To be effective, environmental compensation should transition from retrospective punitive measure to strategic financing tool for ecological recovery

Indian rivers have been under sustained ecological stress for decades. In the last 20 years, courts, policy regulators, and public investments have focused on testing different solutions to tackle this persistent problem, but the conditions of India’s rivers have not improved much in practice. Untreated wastewater, industrial waste, and solid waste still find their way into these crucial waterbodies, causing them serious ecological stress. The Central Pollution Control Board (CPCB) has repeatedly found many polluted sections of rivers across India. It considers a river stretch to be polluted if its Biochemical Oxygen Demand (BOD) is above 3 mg/L, which makes the water unsafe for direct contact. In its most recent 2025 report, the CPCB identified as many as 296 polluted stretches in 271 rivers.

However, there are several corrective measures that are being put into place to address this at the source. Along with the creation of required infrastructure, regulatory measures like the Polluter Pays Principle have been invoked more often. This requires those responsible for the pollution to take accountability and pay environmental compensation to enable cleanup, i.e., those who cause environmental harm must pay to fix it.

Over the past decade, the National Green Tribunal (NGT) has ordered several environmental compensations from city governments, water utilities, and private companies that fail to meet environmental standards, especially in those cases where rivers and water bodies have been acutely harmed as a consequence of their neglect. But this brings an important question forward: if compensation is being ordered and sometimes even collected, why has there been no significant improvement in river health?  

How environmental compensation works

The NGT or pollution control authorities usually impose environmental compensation for ongoing problems like dumping untreated sewage into rivers, non-functional sewage plants, or illegal groundwater extraction. Unlike regular fines, environmental compensation is meant to cover the real costs of pollution and help fund cleanup and recovery.

Through its rulings, the NGT has made environmental compensation an enforcement tool and allowed CPCB to create ways to assess and collect compensation for environmental harm. CPCB is also responsible for using these funds through specific plans to protect the environment and work towards its restoration. It was in the Paryavaran Suraksha Samiti & Anr. vs Union of India & Ors. case, where the NGT directed CPCB and State Pollution Control Boards to charge compensation from those who break environmental laws. The Tribunal said that the CPCB has the authority to collect and manage these funds in a separate account and use them for environmental protection plans.

In 2019, the NGT issued guidelines for this, according to which environmental compensation funds can be used for several activities. These include research on pollution control, building infrastructure for water and air monitoring, upgrading labs, listing pollution sources, preparing project reports for cleaning up contaminated sites, sponsoring studies ordered by the NGT, and training staff. These steps provide a clear plan for using compensation funds to help manage rivers and reduce pollution.  

Environmental compensation in urban river cases

The enforcement action of environmental compensation has yielded several high-profile enforcement actions, particularly in the case of urban rivers where the major sources of pollution are untreated sewage and industrial effluents. CPCB is monitoring around 445 rivers in 29 states and six Union Territories under the National Water Quality Monitoring Programme, on which the impact can be mapped. 

Even though the polluted river stretches have decreased from 351 in 2018 to 296 in 2025, there are 85 stretches which have not seen improvement. 25 of these stretches are in the Priority-I category where BOD levels are more than 30 mg/L, i.e. in the maximum category of pollution. These issue areas are an indicator of the continued worrisome problems with waste management and the inadequate self-cleansing capacity of rivers. To address this, the NGT has directed states to undertake River Rejuvenation Action Plans (RRAPs) and imputed high monthly compensation for delays in the following categories: Rs 1 crore per month per stretch for Priority-I and II, Rs 50 lakh for Priority-III, and Rs 25 lakh for Priority-IV and V.

The NGT, in its 2022 verdicts, has imposed environmental compensation of Rs 100 crore on Noida Authority and Rs 50 crore on Delhi Jal Board (DJB) as they have failed to prevent untreated sewage from entering the Kondli and Shahdara drains, which discharge into the Yamuna and Ganga rivers. In another instance in June 2021, the NGT imposed costs on the DJB for failing to submit compliance reports for Sewage Treatment Plants (STPs) at New Kondli and Mayur Vihar Phase-III. Following complaints by residents regarding foul odours and toxic gases, the NGT in July 2024 directed DJB and the STP operator, VA Tech Wabag Ltd, to jointly pay Rs 10 lakh as environmental compensation. However, this amount remains undeposited.

Beyond Delhi, in July 2025, the NGT imposed environmental compensation of Rs 21.5 crore on the Uttar Pradesh Jal Board and Rs 2.5 crore on the Loni Nagar Palika Parishad for allowing untreated sewage to be discharged into a green belt area in Ghaziabad, resulting in environmental degradation and groundwater pollution. The Tribunal directed the construction of a 108 MLD STP, upgrades to the sewer network, and the formation of a joint committee to prepare and implement a rejuvenation plan using the environmental compensation funds.

In another case, the NGT imposed a fine of Rs 12.42 crore on Naroda Enviro Projects Ltd., the operator of a Common Effluent Treatment Plant serving 172 industrial units in Ahmedabad’s Naroda Industrial Estate, for polluting the Sabarmati river since 2015. More recently, the NGT directed the recovery of Rs 34 lakh in 2025 as environmental compensation from operators of a luxury tent city set up on the Ganga riverbed for violations of environmental norms.  

Collection and utilisation gaps

Even though environmental compensation is being ordered more often, the actual collection is inconsistent and much less than what is demanded. In many cases, large compensation amounts set by the NGT are not collected quickly. For example, in one case, the Uttar Pradesh Pollution Control Board ordered industries to pay Rs 2.03 crore, but only Rs 63.98 lakh was collected. Long legal battles, temporary court orders, and weak enforcement at the state level make recovery difficult.

Besides collection problems, most environmental compensation funds are not being used. According to data given to the NGT by the CPCB, about 80 per cent of these funds, including environmental compensation and Environment Protection Charges, have not been spent. By mid-2024, more than Rs 620 crore had built up in these accounts, but less than Rs 81 crore had gone to environmental projects.  

Rethinking environmental compensation

Despite these problems, environmental compensation is still an important tool for managing the environment, especially for urban rivers. By early 2025, the CPCB said that over 60 projects had been approved under the compensation framework, with some finished and others ongoing. Some projects, like the cleaning up of polluted drains, help improve river water quality by reducing pollutants entering the main rivers. For example, the Phuldera drain in Delhi was partly restored using about Rs 62.5 lakh from environmental compensation to reduce pollution in the Yamuna.

However, these examples are scattered and mostly indirect. There is no strong evidence that environmental compensation is being used in a planned way for major river restoration projects that match the CPCB’s priority polluted stretches. Cities are still being fined, but there are no clear systems to reinvest the funds in needed improvements. The lack of transparency also makes matters difficult. Information about how much compensation has been ordered, collected, is under litigation, or has been mobilised, is scattered across tribunal orders, affidavits, and parliamentary replies, with no single, consolidated public source of information or inquiry.

To enhance the effectiveness of environmental compensation in river restoration, it should transition from a retrospective punitive measure to a strategic financing tool for ecological recovery. Aligning compensation disbursements with priority river stretches, empowering cities to reinvest funds in sewage and wastewater infrastructure under rigorous oversight, and improving transparency are critical steps. Positioning environmental compensation as a mechanism for ecosystem restoration, rather than solely as a penalty, is vital for the sustainable rejuvenation of India’s urban rivers.

Jyoti Verma is Senior Research Specialist, National Institute of Urban Affairs

Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth