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GDP hides India’s big picture

india forest
Forest Department officials in India. Photo by Simon Williams/Ekta Parishad

Could India be the first major nation in the world to fully integrate natural capital accounting into its system of national accounts – possibly even gross domestic product?

Sir Partha Dasgupta, the esteemed University of Cambridge economics professor, has been charged with showing the world’s second-most populous country how to do it. For two years now, Dasgupta has been leading an expert committee made up of economists who together are developing a “green national accounting” roadmap for India. A draft of the committee’s report was to be presented this month at an international conference.

India’s goal by 2015 is to begin reporting GDP “after taking into account environmental costs,” said India’s environment minister, Jairam Ramesh, when the expert committee was announced in 2011.

CK asked Dasgupta whether the plan calls for a full integration of natural capital into GDP. “Yes and no,” said Dasgupta, who was co-author of the well-received Inclusive Wealth Report 2012. “Changes to the system of national accounts will inevitably take place step by step, over several years. For the moment, the idea will be simply to deduct depreciation, where possible, from GDP in order to arrive at an idea of net domestic product.”

Dasgupta called “green GDP” a misnomer. “Eventually one hopes national accountants will move to estimating the wealth of nations, which are estimates of (natural capital) stocks. For the moment, net domestic product, which represents flow (of wealth), will have to suffice.”

When measured by purchasing power parity, India is the fourth-largest economy in the world after the United States, China and Japan, and is likely to move into third place around 2015. With an average growth rate of 8.2 per cent between 2007 and 2012, you’d think there was no reason for Indians to complain. But distribution of income has been inequitable and the environment has borne the brunt of this rapid growth, raising concerns domestically about the sustainability of India’s development path.

For an Indian born before the 1960s, the term “green revolution” meant relief from drought and hunger as high-yielding agrarian technology transformed food production and availability in India. This is no longer the case. The new generation of Indians would associate green revolution with the battle to preserve India’s natural capital, such as the 69.2 million hectares of forests that represent 21 per cent of the country’s land area. The stock and flow of such a resource changes over time, but the country now has some tools – under the umbrella of Natural Resource Accounting (NRA) – which we can use to assign an economic value to changes in natural capital.

NRA in India had an early but slow start. The first official effort was a pilot study commissioned by the India government’s Central Statistical Office in 1999 for the small state of Goa in western India. Eight studies followed in different states to cover land, forests, air, water and mineral resources. A technical advisory committee is now trying to collate the information generated by these studies to develop a sector-wise framework to account for the environment.

Independently, the Green Indian States Trust launched the Green Accounting for Indian States & Union Territories Project (GAISP). It sought to set up top-down economic models for annual estimates of adjusted gross state domestic product (GSDP) for all Indian states. Researchers there have estimated green national income at the state level by adjusting the traditional national income measures for changes in natural capital – namely, forest resources, agriculture and grazing lands, cattle, mineral deposits and surface freshwater.

A comparison of green income with the traditional measure of state income suggests that green income was below the unadjusted income in four of the six adjustments. The only case where green income exceeds traditional state income is in the case of human capital. This is not good news where sustainability of natural capital is concerned.

Some insight can be provided by the World Bank, which took snapshots of India’s natural capital in 1995, 2000 and 2005. Over this period, per-capita natural capital in India declined to $2,700 from $3,400 (at 2005 prices). This is a concerning trend from a resource conservation point of view, but the consolation is that comprehensive wealth – the sum of natural, physical and human capital – grew in this period because of gains in human capital.

But that won’t last in the long term, which is why Dasgupta’s work is being closely watched. It will give the Indian government a better sense of the impact high GDP growth is having on ecology and biodiversity, and what trade-offs can be made to achieve a sustainable balance. As environment minister, Ramesh has contended in the past that if natural capital impacts were accounted for, India’s economic growth would be 6 per cent – not the 9 per cent reflected by GDP.

If all goes as planned, India should have an integrated system of accounts by 2015 – a tabulation of both physical changes as well as economic estimates of the flows, and eventually stocks, of natural capital. India will then join a select group of countries that would use the common framework developed by the UN Statistical Commission, called the System of Environmental-Economic Accounts (SEEA of 2012), to provide periodic national income accounts that take the environment into consideration.

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