GREEN ACCOUNTING

 INTRODUCTION
Environmental Accounting is an important tool for understanding the
role played by the business enterprises in the economy towards the
environmental safety and welfare. It provides data highlighting both
the contribution of business enterprises to economic wellbeing and the
costs imposed in the form of pollution or resource degradation.
Every business has an overriding responsibility to make the fullest
possible use of its resources - both human and material.
An enterprise is a corporate citizen. Like a citizen, it is judged by its
actions in relation to the environment and society of which it is a
member as well as by its Economic performance.
As far as Indian corporate sector is concerned, it is sad but true that it
has not been performing as a good citizen. There are many laws that
have been enacted and amended from time to time to make the
corporate sector to fulfill its social responsibility for better
development of Indian environment and economy. Therefore, recent
years have witnessed rising concern for environmental degradation
which is taking place due to increasing industrial activities. It may be
noted here that the environmental degradation and pollution spoil
human health, reduce economic productivity and lead to loss of
amenities.
The developing countries like India are facing twin problems of
protecting the Environment and promoting economic development. A
trade-off between Environmental protection and development is
required. A careful assessment of the benefits and costs of
environmental damages is necessary to find the safe limits of
environmental degradation and the required level of development.
It is known that there are limited resources available for the use of all
species on the earth and the enormous damage is done to the
environment due to the activities of the business enterprises. In fact,
the industrial and business activities are directly and indirectly
responsible for birth of incidences like the Bhopal Chemical Leak
(1984), Tsunami in India (2004).
  IMPLICATIONS OF GREEN ACCOUNTING IN
ECONOMICS
Green Accounting does great service to the welfare concept of
economics. It helps us understand actual environmental impact of
businesses and helps take compensative measures to give back to the
society.
Businesses need to take responsibility for their influence on
environment in the past,
present and future.

They are accountable for the damages caused by them before, during
and after the production process, by this we imply that even the
environmental costs incurred as a result of usage of the product should
be accounted for.
And they need to give quantitative analysis of these influences in
order to be able compare the results from time to time and keep taking
active measures to keep minimizing them.
If we want to calculate actual costs during computation of national
income and measuring development in a country, we cannot ignore
Environmental costs, though these might not directly involve
monetary costs, they influence development and hence must be
accounted and considered.
If a business cuts down a large chunk of a forest and makes huge
profits from it, the money income definitely rises but the damage done
to forest will have severe effects on the ecological Balance.

 ENVIRONMENTAL ACCOUNTING PRACTICE IN INDIA

1. The first announcement regarding this green accounting was made
in the year 1991.
2. The Ministry of Environment and Forests has proposed that “Every
company shall, in the Report of its Board of Directors, disclose briefly
the particulars of steps taken or proposed to be taken towards the
adoption of clean technologies for prevention of pollution, waste
minimization, waste recycling and utilization, pollution control
measures, investment on environmental protection and impact of these
measures on waste reduction, water and other resources
conservation.”
3. The Union Ministry of Environment and Forests has issued various
instructions in to prepare environment statements.
4. It is mandatory in the country to get an environmental clearance for
all new projects that concerns both the Union Ministry of
Environment and Forests and the corresponding State Government
department of environment. There are various guidelines in this regard
and all such projects are expected to obtain environmental and
antipollution clearance before they are actually set up.
It can be observed through their accounts that mainly the following set
of information is disclosed.

