the surrounding community that exerts
direct and indirect pressure on them.9

In a trade-off between the costs and benefits of pollution control, profit-maximizing firms choose
not to invest their resources in pollution abatement if the expected penalty is less than the
investment. In such a situation, the role of markets in the opinion of the authors and communities in
creating incentives for pollution control becomes significant. It is suggested that regulators are now
releasing information to markets (investors) regarding the firm’s environmental performance to
enhance the incentives for pollution control.10

Another way suggested to improve compliance is to treat pollution control as an economic issue. In
case emissions exceed the given standard, a fee is charged on the amount exceeded in the form of a
pollution levy. No levy is paid by factories whose effluent concentrations are equal to, or below the
relevant standards.11

5 Page 14, 3. Causes for Poor Compliance to Environmental Regulations, Compliance to Environmental Regulations:
The Indian Context.
6 Page 15, 3.1.Lack of Flexibility, Compliance to Environmental Regulations: The Indian Context.

7 Page 15, 3.2 Weak Enforcement, Compliance to Environmental Regulations: The Indian Context.
8 Page 17, 3.4 Lack of Effective Punitive Measures, Compliance to Environmental Regulations: The Indian Context.
9 Page 20, 4.2 Community Pressure, Compliance to Environmental Regulations: The Indian Context.
10 Page 21, 4.3 Capital Markets: Incentive for Compliance, Compliance to Environmental Regulations: The Indian
Context.
11 Page 21, 4.3 Pollution Levy, Compliance to Environmental Regulations: The Indian Context.
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The authors observe that by setting the highest allowable concentration of each conventional
pollutant, the controlling authority can select the most used technology and calculate the amount of
reduction achievable as the basis for setting the emission standard. Any source choosing to reduce
emissions at any discharge point more than required by its emission standard can apply to the
authorities for certification of the excess control as an Emission Reduction Credit (ERC) or a
Tradable Permit. This ERC is transferable and can be used by the firm to satisfy emission standards
at other discharge points or can even be sold. Thus, the ERC acts as a currency in emission trading,
a positive economic incentive for the firm.12

ANALYSIS OF THE AUTHOR’S OBSERVATIONS AND CONCLUSIONS

In essence, the authors hold that high costs of mitigation, over-ambitious laws and low probability
of being caught means that Indian firms choose to remain non-compliant offering three scenarios:

(i) That the costs of mitigating pollution being economically so high that compliance in a
developing country like India is infeasible.
(ii) Notwithstanding that the costs of mitigating being economically viable, the law is overly
ambitious, resulting in high marginal abatement costs and low compliance.
(iii) The costs and laws being realistic, the probability of being caught and light punitive
measures fail to deter non-compliance.

In this section, we will dissect and review the above arrived at conclusions of the authors
considering the passing of twenty years to see the advances and persisting shortfalls in the Indian
regulatory environment.

Effective environmental enforcement requires informed consensus on environmental management

objectives and policies that are based on a good understanding of the shared roles and
responsibilities of all players, including the regulator, the regulated community (developers and
polluters) and the affected community (general public).

This fundamental notion of shared responsibility is currently challenged in India by the general
perception among the public, project proponents, and development authorities alike that
environmental ills are the sole responsibility of environmental agencies failing to effectively
implement and enforce the laws.

There are, in fact, little-used provisions under the Indian Criminal Code, the Criminal Procedure
Code, and the Civil Procedure Code which could be used to abate pollution. 13 Until recently the
12 Page 23, 4.5 Emissions Trading, Compliance to Environmental Regulations: The Indian Context.
13 Sections 268, 269, 277, 288 and 290 of the India Penal Code, 1860.
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power bestowed by § 133 of the Criminal Procedure Code had never been tapped. 14 These are only
a few of the directions that could be pursued by aggressive "public interest" lawyers and
environmental groups to supplement the currently ineffective pollution control regime in India and
to show polluters that members of the public are prepared to defend India's air and water resources
with all available means.

However, since the authors wrote the paper in 2003, the lack of political will is still seen today and
that percolates in the legislation in the form of an absent direction and structured implementation.

The citing of capital markets as a player in forcing compliance is an interesting one and since
publishing, has gained more importance. Typically, directed lending for pollution abatement and
mitigation has been carried out by financial institutions responsible for directed industrial lending.
In India, development banks with majority state ownership such as ICICI and the IDBI provide
directed credit to industries for various priority projects, including pollution control. 15 Fiscal
incentives for pollution abatement financing have been widely used in India:16

- Soft loans are provided for technology upgrade by the Industrial Development Bank of India
(IDBI) and the Industrial Credit and Investment Corporation of India (ICICI);
- Depreciation allowances are higher (50 rather than 30 percent) for certain pollution control
equipment;
- Excise taxes are reduced (from 15 to 5 percent) for certain pollution control equipment;
- The maximum customs duty is reduced from 85 to 40 percent for all pollution control
equipment; and
- The income tax exemption is extended to private contributions to environmental
organizations.

CONCLUSION
A clear political aim was missing and still is but I diverge on certain economic factors cited by the
authors, mostly on account of the changing climatic and business environment. Today, firms, this
holding true more for bigger MNCs and other innovative players, can see the inherent benefits, also
to the balance sheet, of adopting sustainable manners of going about with their business. Capital
markets have played a great role in dictating how money is to be spent.

14 C. M. Abraham and Armin Rosencranz, An evaluation of Pollution Control Legislation in India, Columbia Journal
of Environmental Law.
15 Magda Lovei, Financing Pollution Abatement: Theory and Practice, Environmental Economics Series, Paper n. 028.
16 World Bank. 1994c. India Industrial Pollution Prevention Project. Report No. 12822-IN. World Bank,
Washington, D.C.
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