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

A panaromic view of a private wind farm in Metu Pranjeri at Thoothukudi district, Tamil Nadu, India. Photo by Narayana Swamy Subbaraman/Mongabay

  • 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.
  • Experts say that the claim of “green growth” is difficult to assess as it is a challenge to measure what ground change will an investment in green growth have.
  • Green GDP takes into account the costs of environmental degradation and climate events.

When the union budget was unveiled last week, Finance Minister Nirmala Sitharaman cited “green growth” as one of the government’s major priorities. The 2023-24 budget was widely regarded as India’s “green budget.”

“These green growth efforts will help reduce the carbon intensity of the economy and provide for large-scale green job opportunities,” said Sitharaman.

However, several experts say this claim of green growth without factoring in green accounting is hollow.

Anjal Prakash, Research Director, Bharti Institute of Public Policy, Indian School of Business, says that green growth is one of the offshoots of green GDP (Gross Domestic Product). Without calculating green GDP, the idea of green growth is like making a structure without a proper base.

Green GDP is essentially a measure of economic growth, factoring in the environmental consequences of the growth. In India’s estimation of green GDP, environmental impacts such as carbon dioxide and particulate emissions damage, opportunity cost of energy depletion along with mineral and net forest depletion are given a value which is then subtracted from the actual GDP. The country’s expenditure on environmental protection is then added to arrive at the Green GDP value.

Fund allocations to go ‘green’

The budget allocates an increased amount, compared to previous years, to several schemes that promote green energy and conserve biodiversity. Rs. 4970 crore was allocated for the solar power grid-connected scheme, a 48% increase from the previous year’s revised estimate. Similarly, the government allocated Rs. 362 crore for off-grid solar, compared to Rs. 62 crore from the revised estimate of last year, a 483% increase. Grid-connected bioenergy received a three-fold higher allocation from the previous year and off-grid bioenergy received more than ten times of revised budget last year.

Besides these increased allocations, the finance minister also announced several schemes for environmental and biodiversity conservation such as, Gobardhan scheme for 500 new waste-to-wealth plants, MISHTI for mangrove plantation along the coastline, and Amrit Dharohar for wetland conservation.

Mangrove Initiative for Shoreline Habitats and Tangible Incomes (MISHTI) aims to boost coastal livelihoods, help in carbon sequestration, flood control, erosion reduction, biodiversity preservation and more. Photo by Priyanka Shankar/Mongabay.
Mangrove Initiative for Shoreline Habitats and Tangible Incomes (MISHTI) aims to boost coastal livelihoods, help in carbon sequestration, flood control, erosion reduction, biodiversity preservation and more. Photo by Priyanka Shankar/Mongabay.

Prakash, talking about this green growth element of the budget, said that when green growth happens, it should impact the immediate environment, like improving air or water quality – this is what the common people expect. But, he added, that the investment that is earmarked for the environment in the budget this year, is unlikely to lead to some of these basic changes in the environmental condition we live in. “[This is] because we are not looking at the basics of it. We have to also look at how our environmental management systems are working and how we are accounting and discounting these factors in our GDP,” he said.

As is common across most countries, India’s GDP calculation too does not factor in the costs of environmental damage or climate disasters. It is typically calculated by measuring the value of all goods and services produced during the reporting quarter of the year. The costs of climate disasters, such as floods, cyclones, and droughts, which usually have a significant impact on the Indian economy, are not typically included in standard GDP calculations.

However, India’s vulnerability to extreme weather events – and the associated economic impacts – is, in fact, gradually increasing.

In the Global Climate Risk Index 2020, India is ranked fifth among the most climate-vulnerable countries. The country’s extensive coastline, significant population relying on erratic monsoon for agriculture, and many other reasons make India more vulnerable to these extreme weather events, says a paper published by the Reserve Bank of India. Additionally, a World Bank report cited in the Index notes that climate change may diminish India’s GDP by nearly 3%, and nearly half of the population will have to compromise their living standards by 2050.

Crops destroyed by unseasonal rain. Photo by Dharini Parthasarathy/CCAFS.
Crops destroyed by unseasonal rain. Photo by Dharini Parthasarathy/CCAFS.

In India, basic services like clean water, air, and sanitation facilities are not accessible to all. More than 153 million people in the country live in water-stressed areas and a significant chunk of the population is exposed to unhealthy levels of ambient PM 2.5, the most harmful pollutant.

Green growth, in this backdrop, would mean a solution to these basic problems. And that’s where the role of green accounting or green growth practice, comes in, with green GDP as the foundation. However, factoring in green GDP, green account and other elements of green growth did not reflect well in the Economic Survey. “We need to identify the areas of environmental degradation and areas of the economy where environmental degradation has the greatest impact and take steps to address them. The Economic Survey 2023, unfortunately, did not have enough analysis on this front that could have informed the green budget,” Prakash said.