A. Type of devices installed to control pollution

B. Steps taken for energy conservation.
C. Optimum utilization of resources.
D. Steps for decomposition of waste.
E. Steps taken for improving quality of the product.
In this environment statement, the concerned industry is required to
provide information on:
A. Water and raw material consumption.
B. Pollution generated
C. Impact of pollution control measures on conservation of natural
resources.
D. Nature of hazardous and solid wastes produced and disposal
practices adopted
E. Measures taken for environmental protection F. Steps taken to
popularize the benefits of environmental accounting and reporting
among the corporate sector

LEGAL FRAMEWORK FOR ENVIRONMENTAL

ACCOUNTING IN INDIA
While industrial licensing has been abolished for all practical
purposes, environmental clearance from various government
authorities has now taken the center stage. Increasing concern with the
protection of the environment and taking anti-pollution measures have
become major concern all over the world in the last two decades.
India also set up the Central Ministry of Environment
With the object of coordinating among the states and the various
ministries, the environmental protection and anti-pollution measures.
Necessary legislation has also been passed.
The various laws relevant to the environmental protection are as
under:
1. Directly related to the environmental protection:
I. Water (Prevention and Control of Pollution) Act,1974.
II. Water (Prevention and Control of Pollution) Cess Act,1977.
III. The Air (Prevention and Control of Pollution) Act, 1981.
IV. The Forest (Conservation) Act, 1980.
V. The Environment (Protection) Act, 1986.

2. Indirectly related to the environmental protecting:

VI. Constitutional provision (Article 51A)
VII. The Factories Act, 1948.
VIII. Hazardous Waste (Management and Handling) Rules, 1989.
IX. Public Liability Insurance Act, 1991.
X. Motor Vehicle Act, 1991. (11) Indian Fisheries Act, 1987.
XI. Merchant of shipping Act, 1958.
According to the Annual Report of the Ministry 1997- 98, out of 1551
large and medium industries identified in the 17 categories of highly
polluting industries, 1261 have installed the requisite pollution control
facilities and 165 units are in the process of installing such facilities
125 units have been closed down. As a result of notices issued by the
Central Board 2137 units which did not have requisite effluents
treatment systems, 480 units have been closed down and 1457 units
are about to be closed. 106 units have set up such systems and 94
units have been granted extension of time. During the year 1997-98
around 680 complaints regarding various types of pollution air, water,
noise and soil have been received and attended to.

The concern of the Ministry for protecting the environment in the

coastal waters and the coastal belt has led to the imposition of a no-
construction belt of 300 meters beyond the high water tidal limit on
the Indian coast line. This has affected the beach hotels and coastal
resorts.

 Literature Review
Environmental accounting, also known as green accounting, is to
measure, record and disclose the impacts of corporate environmental
activities on its financial status through a set of accounting systems.
The definitions of green accounting in different countries are similar,
as shown in Table 1.
Table 1.Definitions of green accounting in different countries
(compiled by this study).
Country and name
Regulations or definitions
Denmark,
1995 Green Accounts Act [8]
About 1200 high-pollution enterprises must announce green
accounting report. Besides, 200 enterprises voluntarily provide the
reports.

Netherlands, 1999
Environmental
Management Act [8]
About 260 enterprises are compelled to disclose the
environmental report. Besides, 40 enterprises voluntarily provide the
reports.
U.S. Environmental Protection Agency, 1995
An Introduction to Environmental Accounting As A
Business Management Tool
Environmental cost accounting means adding environmental cost
information to the current cost accounting system,
identifying hidden environmental cost and allocating it to proper
products or manufacturing.
UN Division for Sustainable
Development 2001
Environmental Management

Accounting (EMA)
Regarding corporate cost, product design production and
investment decision-making, EMA can provide immediate and
visionary information. EMA is also the decision-making and
support tool.
The information system allows the firms to manage
environmental lifecycle and economic information and to
acquire better information and environmental protection
strategies.
International Federation of
Accountants, 2005
Environmental Management
Accounting Guidelines
Environmental management accounting manages environmental
and economic performance by development and execution of a
proper environmental accounting system, including reports
and auditing of corporate information and environmental
management accounting. Generally speaking, it includes
lifecycle accounting,
total cost accounting, an effective process and strategic planning
of environmental management.
Ministry of the Environment,
Japan, 2005 Environmental
Accounting Guidelines [12]
Green accounting is a quantitative assessment of the cost and
effectiveness of enterprises in environmental protection
activities.
Enterprises are required to have systematic records and reports
and are guided to maintain a positive relationship with ecological
environment to implement effective and efficient environmental
activities. The final goal is to accomplish sustainable
development.

