Gobind Singh watched the sky above his apple orchard in Shantha, Himachal Pradesh, with growing dread through the first week of April 2026. Then the hailstorm came. When the ice finally stopped, the buds on his trees were stripped clean. In a region where one crop funds a family’s entire year, there is no cushion for a single ruined season. “This is not just crop loss,” he told local reporters. “It is a collapse of rural economy. Without immediate government relief, many families will be pushed into debt.”Government relief, as farmers across the Shimla apple belt have come to learn after many seasons, arrives slowly, selectively and does not cover the actual losses. The Himachal Pradesh government cannot afford a more generous response. The reasons for this shortage take us directly to the heart of how India compensates its mountain states for ecological services the rest of the country silently depends on. A warning no one acted onIn July 2025, the Supreme Court said something that should have shaken the national conscience. Hearing a suo motu case on ecological degradation in Himachal Pradesh, a bench led by Justice J.B. Pardiwala warned that if the current trajectory of destruction continues, “the entire state of HP may vanish into thin air from the map of the country.” This was not rhetorical excess.Between 2022 and 2025, Himachal Pradesh lost 1,200 lives and suffered economic losses of roughly Rs 18,000 crore due to natural disasters. Uttarakhand recorded losses of around Rs 5,000 crore in a single year; the 2023 Joshimath subsidence alone cost Rs 2,000 crore in displacement and rehabilitation.The court blamed human activity, hydropower tunnels, road construction through fragile slopes, unregulated tourism and unchecked building, alongside climate change. But it did not fully ask why these states keep building at this pace? What compels them to dig into mountains they know are geologically fragile?The answer is fiscal.What the mountains actually provideHimachal Pradesh’s forests form the upper watersheds of major tributaries of the Indus and Yamuna rivers, supplying water to Punjab, Haryana, Rajasthan and Delhi. Uttarakhand’s glaciers and forests feed the Ganga river system, which covers 26% of India’s landmass and sustains approximately 500 million people, nearly 40% of the country’s population, across 11 states. A 2025 report by the Institute of Forest Management, Bhopal, valued the total forest wealth of Himachal Pradesh at Rs 9.95 lakh crore. Its annual economic value stands at Rs 3.2 lakh crore, including Rs 1.65 lakh crore from carbon sequestration, Rs 68,941 crore from ecosystem services and Rs 15,132 crore from water provisioning. The water flows downstream to Delhi, Chandigarh, Haryana and Punjab. None of the value flows back to the state that generates it.The Himalayas are not scenic geography. They are ecological infrastructure, as critical to India’s water and food security as any dam or canal system. The difference is that when India builds a dam, it captures revenue from it. When the Himalayas provide the same function, the states that house these mountains collect nothing.A long history of tokenismIndia has occasionally acknowledged this debt in theory, but is yet to address it in practice. The 12th finance commission took the first formal step, creating a ‘Green Bonus pool’ of Rs 1,000 crore for forest-rich states. Himachal Pradesh’s share across five years was Rs 20 crore. For a state whose forests and glaciers sustain half a billion people downstream, that figure is not compensation. It is an insult.The 14th finance commission made a structurally important shift, incorporating forest cover as a formal criterion in tax devolution, allocating 7.5% of the central divisible pool on this basis. India became the first country in the world to operate ecological fiscal transfers at this scale. The 15th finance commission raised the forest cover weightage to 10%.These were genuine improvements. But they created a structural flaw that no commission since has been able to fix. The formula counts forest cover but excludes areas above the tree line: glaciers, alpine meadows, snowfields and high-altitude wetlands. These excluded zones are precisely what function as water towers for northern India. Leaving them out of the ecological criteria is not merely unscientific, it actively discriminates against mountain states whose territory sits substantially above 3,500 metres.Table 1: An overview of the 12th-16th finance commissionsFinance CommissionPeriodEcological ComponentKey Limitation12th FC2005-10Rs 1,000 crore Green Bonus; HP share: Rs 20 croreMinuscule; no performance link13th FC2010-15Rs 5,000 crore specific-purpose grantTied to forestry budgets; limited state discretion14th FC2015-207.5% weightage to forest cover in devolutionExcludes areas above tree line15th FC2020-2610% weightage to forest cover in devolutionSame structural exclusion; no dedicated Green Bonus16th FC2026-31Open forests now included in formula; RDG discontinued; no Green Bonus createdMarginal gain more than offset by loss of Revenue Deficit GrantThe TrapThe fiscal architecture governing these states creates what the 103-member Constitutional Conduct Group (CGC) called a “double whammy” in their November 2025 letter to Finance Commission Chairman Arvind Panagariya. Himachal Pradesh and Uttarakhand have no industrial base, thin agricultural surplus and a services economy constrained by terrain. They cannot generate the revenues that plains states can. At the same time, the cost of delivering basic public services in mountain terrain is dramatically higher than anywhere in the plains. Roads must be rebuilt after every monsoon. Healthcare and education across difficult geography consume resources that no government accounts for.The only readily available revenue source is the natural resource base itself. So the states dig. They