The Union government has drafted the Compensatory Afforestation Bill, 2008 to establish a compensatory afforestation fund. Revenues collected from agencies that
divert forests (even protected ones) for non-forest use will be pooled into this corpus. Net present value (NPV) has been adopted as an economic tool to calculate the compensatory fiscal value of diverted forests. But there are two question marks over the move. Firstly, can forests, especially the protected ones, which provide vital ecological and cultural services, be assigned an economic value in lieu of their diversion? Second, is NPV an appropriate fiscal tool to calculate the ‘compensatory’ value of functioning physical entities such as forests?