Environmental Protection
Administration, Taiwan, 2008
Industrial Environmental
Accounting Guidelines
By measurement, records, analyses and explanation, enterprises’
resources invested in environmental improvement and protection
and executive outcomes are completely and consistently
reorganized, and the outcomes are provided to stakeholders of
enterprises.
 ENVIRONMENTAL POINT OF VIEW BIODIVERSITY
PROFILE IN INDIA
India occupies 2.4% of the world’s area and is host to 7% of the
global biodiversity, accounting for 8% of the world’s mammals, 13%
birds, 6% reptiles, 4% amphibians, 12% fish, and 6% flowering
plants. It is one of the 12 mega-diversity hot spots of the world, the
other countries being
Bolivia, Brazil, China, Colombia, Ecuador, Indonesia, Mexico, Peru,
South Africa, USA, and Venezuela.
In addition, India also has many endemic plants and vertebrate
species. Among plants, species endemism is estimated at 33% (BSI
1983). Endemism among mammals and birds is relatively low.
Areas rich in endemism are north-east India, the Western Ghats, and
the north-western and eastern Himalayas. A small pocket of local
endemism also occurs in the Eastern Ghats. The Gangetic plains are
generally poor in endemics, while the Andaman and Nicobar Islands
contribute at least
220 species to the endemic flora of India (BSI 1983). However, India
is losing biodiversity at a rapid rate.
Around 39 species of mammals, 72 species of birds, and 1336 species
of plants are considered vulnerable and endangered, as these species
have not been sighted during the last 6–10 decades (see Appendix I
for the IUCN [The World Conservation Union] categories). Among
the higher plants, about 20 species are categorized as ‘possibly
extinct’ and about 3120 species are categorized as endangered under
different threat categories
The major factors threatening species and genetic diversity are habitat
destruction, overexploitation, poisoning by pollutants, introduction of
exotic species, and the imbalances in community structure, epidemics,
floods, droughts, and cyclones.

 GREEN ACCOUNTING PRACTICES IN INDIA

Over the past decade’s companies have recognized the benefits of
environmental reporting. As aresult, there was dramatic increase in
the number of companies reporting in numerous ways.
Early reporters are quick to realize that environmental disclosure is
more of a governance and strategicissue than a simple reporting tool
(Roome, 1992; Parker, 1997; Parker, 2000a). Regardless of the
medium of reporting, companies are bound to satisfy country specific/
international reporting standards and requirements. It is important to
understand as to how far standard setting improves credibility in
reporting through major surveys. However, most studies are based on
content analysis of annual reports.

A study of 80 executives of different industries was carried out by Dr.

B. B. Padhan and Dr. R.K. Bal which revealed that corporate world is
fully aware of the requirements of environmental reporting. They are
also aware of the environmental issues. The corporate executives have
also expressed their views in favor of environmental reporting by the
industries. Despite their awareness and consent over environmental
reporting, the result is very poor. It is so inadequate that very little
information is found in the annual reports.
In the words of JondSeo Choi, research studies have examined the
extent to which companies produce social information, of which
environmental information would be part. A general theme that
emerges from this include the following.
a. The proportion of companies disclosing the extent of that disclosure
is small and the quantityis low.
b. There is some variety in disclosure over time between countries and
between industries.
c. There is a very definite size effects in those larger companies are
more likely to disclose than smaller companies.
d. Very little disclosure would qualify as information under any
normal criteria and very little of it indeed will contain numbers,
financial or otherwise.

