Environmental Sustainability and the Account of Genuine Wealth in India

In order to gauge the sustainability of the economic growth of nations, genuine savings rates are used as a ready comparable measure. Essentially it provides a measure of the sum of the change in various forms of capital, including manufactured, ecological (natural resource and pollution), human and knowledge capital. The depreciation in manufactured and natural capital during the economic growth process is deducted from the conventional national savings to measure genuine wealth. With increasing attention to global warming, the loss due to the increase in stock pollution of carbon emissions has also entered into the accounting exercise. However the damage from local flow and stock pollutants to human capital productivity has not got the same attention. This paper argues that in a developing country like India, where adverse human health impacts are known to be significant from local pollution and defensive expenditure is not forthcoming from the population at large, ignoring human productivity losses introduces a serious upward bias in the genuine wealth and savings measure especially with an increasing trend in emission of hazardous wastes. To this effect, it considers human capital as a function of both education and the stock pollutant in the Hamilton model that further raises the cost of pollutants. The paper suggests that, the depreciation in human capital may be taken as an increasing function of the local pollution generated in the system (following the current logic of using education expenditure as a proxy for enhancement in human capital). The attention to the local pollutants in the genuine wealth and savings measure would help focus developing country government policy on local pollution concurrently with their focus on global pollutants. The paper observes that current development of green accounting system in India is a step in the right direction, since it has attempted to account for health costs of pollution in some of the states.