Without considering green GDP, the budget’s claim of green growth is weak

Without considering green GDP, the budget’s claim of green growth is weak

Subject: Economy

Section:  National Income

Context: While “green growth” is highlighted in the annual budget, experts note that there is a need to also factor in “green GDP” which is the basis of this growth.

• Green GDP is a term used for expressing GDP after adjusting for environment degradations.
• Green GDP accounts for estimates of environmental degradation, depletion of natural resources, and savings of resources and environment into the national income accounts.
• There is no consensus over methodology for calculating green GDP worldwide, the RBI paper researchers have admitted. They claim that they have used the most comprehensive methodology of Green GDP estimation which includes environmental pollution cost, resource depletion cost, and savings of resources and the environment. They have used the following formula:
  • Green GDP = GDP – (Carbon dioxide damage + particulate emission damage) – (Opportunity cost of energy depletion + mineral depletion + net forest depletion) + Expenditure on environmental protection.
• The concept was first initiated through a System of National Accounts.
• The System of National Accounts (SNA) is an accounting framework for measuring the economic activities of production, consumption and accumulation of wealth in an economy during a period of time. When information on economy’s use of the natural environment is integrated into the system of national accounts, it becomes green national accounts or environmental accounting.
• The process of environmental accounting involves three steps Physical accounting; Monetary valuation; and integration with national Income/wealth Accounts.
  • Physical accounting determines the state of the resources, types, and extent (qualitative and quantitative) in spatial and temporal terms.
  • Monetary valuation is done to determine its tangible and intangible components.
  • Thereafter, the net change in natural resources in monetary terms is integrated into the Gross Domestic Product in order to reach the value of Green GDP.
• It reflects the deep need and commitment from the country internalising the values of its ecosystem and ecosystem services into mainstream accounting.