It was also revealed that most of the companies disclose the

environment information in
Descriptive manner rather than to financial type i.e., no account is
made for the degradation of natural capital when calculating corporate
profits.
Like this, many studies have been undertaken and completed in the
past by the researchers.
However, this initial survey of available literature revealed that no
work focused on the
Evaluation of Environmental Accounting Practices by Indian
Companies.
 CONCLUSION
Environmental accounting is in preliminary stage in India and
whatever shows in the accounts in this regard is more or less
compliance of relevant rules and regulation in the Act. Actually,
unless common people of India are not made aware towards
environmental safety, development of accounting in this regard is a
little bit doubtful. It is the call of the time that corporate prepare a firm
environmental policy, take steps for pollution control, comply with
the related rules and regulations, and mention adequate details of
environmental aspects in the annual statements. For sustainable
development of country, a well-defined environmental policy as well
as proper follow up and proper accounting procedure is a must.
  REFERENCE
[1] Alok Kumar Pramanik , Nikhil Chandra Shil and Bhagaban Das
Head, Department of
Commerce, Bhatter College, PaschimMedinipur (West Bengal), India,
Senior Lecturer,
Department of Business Administration, & also an Assistant
Proctor, East West University, Dhaka, Bangladesh, Reader, P. G.
Department of Business Management, Fakir Mohan University,
Orissa, India
[2] N Navya, PVSN YaminiApoorva, “Green Accounting and its Role
in Developing India”.
[3] ManiparnaSyamRoy, Asutosh College, Kolkata, “India Green
Accounting for Sustainable
Development: Case Study of Industry Sector in West Bengal, 9 The
Journal of Industrial
Statistics
(2017), 6 (1), 57 – 71)
[4] Ramesh, L, M.Com., “A Study of Environmental Accounting
Practices in selected Indian
Companies”{Phd research study}.
[5] N Anil Kumar, T SaiPranitha, N Kiran Kumar, 1Faculty in
Commerce, Loyola Academy UG
& PG (Autonomous) Alwal, Secunderabad, Telangana, A Study
on Green Accounting and Its Practices in India (IOSR Journal of
Business and Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN:
2319-7668).1
[6] Jui-CheTu and Hsieh-Shan Huang, Graduate School of Design,
National Yunlin University Of Science and Technology, Yunlin
640,Taiwan, “Analysis on the Relationship between Green
Accounting and Green Design for Enterprises” { Sustainability 2015,
7, 6264-6277;
doi:10.3390/su7056264}
[7] Philip Kotler, Gary Armstrong, Prafullah Y. Agnihotri,
EhsanulHaque, Principles of
Marketing: a South Asian Perspective (Tamil Nadu: Pearson India
Education Services Pvt Ltd, (2001)
[8]. Ding, X.F. A Study of the Influences of Environmental
Accounting and Environmental Protection to Financial Performance.
Master’s Thesis, National Taiwan Ocean University, Keelung City,
Taiwan, 2009.

[9] U.S. Environmental Protection Agency website. Available online:

http://www.epa.gov/oppt/ library/pubs/archive/acct-
archive/resources.htm (accessed on 15 January 2015).
[10] U.N. Division for Sustainable Development website.
http://www.un.org/esa/
sustdev/index.html (accessed on 15 January 2015).
[11] International Federation of Accountants website. Available
online: http://www.ifac.org/ (accessed on 15 January 2015).
[12] Ministry of the Environment Government of Japan.
Environmental Reporting Guidelines; Environment Agency Japan:
Tokyo, Japan, 2005.
[13] Dr. Preeti Malik (Assistant Professor) and Dr. Alka Mittal
(Reader) Maharaja Surajmal
Institute “A Study of Green Accounting Practices in India” IRACST –
International Journal of Commerce, Business and Management
(IJCBM), ISSN: 2319–2828 Vol. 4, No.6, December 2015
Senior Lecturer, Department of Business Administration, &
also an Assistant Proctor oAlok Kumar Pramanik
o Chandra Shil
oBhagaban Das Head

