A Green Streak: Reduce the Natural Debt Burden

In the run-up to successive budgets, an issue which is routinely overlooked is that of the role of sustainable development in economic growth. Neglecting the country?s natural debt impacts unfavourably on society?s ability to maintain equitable and healthy rates of growth. This despite the fact that our rivers have been polluted to an extent where they are now unable to sustain any form of aquatic life and their waters unfit for consumption by human beings and even animals. The air in all our cities is polluted far beyond permissible limits, and the area under forest cover which the National Forest Policy 1988 stipulated should expand to one third of the total land area in the country is barely half of that. Environmental quality is not a matter of sentiment. It is an economic imperative, particularly in a country where a majority of the population depends for its livelihood on services provided by natural resources and the environment. India is losing over 10 per cent of its GDP annually on account of environmental costs, according to a major study carried out by Tata Energy Research Institute (TERI) called GREEN India 2047. Between 11 to 26 per cent of the country?s agricultural output is being lost on account of soil degradation. While regulation and control have a place in correcting the damage that has taken place cumulatively to our natural resource wealth, the most effective and efficient solutions will have to come from the use of fiscal instruments. Today, in a large number of developed as well as developing countries there is a shift away from command and control methods to the use of suitably designed fiscal instruments that lead to environmentally desirable results in an economically efficient manner. This is where the annual budgets of both the Centre and states must build in a set of measures that not only arrest the degradation of natural resources, but also help enhance them over time. The 1998-99 Annual Economic Survey included a chapter Promoting Sustainable Development: Challenges for Economic Policy which marked a refreshing departure from past practice, and gave those who are alarmed by the long-term unsustainable structure of growth in India the hope that finally the government was confronting grim reality. But this single token of enlightenment in development policy appears to have been abandoned for the exclusive coverage of the more conventional topics that governments are more comfortable dealing with. GNP is accepted as a country?s annual measure of economic output and welfare, but it cannot be the sole indicator of economic health. Enlightened governments today commission or carry out assessments based on what has come to be known as natural resource accounting, which essentially includes changes in the natural resource endowment of a society. For instance, cutting down forests for market use of timber would add corresponding value to GNP, but nowhere would we account for the depletion of the natural resource wealth thus occurring. In essence, every time we produce goods or services by depleting natural resources we are borrowing the wealth of our children and accounting for it as riches created today. A non-government think tank in the US called Redefining Progress carries out a regular assessment of distortions of this nature inherent in the measures of economic progress used in that country and computes what it labels as the Genuine Progress Indicator (GPI). The measures it incorporates in computing the GPI include components such as cost of household pollution abatement, cost of air and water pollution, loss of wetlands and farmlands, loss of old growth forests and even the social cost of the widening gap between rich and poor. While the last of these costs would involve some value judgment, the others are based on standard estimation techniques. India?s own GPI would be at least 10 per cent lower than the estimates of GNP computed conventionally, in fact, probably much worse. What are the measures that the budget should include this year to arrest unsustainable production and consumption? First, prices can be influenced by taxation, to signal to the consumer and the producer the true cost of using the environment and natural resources. An efficient refrigerator, for instance, as also an efficient automobile, must carry lower taxes than one that is inefficient. This would require an elaborate system of testing and labelling of these durables. A scheme to bring this about should be initiated this year. A little known fact is that in the US the efficiency gains in household devices over the last three decades have saved more energy than all the power produced in nuclear plants in that country. A second area where action is overdue is in the case of perverse subsidies. With kerosene, for instance, the benefit of subsidies and price differential between kerosene and diesel goes largely to those involved in adulteration of petroleum products. Most rural consumers use kerosene for lighting purposes. A suitable subsidy on solar lanterns, which are now being manufactured commercially in the country would provide a pollution-free lighting technology for rural homes, deprive undesirable elements gains from adulteration and not cause the government any loss of revenue. There is also a strong case for much higher allocations for programmes to expand the country?s natural resource endowment. Investing in forests, sewage treatment or in air quality improvements results in rates of return generally much higher than from investments in physical capital for industrial production. However, it is essential that environmental improvement projects are implemented efficiently to produce targeted results. This can only happen if there is a much larger involvement of civil society in setting environmental goals and implementing and monitoring programmes with transparency. The NGO sector has generally been far more effective in this regard than government departments, especially in implementing projects. The budget this year could lay down priorities for NGO involvement on a large-scale. Also, it is important to ensure that environmental improvement becomes part of the responsibility of each ministry, whether it is agriculture, transportation or housing. The ministry of environment and forests is not the only government agency responsible for creating a cleaner environment. Despite the dismal record of past budgets largely ignoring the depletion of the environmental and natural resource wealth of this country, it would be heartening if in this year, which represents ten years after the Rio Summit, the annual budget makes a refreshing departure in addressing the serious challenge of sustainable development facing Indian society.