Importance of green accounting

GDP growth has become virtually every nation’s default measure of progress. For India, its slowing GDP continues to make headlines and is the subject of much debate.

Amid concerns from the Government, the business community and citizens on what impact external events such as the evolving European sovereign debt crisis may have on India’s growth and jobs, it might also be the perfect time to take a moment and reflect on India’s economic journey over the last decade, and ask whether the remarkable GDP growth has been a true measure of the nation's wealth and more significantly, its economic sustainability.

Like all emerging and growing economies, India is facing a catch-22 situation: On the one hand, there is pressure to maintain GDP growth as this is the perceived foundation upon which the future economic security of its growing population is based, but conversely, India must also take into consideration the costs of development and not self-cannibalise its rich natural capital wealth and jeopardise the very future of the people it is trying to secure.

Over-reliance on GDP as a measure of economic health can be misleading. As noted long ago by Robert F. Kennedy: “it measures everything, in short, except that which makes life worthwhile.”

ENVIRONMENTAL LOSS

GDP measures the value of output produced within a country over a certain time period. However, any depreciation measurements used, will account only for manmade capital and not the negative impact of growth on valuable natural capital, such as water, land, forests, biodiversity and the resulting negative effects on human health and welfare.

For India, there is much to lose if action is not taken to preserve its natural environment. Its wide range of climate, geography and culture make it unique amongst biodiversity rich nations.

Biodiversity is an incredibly valuable asset. It is the underlying foundation of the earth’s ecosystems, the variety and abundance of species that inhabit them and the variability and diversity of genetic material found within them.

It provides numerous benefits, from food and fuel, to services such as freshwater, soil fertility, flood control, pollination of crops and carbon sequestration by forests that are crucial to both environmental and human well-being. To this end, biodiversity loss does not only mean the loss of species, but also the loss of ecosystem functioning.

Although India’s economic growth is to be encouraged, the double-digit GDP fixation is threatening India’s biodiversity and ironically, its long-term growth and security.

For example, despite India having set in place a remarkable Protected Areas network (4.8 per cent of the total geographical area of the country), it continues to be challenged by the loss of natural habitats. Over the course of the last fifty years, India has lost over half its forests, 40 per cent of its mangroves and a significant part of its wetlands. At least 40 species of plants and animals have become extinct with several hundred more endangered.

Livelihoods have been lost, poverty increased, food security threatened and health risks raised. Today, annual economic costs of air pollution, contaminated water, soil degradation, and deforestation are estimated to be close to 10 per cent of India’s GDP.

GREEN ACCOUNTING

Better macroeconomic and societal indicators are needed to reflect the contribution of biodiversity and ecosystem services to human well-being.

One approach that is gaining momentum across the globe is “green accounting” whereby national accounts are adjusted to include the value of nature´s goods and services.

Mr Jairam Ramesh, the former environment minister, advocated greening India’s national accounts by 2015 and encouraged policy makers to recognise the trade-off between pursuing high growth economic policies against the extensive impact they could have on India’s natural capital.

One organisation that is already leading the way is the Green Indian States Trust (GIST) which, in 2003 unleashed a series of environmentally adjusted accounts under the Green Accounting for Indian States Project. According to their results, the loss of forest ecological services (i.e. soil erosion prevention, flood control and ground water augmentation) over three years (2001-03) due to declining dense forests was estimated at an astounding 1.1 per cent of GDP.

Breaking it down by States, they showed that for native forest-rich states such as Arunachal Pradesh, Assam, Himachal Pradesh, Jammu and Kashmir and Mizoram, the loss of these services was significantly high as a proportion of their net state domestic product (NSDP) — an estimated 6 per cent. For instance, if we look at Assam where forest cover decreased by 0.28 million hectares over three years, the value of effective flood control alone was at a loss of Rs 800 million.

Following up on the initial study, GIST performed another round of accounting for the period 2003-2007 and the results speak loudly. Although the FSI claims an increase in overall forest cover in India, native dense forest cover is still declining rapidly.

According to GIST´s latest results, the North-Eastern states continue to be most affected, particularly Arunachal Pradesh and Mizoram where the loss of forest ecological services is more than 12 per cent of their NSDP.

So how is India responding?

India is beginning to recognise that protecting biodiversity and ecosystems is a critical national priority. As a sign of its commitment, India will host the most important meeting relating to the United Nations Convention on Biological Diversity (CBD) — the 11th Conference of Parties (COP-11) — in Hyderabad, during October 8-19, 2012.

The CBD framework emerged from the Rio Earth Summit of 1992 as the most comprehensive international agreement that aims to help protect and sustain biodiversity and ecosystems worldwide of which India is a signatory.

As proud hosts to this important event, India has the opportunity to show the world that it can take the lead and deliver on its commitments to preserving and protecting biodiversity and the ecosystem services it supports. At least this is one step in the right direction.

(The authors are with GIST Advisory Private Ltd)

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