Alok Kumar Pramanik, Nikhil Chandra Shil and Bhagaban Das Head,
Department of
Commerce, Bhatter College, PaschimMedinipur (West Bengal), India,
Senior Lecturer,
Department of Business Administration, & also an Assistant
Proctor, East West
University, Dhaka, Bangladesh, Reader, P. G. Department of Business
Management,
Fakir Mohan University, Orissa, India
Green Accounting and its Role in Developing India
o N Navya
oYaminiPvsn
oApoorva
N Navya, PVSN YaminiApoorva, "Green Accounting and its
Role in Developing India ".
 India Green Accounting for Sustainable Development: Case Study
of Industry Sector in
West Bengal
o Jan 2017
o 57-71
oManiparnaSyamroy

oAsutosh College
o Kolkata
ManiparnaSyamRoy, Asutosh College, Kolkata, "India Green
Accounting for
Sustainable Development: Case Study of Industry Sector in West
Bengal, 9 The Journal of Industrial Statistics (2017), 6 (1), 57-71)
A Study of Environmental Accounting Practices in selected Indian
Companies
o L Ramesh
o M Com
Ramesh, L, M.Com.,"A Study of Environmental Accounting
Practices in selected Indian Companies"{Phd research study}.
Analysis on the Relationship between Green Accounting and Green
Design for
Enterprises
o Jan 2015
o 6264-6277
oCheTu
o Hsieh-Shan Huang
  SCOPE OF THE STUDY
The study covers a time period of ten years from 2006-2017, for
the purpose of Secondary data the research study involves exploration
of which attribute of OVERVIEW OF INTERNATIONAL
FINANCIAL REPORTING STANDARD’S in India has more
intense effect on the investor decision and which attributes of mutual
funds are relatively significant or insignificant for investors, and also
to determine how much level of each attributesis most or least
preferred. Similarly, the primary data pertaining to the opinions, views
& perceptions of the investors were collected through a Questionnaire
during September, 2017 & October, 2017 from the study area.
Mumbai City of the Maharashtra State was purposively selected for
the study as the researcher is from the same City.
 STATISTICAL TOOLS ADOPTED:
The data was interpreted & analyzed with the help of tables,
percentages, graphs & chart presentation.

 SAMPLING TECHNIQUE:
The technique used for this project is based on a QUESTIONNAIRE
which consists of about 15 general questions. This questionnaries
aims to provide the data hich is of most important in nature to enable a
comprehensive analysis of impact attributes of OVERVIEW OF
INTERNATIONAL FINANCIAL REPORTING STANDARD’S in
india . The questions consist of statements, the inte nsities of which
are from the respondents to extract the opinion of respondents. These
questions evaluate the intensity of respondent on various paremeters
whit high and low extremes on the scale
 LIMITATIONS
The study is limited only within Mumbai City [mainly Central
Mumbai] of Maharashtra State, because of the time & financial
constraints the study is restricted to the sample size up to 50
respondents / investors of different age group. However, it is
reasonably sufficient number to generalize the information
collected. The study could not cover the legal- investment
strategies & aspects on the whole.
  DATA TYPES & SOURCES
Both quantitative & qualitative data will be used. Primary data
will be collected though observation, structures questionnaires &
semi-structured interviews using checklist & the responses of the
leading questions. Secondary data will be obtained from external
sources like Newspapers, journal, magazines,internet, Website
etc. which will be included to gather more information for
international comparisons.
 MEANING OF PRIMARY DATA & ITS IMPORTANCE
Primary data is information that you collect specifically for the
purpose of your research project. An advantage of primary data is
that it is specifically tailored to your research needs. A
disadvantage is that it is expensive to obtain.
Primary data are information collected by a researcher specifically
for a research assignment in other words, primary data are
information that a company must gather because on one has
compiled and published the information in forum accessible to the
public. Companies generally take primary data only when a
question, issue or problem presents, itself that is sufficiently
important or unique that it warrants the expenditure necessary to
gather the primary data. Primary data are the data which the
researcher collects through various methods like interviews,
surveys, questionnaires etc.

