Capturing Welfare and Sustainability

By GovernanceToday
In eGovernance
April 7, 2015

“The problem with following the herd is stepping in the crap it leaves behind”

Capturing WelfareThe GDP or the Gross Domestic Product has been all in news with its new methodology (GDP calculation at market price and reckoned on a new base year)—resulting in substantial jump in growth figures but in the process, creating a roadway to debate its authenticity. The Economic Survey (2014-15) predicts that India has now reached a “sweet spot” in history, with 7.4 per cent growth rate in the current fiscal which could go up to 8-10  per cent in following years. The Union Indian Budget 2015-16 projected that the economic growth will be 8.5 per cent in the next financial year. Growth will be perhaps in double digit figures in subsequent years, as put by the Union Finance Minister of India. But the question is where is this growth coming from? Our natural resources dependability and vast environmental degradation is highly pervasive by all records. The “natural capital” base is declining steadily. Even as pantheons are being sung for the high economic growth, not many are thinking in terms of who will take the blame of the crap of a ‘corroded environment’ in the future? Sometimes the herd mentality grips us totally that we forget what is right and what is not.

GDP measures the macroeconomic  size and health of an economy by aggregating the total value of final goods and services produced within a given country’s borders. It rightly represents economic growth and the production record of a country. However, treating it as the ‘best’ and exclusive parameter for economic growth and development seems flawed when India’s diverse population and rich democratic dividend is taken into percept. The roots of doubt are embedded in the fact that higher growth rate is of no value if the economy’s growth is uneven and distribution among rich and poor is being ignored.

Even the claim that India’s growth will outpace China’s in coming years seems more of braggadocio rather than economically explainable. While Chinese economy is slowing to a new normal, its productivity and industrial base is much stronger to sustain the growth level and ratchet up with lesser effort than is the  case with India. Secondly, the growth rates being presented are Rupee denominated. But the IMF looks at growth rate in US dollar (USD) terms, so the ‘impact’ of currency movement while comparing Indian and Chinese growth rate should not be ignored.

According to Pronob Sen, Chairman, National Statistical Commission, it’s a “time to sense pride” for high GDP figure and the new methodology which captures GDP at market prices and reckons new base year altogether. The Economic Survey (2014-15) claims that the projection of India’s GDP growth for next year at 8.1-8.5 percent looks fairly reasonable considering that in majority perhaps, all sectors in the economy have tended to perform better in 2014-15 (FY15) compared with 2013-14 (FY14). CSO, which brings out these numbers, has clarified that GDP is based on value added at market prices which broadly refers to the returns to factors of production. GDP at factor costs is not capable of showcasing the economic activity precisely. Other units as Gross value Added (GVA) at basic prices is an international standard and mostly employed for sectoral level. Even the UN’s System of National Accounts (SNA) had said in 1993 that for a country, only GVA and not GDP at factor cost should be used.

Admittedly, India has undergone a dynamic economic growth trajectory of highs and lows since liberalization. Over last few years, though, the clamor has been rising about growth cannot just be captured in terms of monetary worth of goods and services produced or in terms of monetary value added. Today, the alarm of sustainable  development ringing globally has refused to merely exist as background music and it deserves support, voice and urgent attention. It needs to be adopted at both micro and macro levels of economic analyses. Particularly, in case of India, given its population’s huge natural resources  dependability and existence still as ‘developing stage’, a sustainable development pattern is utmost essential for equitable and just prosperity, in terms of both growth and well-being in the long run.

A plausible solution which could account for economic activity of common people and elite statisticians and economists alike can be “Green Accounting.” If one thing we are definitely ignoring, it is the nature; call it ecology, environment or by any other term. The natural capital is abundant yet inevitably depleting today and it is precisely, what GDP is failing to capture – the ‘costs’ of economic growth. However, we cannot simply jump into a “Green GDP”
concept which the UNEP has proposed because hazards in these accounting need to be kept in mind. The example of China is worth noting here. It heralded its green accounting exercise first in 2006 estimating for the year 2004, and gave a figure 3.5 per cent as environmental pollution of its GDP but
international experts claimed it was as high as 8-12 per cent. China also saw very low growth in that phase and abruptly halted the green accounting exercise in 2007. Needless to say, political pressure was more than the environmental concerns.

In fact, we need to look beyond Green GDP as many economists and ecologists in India and abroad point out rightly and that must start at the conceptual
level. For instance- “Green Economy V/s Brown Economy” a la Gopal Kadekodi that points how Brown Economy strategy is one about intensification of fossil-oil based energy, development, and how that means just development, but not “sustainable development”. Thus the result is increased land, water, atmospheric exploitation and pollution. In contrast, “Green Economy” concept was included in Rio +20 Summit in 2012. It is portrayed as an  opportunity to enhance ecosystem services, enable sustainable development and livelihoods for the poor.

Undoubtedly, we (the common man) all love growth. But experts have started to realize that over long run, a seven per cent growth rate which takes a minimum to no account of environmental costs and damages works much better than a five per cent sustainable growth rate which hopefully adjusts for such costs and takes care of environment, eliminating huge ecological costs in future.

In this direction, there have been various upcoming initiatives globally such as the concept of “Net Adjusted Savings” introduced by World Bank in 2010 and “Inclusive Wealth” Reports 2012 and 2014 by UNESCO and MGIEP jointly worked upon by eminent economists, scholars and academicians from diverse fields.

In conclusion, we may reiterate what Jairam Ramesh (Former Minister of State, Environment & Forests, Government of India) has conveyed through “The Hedgehog and the Fox”— that the fox knows many things, but the hedgehog knows one big thing. The way to a green economy is to ensure that it is not hijacked by any one type of hedgehog– the ‘environment – hedgehogs’ who know nothing but maintaining the environment in its pristine form or the ‘growth hedgehogs’- who can’t see beyond their GDP noses. All of us will have to become foxes, knowing many things. Unless we are foxes we cannot move beyond GDP. Thus, the Government of India really has to decide which measure to use for economic growth accounting for India. Most importantly, the costs need to be accounted too as the environmental/ecological limits can’t be ignored. The need of the hour is to opt for a sustainable and inclusive growth path, which would ensure economic well being for people and preserve what mother nature has endowed us with.