ABSTRACT
Introduction The intensification of certain environment-sensitive economic activities (e.g. mining, ship-breaking), in line with growing international commercial operations in these categories, might bear adverse environmental repercussions in a country in the following manner. First, mislaid thrust on an export-led economic growth model might deplete the stock of natural resources in a developing country/LDC (less-developed country) that traditionally depend considerably on primary items including marine resources, mining and forestry products. Second, the relatively less stringent environmental standards in a developing country/LDC might encourage the players from developed countries to shift their production activities with higher pollution potential in the former location. Alternatively, foreign direct investment (FDI) from the developed countries might come to the developing countries targeting such sectors. As a result, developing countries may specialize in the production of commodities characterized by a higher pollution load and export the final product to developed countries. This leads to an increase of environmental degradation in the South but reduction of the same in the North. The phenomenon of growing degradation in a country characterized by relatively weaker environmental standards/policy, or with lesser willingness and capacity to enforce them through a trade or investment route in this manner is termed as ‘pollution haven hypothesis’ (PHH) in international trade literature (Lucas et al. 1992; Xing and Kolstad 1998; List and Co 1999; Eskeland and Harrison 2003; Cole and Elliott 2005). Since the adoption of the structural adjustment policies (SAP) in 1991 as per the IMF recommendation, India has followed an outward-oriented growth model. Fuelled by unilateral as well as multilateral reforms since the inception of the WTO in 1995, the importance of external trade and investment in the economy has increased considerably. At present, export of environmentally sensitive goods (ESGs) account for approximately one-third of India’s merchandise export basket (Chakraborty 2008). Similarly, the importance of FDI in the strategic sectors, including environmentally sensitive sectors has increased over the years. Several recent developments necessitate a need to check the existence of the PHH phenomenon in India. Environment-related trade barriers already threaten
Indian exports (Chaturvedi and Nagpal 2007). In addition, both the United States and several European countries are currently exploring the idea of imposing a carbon tax on imports from polluting industries in developing countries like India and China (Sen 2010). Such border tax adjustment (BTA) is argued to be an efficient tool for controlling carbon leakage in countries characterized by less stringent carbon emission regulation (Nanda and Ratna 2010). Chauhan (2011) notes that a recent World Bank document on the Ganga project argues that the share of the most polluting sectors in India’s exports has increased considerably during the last decade, with profound implications on health and the environment. This chapter is organized along the following lines. First, a brief literature survey on PHH is presented, with special reference to the Indian scenario. Second, the importance of the polluting sectors in India’s merchandise exports and imports in the manufacturing sector are noted. The FDI inflow in polluting sectors in India and its potential implications on environmental degradation are analysed next. Finally on the basis of the observations, a few policy conclusions are drawn.