Advantages of primary data are as follows:

1. The primary data are original and relevant to the topic of the
research study so the degree of accuracy is very high.
2. Primary data is that it can be collected from a number of ways
like interviews, telephone surveys, focus groups etc. It can also
be collected across the national borders through emails and
posts. It can include a large population and wide geographical
coverage.
3. Moreover, primary data is current and it can better give a
realistic view to the researcher about the topic under
consideration.
4. Reliability of primary data is very high because these are
collected by the concerned and reliable party.
  Green Accounting Methodology for India and its States

 Synopsis
Classical GDP measures under the SNA omit material externalities ,
and focus on GDP as a growth metric contributes towards
unsustainable development. We argue that India does exhibit
symptoms associated with unaccounted depreciation of natural
resources, including a lack of focus on sustainability, and we set out a
rationale for Green Accounting for India.
In this paper, we describe how, applying and developing SEEA (2003)
methodology further, our “Green Accounting for Indian States &
Union Territories Project” (“GAISP”) has set up “top-down” economic
models for State-wise annual estimates of adjusted Gross State
Domestic Product (GSDP) in order to capture at a State level the main
externalities from unaccounted flows of non-marketed services &
unaccounted changes in human capital & natural capital stocks. We
outline the approach used by GAISP in all key areas, and we also
comment on the degrees of conservatism built into our approach.
Our preferred methodology as outlined has the advantage of having
been feasibility-tested, as we have (at the time of writing) completed
most of our project work. The dissemination of our results and the
adoption of a Green Accounting methodology in India’s 5-year plans
and in presenting annual growth statistics could enable policy makers
and the public to engage in a debate on the sustainability of growth,
enable inter-state comparisons to be made, and support more
appropriate budgetary allocations to areas which provide economic
value but are not recognized in conventional national accounts.

 Background and Introduction

The main objectives of this paper are to argue the case for Green
Accounting for India (i.e. a framework of national accounts and state
accounts showing genuine net additions to wealth) and to present a
preferred methodology and models to reflect natural capital and
human capital externalities in India’s national accounts, measuring as
depreciation the depletion of natural resources and the future costs of
pollution, and rewarding education as an addition to human capital
stock. Our over-riding purpose is to show that Green Accounting for
India is desirable, feasible, realistic and practicable and that a start can
be made with available primary data already being collected by
various official sources of the Government of India.
There is a dearth of focused sustainability analysis and information
provided to policy makers at the National and State levels in India. As
a result, the processes of public debate, government planning,
budgetary allocation, and the measurement of economic results are in
effect being conducted without a sustainability framework. High GDP
growth usually accompanies investment in physical infrastructure,
which places mounting pressure on the country’s environment and
natural resources. However, there is an asymmetry between man made
and natural capital in that depreciation in the former reflects in GDP
accounts but the latter does not. Recognizing that GDP growth is too
narrow a measure of economic growth and not a measure of national
wealth, we propose a “Green Accounting” framework for India and its
States and Union Territories.

