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Net Present Value (NPV)

Topics Covered: Conservation related issues.

Net Present Value (NPV):


Context:

The Union Ministry of Mines had requested the Environment Ministry to exempt it from paying NPV.

  • However, the Environment Ministry has refused saying that it would be ‘inappropriate’ to grant such an exemption as this was mandated by the Supreme Court.

Why exempt?

  • All areas of exploration are not converted into mining. Only about 1% cases are converted to mining. Considering these, payment of NPV is regarded as an avoidable expenditure.
  • Even payment of NPV at a rate of 2% or 5% is one of the major challenges which leads to delay in the exploration/ prospecting activities.

What is NPV?

The Net Present Value (NPV) is a monetary approximation of the value that is lost when a piece of forest land has been razed.

  • This is on the basis of the services and ecological value and there are prescribed formulae for calculating this amount which depends on the location and nature of the forest and the type of industrial enterprise that will replace a particular parcel of forest.
  • It was developed by a committee led by Professor Kanchan Gupta, of the Institute of Economic Growth.

When was it introduced?

To regulate forest diversions, Supreme Court introduced a high ‘net present value’ (NPV) charge on the lands diverted.

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What is NPV? How is it calculated? When was it introduced?

Sources: the Hindu.