Environmental economist Madhu Verma also emphasised the need for green accounting. “In the absence of green accounting, you do not get to know whether the environment is still degrading, replenished, or being restored,” Verma said. She was the lead author of Economic Valuation of Tiger Reserves in India.

In her view, green growth is growth that is non-polluting or less polluting and conserves and restores the environment/ecosystems. And green accounting means factoring in overall/net contributions to environmental amelioration.

Read more: [Commentary] The green implications of the union budget 2023

Green GDP doing better than actual GDP

Though the Economic Survey and the annual budget did not touch upon green GDP, the Reserve Bank of India (RBI) has published a paper in October 2022, where researchers have estimated India’s green GDP to be somewhere between Rs 165.9 trillion to 167.7 trillion for 2019. The actual GDP (calculated using the standard formula without factoring in environmental costs) was Rs 145.69 trillion.

Commenting on the RBI paper, Swapan Mehra, founder of Iora Ecological Solutions, an environmental advisory firm, said, “I think that reflects the deep need and commitment from the country internalising the values of its ecosystem and ecosystem services into mainstream accounting. So, one of the challenges today is that a lot of environmental damage is external to the mainstream accounting of the country. And as a result, it doesn’t reflect, which is one of the shortcomings the RBI is trying to fulfill.”

When asked about the possible reason that data shows that green GDP is doing better than the standard GDP, despite increasing disasters and ecological losses, Mehra explained that similar to GDP, green GDP also measures the stocks and flows (of ecosystem services). The positive trend, he said, is encouraging because it recognises that we are getting many services from the environment. But the value of the ecosystem services is not being realised or paid for. This trend also indicates that we should conserve the natural environment, otherwise, we will have to replace it with artificial environment which will cost large amounts of money.

Green GDP accounts for estimates of environmental degradation. It includes environmental pollution cost, resource depletion cost, and savings of resources and the environment. Photo by McKay Savage/Wikimedia Commons.

The RBI paper notes that budding debate is emerging on ‘green growth’ – making growth processes more resource efficient, cleaner, and more resilient. Green GDP accounts for estimates of environmental degradation, depletion of natural resources, and savings of resources and environment into the national income accounts.

Green GDP creates a positive picture

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 researchers see a positive trend in the green GDP ratio. To their observation, it followed a downward trend from 1971 to 1989 with few exceptions. It indicates that the growth during this phase entailed an environmental cost. “During this period, the focus was more on higher economic growth than on environmental cost in terms of deforestation, resource depletion, and damages due to carbon emission,” says the paper.

From 1990 to 2006, the green GDP ratio generally followed an upward trajectory. During this period, the world community was accelerating its effort to protect the environment and Earth Summit, Kyoto protocol, etc, were organised. “As India focused on balancing between the objectives of higher economic growth and environmental sustainability, the downward trend witnessed in earlier phase got transformed into a slightly upward trajectory,” says the paper.

With few exceptions, the third phase, which researchers categorise as 2006 to 2019, shows an upward movement with a steeper trend than the earlier phase. In the last decade, India has taken a strong and ambitious path toward a cleaner and energy-efficient economy. The report mentioned several schemes like Swachch Bharat Abhiyan, and Namami Gange, a commitment to producing more energy from non-fossil fuel, and improving energy efficiency, which might have ‘started providing fruitful results.’

Need for green accounting

The RBI paper says that the current economic discussions are heavily tilted toward the balance between social and economic performance and somewhat neglect their interactions with environmental performance.

India is at the forefront of fighting against climate change and environmental conservation. Through its nationally determined commitments (NDC), the country has committed to ambitious goals like 50% of total energy coming from non-fossil fuels, reducing the emissions intensity of its economy by 45% by 2030, and reaching net zero by 2070.

Given these commitments, “it is important that India gets into regular monitoring of its progress in the management of environmental and operational costs related to natural resources,” says the paper.

Globally, momentum is building up in favour of green GDP, and at least ten countries have either set up the process of green accounting or are moving in that direction. These countries include Costa Rica, Japan, Mexico, China, Canada, Australia, Papua New Guinea, and the USA, the paper informs.

In India also, there have been efforts in the last two decades but on a piecemeal basis. In 2003, the Green Indian States Trust (GIST) started a project of green accounting to build a framework for environmentally adjusted national income accounts. There are some efforts to value the ecosystem services of tiger reserves.

Kali tiger reserve. Environmental economists highlight the need to identify the areas of environmental degradation. Efforts are underway to value the ecosystem services of tiger reserves. Photo by Amoghavarsha/Wikimedia Commons.

But the RBI paper is the first holistic effort to understand India’s green GDP, and experts feel it shows that policymakers now understand its urgency.

Appreciating the increased expenditure for the green sector in the annual budget this year, Anjal Prakash says, “Do not only take care of your investment, which is in the green growth process, but you also see what impact it has.”


Banner image: A wind farm in Tamil Nadu. Photo by Narayana Swamy Subbaraman/Mongabay.

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