This paper is an outcome of the “Green Accounting for Indian States

& Union Territories Project” (“GAISP”)1 which aims to set up top-
down economic models for annual estimates of adjusted Gross State
Domestic Product (“GSDP”) for all Indian States, thus capturing true
“value addition” not just at a National level but at State level too.
India has a federal political structure - State legislature and
administration has considerable impact on local environmental
policies and standards.
Whilst states are governed by the same national laws on environment,
forests, and wildlife, their environmental attitudes and policies differ,
& the range and effectiveness of their environmental and forest
management programmes differ quite considerably. Known
anecdotally, this feature is not captured systematically. There are no
metrics to distinguish sound and unsound environmental performance
by India’s State governments. Sustainable development at a State
level remains un-measurable, and therefore un-manageable.
The Central Statistical Organisation (CSO) in India is working on a
methodology to systematically incorporate natural resources into
national accounts in different states for land, water, air, & sub-soil
assets. However, the CSO approach develops accounts for some states
& for some sectors, and their studies are still in progress. In contrast
to the CSO approach, we use a top-down or macroeconomic approach
to model adjustments to GDP/GSDP accounts, for two reasons.
Firstly, a top-down approach has the advantage of providing a
consistent and impartial national framework to value hitherto
unaccounted aspects of national and state wealth and production.
Secondly, it optimises extensive existing research which is not yet tied
together in a manner to be useful for policy analysis. Thus we hope to
provide a much-improved toolkit based on international best practice
for India’s policy makers to evaluate the economics of their policy
trade-offs, and will enable them and the public to engage in a better
informed debate on the sustainability of economic growth, using
national as well as inter-state comparisons. The materiality of
calculated externalities in sectors such as education, health and natural
resources are particularly interesting as these sectors are essential
contributors to both sustainable development and poverty eradication.
Information about GAISP and copies of its reports can be obtained from
www.gistindia.orgSpecifically, this project aims to re-calibrate the
existing annual GSDP accounts to incorporate changes in each state’s
stock of natural capital (minerals, arable land, forests & freshwater) and
its investment in human capital (education, health, and pollution
control).

 Rationale for a system of “Green Accounting” for India

India has spent the past decade building a growth dynamic that was
missing in the earlier quasi-socialist regime. The cumulative impact of
the reform process appears to be generating growth, however, it is also
desirable to monitor and channel the forces of growth and investment in
order to ensure that they truly improve the quality of life for current and
future generations, and to manage the economy sustainably, one must
also measure it with the lens of sustainability. Furthermore, there is an
asymmetry between man made and natural capital in that depreciation in
the former reflects in GDP accounts but the latter does not. In this
context, it should be recognized that GDP growth is too narrow a
measure of economic growth and not a measure of national wealth, and
this is why we propose a “Green Accounting” framework for India and
its States and Union Territories.
Key externalities in the form of creation and destruction of Human
Capital and Natural Capital both need to be explicitly measured, because
they have a significant impact on the long-term sustainability of India’s
growth.
  Human Capital Externalities : Education and Health
Education and health are key components of human capital, and our
adjusted measure of state wealth must therefore include estimates of
investment in these two areas. Public investment in education as a % of
GDP has been low in India (in comparison to China and developed
nations) and much of this has traditionally been skewed towards tertiary
education. However, the primary school enrollment rate is now at about
95% due to private spending and the work of NGOs (and some
improvement in targeting by government as well). Unfortunately,
according to ADB data, only 65% of girls and 70% of boys who enter
the first grade are able to reach the fifth grade. The equivalent rates in
China are 94% for girls and 93% for boys. India’s traditional skew
towards tertiary education has supported the country’s recent success in
the hi-tech services sector. However, this phenomenon will not spread
through the rest of the economy unless primary and secondary schooling
is also strengthened, as it provides a productive foundation as well as a
means of identifying the highest potential from amidst a gigantic human
resource pool. Public spending on health as a % of GDP is even lower
than on education, and also lower than the corresponding percentages in
China. The threat to public health is compounded by the poor state of
civic amenities such as water supply, drainage and sanitation.
Privatization of education and health are observable trends in India, and
the authors believe that to be the right direction. Nonetheless, we feel it
is important to quantify the scale and effectiveness of both public and
private efforts. In our view, this would allow proper targeting of public
spending and improvement in the framework for attracting private
funding

