Political Economy of Environmental Clearance in India

• In Event: Governance and Development at the State and Local Levels in South Asia

Abstract

Economic activities that impact the environment require regulatory approval in the form of permits or clearances across the globe. Their mandatory nature makes efficient issuance of environment permits a crucial factor for new economic activity. The considerable discretion in the approval process and high opportunity costs associated with delays create potential opportunities for political rent-seeking. Environmental clearances, therefore, have a large political economy. In this context, we examine the existence of electoral cycles in the issuance of environmental permits. On the supply side, we assess 1) increase in applications processed by the government immediately prior to elections 2) lower processing time or less scrutiny of applications processed immediately prior to elections. Similarly, on the demand side, we assess if firms are more likely to apply for issuance immediately prior to elections.

To answer these questions, we build a novel dataset that tracks approximately 20000 environmental clearance permits issued by state governments in India between 2014 and 2023. These applications cover a wide range of industrial, infrastructural, and mineral mining projects and are subject to regulation by individual state governments. We use the probability of approval and the processing times to infer the quality of environmental regulation. The unique nature of the data, which identifies the precise location of a project, allows us to examine both spatial and temporal heterogeneity in the approval process based on a wide range of factors.

We find that proximity to an election cycle is associated with an increase in the number of applications processed by the government and a decrease in processing times. We examine heterogeneity across various factors to adjudicate between different mechanisms. First, detailed information about each project – cost, economic output, labour employed etc. allows us to evaluate whether cycles could be attributed to incumbents’ incentives for inducing a political business cycle. Second, we assess the rent-seeking mechanism by studying heterogeneity based on the type of industry. Finally, we replicate our results across different states of India to examine if the results are related to nature of parties governing the state.

Authors

• Anustubh Agnihotri, Ashoka University

• Pranav Gupta, University of California Berkeley