Lease Splitting and Dirty Entrants: The Unintended Deforestation Consequences of India’s Environmental Clearance Process Reform

Mining industries form a significant share of the industrial landscape of many poor countries. At the same time, mining activities have well-documented negative externalities: the air, land, and water pollution associated with mining has large health impacts and the destruction of forest cover can affect livelihoods. Using a comprehensive dataset on mining lease activities for India over the time period 2000 - 2013, we assess a landmark change in India’s environmental clearance process, intended to increase stringency, democratic participation, and effectiveness. The reform induced strategic behavior by mining companies which, in turn, had perverse deforestation impacts. First, the average mine size fell with significant bunching just below 5 hectares, a cutoff below which stringent regulatory requirements were waived. This rise in small mines was environmentally costly – districts with a higher proportion of such mines exhibit significantly greater deforestation per hectare of leased area. Second, in the post-reform period larger mines, i.e. those that have not selected out of the regulated size category, and stayed subject to environmental clearance regulation initiated deforestation earlier compared to the pre-reform period. On the benefits size, the environmental clearance process became faster after the reform, possibly due to an easing of the decision-making process following the increase in stringency and transparency.