approve hydropower projects in geologically unstable valleys. They permit road-widening through landslide-prone slopes. They open fragile tourism corridors to footfall the land cannot bear. According to figures cited in the CCG letter, Himachal Pradesh has diverted roughly 11,000 hectares of dense forests for non-forestry projects over the past two decades. Uttarakhand has diverted 50,000 hectares. The state currently operates 174 small and large hydropower projects generating 11,209 MW, with plans to reach 30,000 MW.Jia Lal, president of the environmental group Him Lok Jagruti Manch in Kinnaur, has watched this play out for years. “Due to the impact of these power projects, cracks have appeared in people’s houses, there has been an increase in natural calamities and water sources have dried up,” he told Down to Earth. “Residents have not even received compensation for the loss of their land.” As geologist S.P. Sati observed, “The devastation caused by the combination of road widening, hydropower, and railway projects in the Himalayan region is evident today.”This is the perverse logic at the heart of the crisis. The ecological destruction the Supreme Court condemned in 2025 is, in large part, a product of the fiscal starvation that successive finance commissions have failed to address. You cannot ask states to protect their mountains, while denying them the financial means to do so.What the 16th commission did and did not doThe 16th finance commission, chaired by former NITI Aayog vice-chairman Arvind Panagariya, submitted its report alongside Budget 2026-27. Its one meaningful ecological change was including open forests, alongside dense and moderately dense forests, in the devolution formula. For Himalayan states, this is a marginal step forward.But the commission stopped there. The dedicated Rs 50,000 crore green fund that Himachal Pradesh’s chief minister formally demanded when he met Panagariya in Shimla in June 2024 does not appear in recommendations. Glaciers, alpine meadows and snowfields remain outside the formula. The Revenue Deficit Grant, a financial lifeline both states have relied on since 1974, has been discontinued entirely. The CCG had asked for three specific reforms: raising the ecology weightage from 10 to at least 20%, redefining the criterion to include areas above the tree line and creating a Rs 50,000 crore green fund tied to independently monitored ecological performance. The Commission addressed none of these in full. For Himachal Pradesh and Uttarakhand, the net position after the 16th commission is, at best, a marginal gain in one column and a significant structural loss in another.Why this pattern repeatsThere is a straightforward political economy explanation for why this pattern repeats every five years. Himachal Pradesh has 4 Lok Sabha seats; Uttarakhand has 5. Together they hold 9 seats in a parliament of 543. The 500 million people whose water supply, climate stability and agricultural base depend on Himalayan ecology, live overwhelmingly in the plains and have no particular incentive to demand fiscal justice for the mountains that sustain them. The beneficiaries of these ecological services are diffuse and largely unaware of the connection. The cost of providing those services falls on concentrated and increasingly desperate mountain communities. In political economy terms, this is a textbook case of uncompensated positive externalities. When a company dumps waste and the cost falls on someone else, we call it pollution and regulate it. When a Himalayan state absorbs the cost of providing national ecological services, we call it normal governance and do nothing.The ecological fiscal transfer system that India has built since the 14th finance commission is genuinely pioneering, and the 16th commission’s decision to include open forests is a small acknowledgment that earlier definitions were too narrow. But acknowledgment without adequate compensation does not change much. What a fair system would look likeCritics of the green bonus proposal, including analysts at the South Asia Network on Dams, Rivers and People, raise a legitimate concern: more money without ecological conditions attached could simply finance more dams and roads in the same fragile terrain. The concern is well-founded. Any green fund must carry independently monitored conditions tied directly to disbursement, including measurable forest cover improvements and mandatory ecological assessments before new project clearances are granted.The framework for this exists in the literature on ecological fiscal federalism. What happens in practice is a formula that rewards the possession of forests while asking nothing about whether they are degrading. It does nothing at all for the alpine zones that provide the most critical hydrological services of all.The 16th finance commission had a five-year window and a clear, evidence-based set of demands from people who spent decades studying the intersection of finance and governance. The Supreme Court had told the country in plain language how high the stakes were. The Commission heard the argument, made a marginal adjustment and moved on.The glaciers are retreating at twice the global average rate of warming. The springs are drying. The slopes are becoming less stable. And farmers like Gobind Singh in Shantha will face another April, with another season’s work hanging in the balance, waiting for a state that cannot afford to help them because a fiscal system built for the plains keeps treating the Himalayas as scenery rather than infrastructure.India will not be able to say, when the next disaster comes, that no one highlighted what the problem was.Ankit Mishra is an ICSSR Fellow at G. B. Pant Social Science Institute, working at the intersection of environmental politics, environmental governance and political ecology, with a focus on Himachal Pradesh and Uttarakhand.