Author : Soumya Bhowmick

Originally Published 2019-03-05 07:59:05 Published on Mar 05, 2019
Depletion of natural capital is an irreversible process and steps to assess and combat this are needed urgently.
Why is environmental accounting essential for India?

Natural capital is unarguably ubiquitous in human processes. Unlike physical capital which is produced means of production, natural capital is a naturally-endowed stock that cannot be substituted easily. The corresponding ecosystem services, which are commonly known as the "GDP (gross domestic product) of the poor" are environmental benefits provided to the human community free of cost, but do not feature in the traditional system of national accounts. The flows of ecosystem services need to be accounted for in the national accounts and indicators to better manage these resources. Such improvements can be achieved via the processes of Natural Resource Accounting or Green Accounting which will aid the policy engineering process of a country in various ways. Natural capital assessments are increasingly gaining importance so as to arrive at a holistic indicator, ahead of the traditional GDP or gross national product (GNP) system.

A typical market economy relies on the traditional model involving conversion of monetarily costless natural capital to produce market priced goods and services. This process in turn creates environmental externalities due to the associated human endeavours. The main flaw in this system is the lack of market-based worth of the natural resources as well as the non-valuation of the harmful by-products. Information asymmetry fuelled by backdated methodologies in the accounting systems and non-involvement of various stakeholders are the main reasons for the failure of environmental markets. Environmental accounting is the technique by which such valuation is possible, to do away with the existing information void.

Gloomy state of affairs

Through international trade we are essentially transferring natural capital from our country to other countries without keeping a tab on it. Many experts believe that being oblivious to the natural capital vis-a-vis exerting an augmented pressure on the environmental goods and services can be detrimental in the long run. The qualitative nature of estimation, inappropriate methodologies and lack of objectivity has cast a shadow of doubts on the present environment impact assessment system in India. Even at the present scenario the Indian growth rate will be significantly lower if human well-being and environmental externalities are accounted for.

The sub-goal 15.9 of the United Nations Sustainable Development Goals 2015, specifically highlights the integration of ecosystem services and biodiversity into local and national accounts by 2030, which would in turn help poverty reduction. A report by Technology and Action for Rural Advancement submitted to the ministry of environment, forests and climate change, in 2015, mentions that only $8 billion out of the estimated $489 billion is available for the implementation of Sustainable Development Goals 14 (life below water) and 15 (life on land) cumulatively. The unfortunate question here is, how far, a small part of the available 1.64% of the estimated funds can advance the agenda of green accounting in India?

Green accounting milestones in India

The National Biodiversity Action Plan 2008 observes that policy implementation in India has been grossly inadequate due to 'non visibility' of environmental deterioration. The Action Plan notably targets, the “valuation of goods and services provided by biodiversity, and use of economic instruments in decision making process.” The Green Indian States Trust has been one of the chief institutions advancing the agenda of environmentally adjusted accounts. The Economics of Ecosystem and Biodiversity (TEEB), India Project too had made efforts to publish a number of studies in this regard but have failed to make a substantial impact.

Last year, the ministry of environment, forests and climate change had launched their crucial Green Skill Development Programme to combat unemployment and environmental degradation by creating 'green jobs' for the youth and provide training on green GDP implementation. The government is also starting a five-year project to measure the green GDP of Indian states to make climate mitigation and land acquisition decisions easier in terms of compensation policies.

Green Accounting is retarded by a variety of methodological barriers, sluggish political will and lack of data. However, this advancement is extremely important in the sustainable development policy framework of a country. It is crucial to revisit the capital assessment agenda, as a part of the corporate social responsibility and R&D functions of big companies to ensure better quality of life intertwined with the environment.

It is important to note that depletion of natural capital is an irreversible process and steps to assess and combat this is urgently needed. The application of natural resource accounting will aid a host of public policies with regard to linear infrastructure development, judicial proceedings in environmental cases, and compensation mechanisms for climate displacements.

This commentary originally appeared in Fortune India.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Soumya Bhowmick

Soumya Bhowmick

Soumya Bhowmick is an Associate Fellow at the Centre for New Economic Diplomacy at the Observer Research Foundation. His research focuses on sustainable development and ...

Read More +