India is bestowed with rich biodiversity and ecosystem services, which form the basis of the nation’s ecological and economic security.

The National Environment Policy 2006 focuses on the nexus of environmental degradation with poverty in its many dimensions and, hence, economic growth. The dominant theme of the policy is that while conservation of environmental resources is necessary to secure the livelihoods and wellbeing of all, the most secure base for conservation is to ensure that people dependent on resources obtain better livelihoods from conservation rather than degradation of the resource. 

The regulatory frameworks for conservation of natural resources have evolved over the years, with the most recent being the Coastal Regulation Zone Notification 2010 (providing a framework for regulating development in the coastal zone based on hazard vulnerability and ecosystem services) and Wetland (Conservation and Management) Rules 2010 (creating a regulatory regime for wetlands).     

The national environmental policy strongly emphasizes the role of economic instruments in various forms to achieve sustainable development. Achieving economic efficiency in natural resource use is one of the core principles of the policy. The role of economic instruments, which aim to rationalize incentive structures and promote sustainable use of natural resources, is also emphasized.

Despite this, environmental services rewards schemes are still in their early stages. There are some watershed-scale applications, which highlight various challenges in environmental services’ descriptions, measuring additionality, maintaining conditionality and accounting for transaction costs.

A capacity-assessment survey for implementation of environmental services’ schemes to repair land degradation showed that while an understanding of environmental services does exist, there is insufficient capacity to value incremental change, which limits the application of any such schemes.

In 2012, the Ministry of Environment and Forests launched an assessment of the economics of ecosystem services and biodiversity (TEEB India) along the lines of international TEEB, focusing on the roles ecosystem services and biodiversity play in sustaining economic development and the means of ensuring their inclusion in developmental planning and decision making.

As a pilot, the focus was on three ecosystem types: forests, inland waters and coastal and marine waters. The project was expected to lead to specific evidence from ecosystem services and the means of capturing these in economic decision-making processes.   

Key findings

RUPES India focused on incentive system for Lake Loktak with an objective of promoting sustainable water management for ecological restoration and sustaining livelihoods.

Loktak and its associated wetlands, located within the northeastern state of Manipur, are multifunctional systems providing food and water security for the entire region. Sustained provision of ecosystem services derived from the wetlands is critically linked to hydrological regimes. At the core of lake degradation is a lack of integration of ecosystem services into developmental planning processes leading to over-provisioning of tangible ecosystem services while severely undermining relatively intangible regulating, cultural and supporting services of the wetlands ecosystems.

The following are the key findings of the project:

The annual benefits from Lake Loktak (2006–2007 prices) totalled Rs 600 million (± USD 11 300 000), which is equivalent to nearly 2% of the state’s gross domestic product. Direct benefits through provisioning of fisheries, water for hydropower generation and vegetation for use as fuel, food, fodder and raw material for handicrafts accounted for 48% of the overall benefits. Water use for hydropower generated 74% of the direct benefits accrued. Fisheries and vegetation accounted for 18% and 8% of the benefits respectively. Indirect benefits based on regulating, supporting and cultural features accounted for 52% of the overall benefits derived from the lake. The nutrient-retention functions of the ‘phumdis’(unique floating islands of vegetation) formed the basis of 12% of non-use benefits.  As more than half of the total benefits derived from Lake Loktak do not have marked-based prices, there is a significant underestimation of the overall contribution of the water body to the regional economy and a dominance of the more tangible uses of lake resources, that is, for hydropower generation.   

While water used for hydropower is the source of the maximum benefit, there are also costs owing to the present form of water management, such as the degradation of biodiverse habitats, loss of fisheries, proliferation of phumdi, inundation of peripheral areas and sedimentation of link channels, all of which ultimately have an impact on the livelihoods of wetland communities and the overall sustainability of ecosystem services. The hydropower pricing mechanism in place at present does not account for lake water as an input to production processes. Current water management practices, by not properly accounting for environmental impacts, subsidizes an environmentally inefficient process and shifts the impacts onto wetlands-dependent communities.

Water management at Lake Loktak needs to address nine objectives apart from hydropower generation. Ecological needs—such as maintenance of biodiversity habitats, management of aquatic vegetation and fisheries—are aligned to the natural regime of water that existed prior to construction of the Ithai barrage. But the human demand for water must be met by a regulated water regime. It is impossible to meet all the objectives of water management under the current scenario. In particular, there are trade-offs between water allocation for hydropower generation and maintenance of habitats in the national park (which covers part of the lake area) in drier seasons.

Based on scenario evaluations and existing water regimes, it is possible to reduce the trade-offs and ecological impacts by changing the current barrage operation rules and integrating the need for reducing water levels during drier seasons. The impacts of these changes would need to be monitored and alterations made accordingly. As the current levels of water resources would be insufficient to meet all water management objectives, and that with each passing day the scenario worsens, demand and supply management has assumed a critical role in determining availability of water. On the demand side, opportunities include enhancing efficiency of water use for hydropower generation and managing phumdis to reduce water losses. Supply side options include enhancing connectivity between the wetlands complex and optimizing water use upstream through better management of water storage structures.

Application of a payments-based instrument linked to water management could help fund maintenance of wetlands ecosystem services. Linked to the hydropower pricing mechanism, such a scheme would ensure that an adequate component of revenues realized from sale of hydropower were reinvested into wetland management while ensuring that the water allocation system ensured sustainability of wetlands ecosystem processes.  

Policy influenced

RUPES supported development of a water allocation policy for Lake Loktak, balancing human needs with ecological requirements. The policy has been endorsed by the Steering Committee of the Loktak Development Authority and modalities are being worked out for its implementation in participation with various stakeholder agencies. In conjunction with restoration efforts undertaken so far under the Short Term Action Plan for Conservation of Loktak Lake, the authority, with support of Wetlands International South Asia, is working for removal of the wetlands from the Montreaux Record of the Ramsar Convention, which is a list of wetlands undergoing or having undergone negative changes in ecological character and requiring priority action by the Government. The lake is no longer considered necessary for listing as a site of high degradation with no response mechanism in place.