An Approach to Determination of Lease Rental for Forest Corporations-a Case Study of Madhya Pradesh state Forest Development Corporation

The lease rental concept evolved by the National Commission on Agriculture (NCA) in its report on "Production Forestry-Man.Made Forests" (1972) could well be regarded as a landmark in Indian Forestry. NCA had recommended that for forest areas transferred by the State Governments to Forest Development Corporations (FDCs) the State should take as revenue only an equivalent of the average revenue of previous three years it has been receiving from them and to leave tbe rest of the income from clearfelling to support the programme of harvesting and raising plantations and their maintenance plus suopporting industries. In formulating the ahove recommendation, NCA overlooked the implications of a crippling dose of corporation taxes, which would be payable by the FDCs. Actually, it has been noticed that payment of heavy corporation taxes would defeat the very purpose for which FDCs have heen formed. An in-depth study has been carried out in the Madhya Pradesh State Forest Development Corporation (of which this paper is the result) on the suggestion of the Board of Directors, as well as the State Governtnent on the implications of the lease rental concept in relation to profitability and taxation liabilities. Detailed projections have been made on assumed optimum norms for the next ten years taking into consideration the inflow of money from equities, institutional finance and liabilites for repayment of borrowed money with interest and then the pivotal role of lease rental have been examined. From. The above study, it clearly emerges tbat a static concept or lease rental in a dynamic situation of resource mobilisation fails to serve the desired purpose of transferring benefits of extended working or improved efficiency to the State Government. It cannot be denied that the State Government has a bigger stake in the activities of MPSFDC than the Centre. A new formula for the determination of lease rental has been proposed on the basis of cashflow and generation of runds and it has been shown that its adoption would ensure proper distribution of profits of MPSFDC and at the same time, provide for its growth. The suggestion is to charge 60% of tbe Gross Surplus or 15% of the Gross Income as lease rental. By adopting this new formula the distribution of gross income on the basis of lease rental, payment of corporation tax and dividends would amount to 67.2% for the State Government, 31.1% for the Central GovernlDent and 1.7% (for generation of reserves) for the Corporation. This would be in keeping with the effective contributions of the State Government and the Central Goveroment. It is hoped that this study would lead to the adoption of a pragmatic approach to the determination of lease rental for FDCs in the country on the basis of facts and reasoning rather than on emotions or ad-hocism.