. Natural Capital Externalities : Freshwater, Forests,

Agricultural Land and Sub-soil Assets
India’s Natural Capital, apart from its Human Capital, is the other large
area of unaccounted externalities. India’s record in conserving natural
capital over the last fifty years is mixed, and reflects a combination of
factors and circumstances. On one hand, there has been an effort towards
creating protected areas around the most precious accumulations of bio-
diversity.
India has 592 protected areas, National Parks and Sanctuaries,
predominantly forested, covering 4.6 % of land mass (MOEF, 2003) and
extensive protective legislation has been enacted since independence. On
the other hand, there is widespread violation of regulations by
encroachers, illegal miners, property developers, poachers and loggers.
Legal action by mining and logging interests to overturn protective
legislation is not uncommon, although this have been countered quite
effectively by environmental NGO’s and citizens interest groups.
Whilst the pace of conversion of forest land to other uses is the most
visible depletive trend impacting natural capital, there are many other
forms of depletion of natural capital – sometimes helped by populist or
insensitive government policy. For example, subsidies have often led to
the use of inappropriate agricultural technology and crop choice that
have led to falling water tables, rising salinity, water logging, surface
water pollution and impoverishment of cropland. Similarly, India’s
mineral wealth has been exploited directly or indirectly by government
without adequately considering import alternatives that would have
come at a lesser environmental cost. Failures range from the use of out-
dated technology to out-dated policy frameworks that have not been
changed from the days of ‘import substitution’ as a key policy objective.
The declining quality of freshwater in India has received occasional
attention when it is raised by the press in the context of specific “point
sources” of pollution in various locations, and when it affects the quality
of drinking water in high-profile cities. It passes notice that the decline
in water quality due to chemical pollutants from ill-managed industrial
wastes, use of fertilizers and pesticides in agriculture, and from the
accumulation of poisonous solid wastes in and around cities and towns is
a nation-wide phenomenon of significant proportions. There is enough
tracking of water quality, but no widely-accepted means of evaluating
the damage done in economic terms, in the form of potential costs
towards purification and restitution of water quality.

 Inadequacy of Democratic ‘Checks and Balances’

Despite the above problems on both the Natural capital and Human
capital fronts, two positive influences are present which can take India
along a path of sustainable development. Firstly, India is a vibrant
constitutional democracy with the attendant democratic institutions,
especially an independent judiciary and a free press. We feel that public
interest does prevail if long-term costs and benefits are clearly
demonstrated in specific cases.
Secondly, the growing exposure of citizens to the rest of the world
(helped by widespread use of the English language) and the educational
work of NGOs has increasingly sensitized sections of the urban public
about environmental degradation and to the value of education as a
means to better employment. Nevertheless, there are limitations to what
can be achieved by an educated public and the checks and balances of
democracy. In reality the action taken by the public boils down to
sporadic or narrowly focused public interest litigation.
Albeit well-meaning, such public action can only have limited
conservation or sustainability benefits whilst the vastness of India’s
lands and the opaqueness of its public information systems (again,
notwithstanding appeals made under the Right to Information (RTI) Act)
prevents material achievement on the sustainability front through this
route. Since we do not see the efforts of NGO’s and public interest
litigation as sufficient action to reverse the current trend in India towards
natural capital degradation, we point to the need for incorporating the
importance of natural resource evaluation and management into the
mainstream of public policy and administration. This in turn argues for
the creation of an appropriate set of metrics for natural resource
accounting at the National and State level - quite simply, one cannot
manage what one does not measure.

 Traditional (‘SNA’) GDP Accounting versus Green

Accounting

The only yardsticks of growth or development that are available today -

Gross Domestic Product (GDP) at the National level or Gross State
Domestic Product (GSDP) at the State level - is unfortunately not
designed to capture the significant gains/ losses to human capital and
natural capital that happen year after year and affect the true or holistic
wealth of the nation and its people. Much recent work on ‘inclusive
wealth’ measurement (e.g. Arrow, Dasgupta & Maler, 2003) highlights
the importance of holistic measures of wealth. National wealth should
include not just a measure of manufactured assets and financial assets
(physical capital), but also natural capital (oil, other minerals, forests,
freshwater resources, cropland, fisheries, etc), human capital (knowledge
and skills), and social capital (institutional and legal infrastructure,
political maturity, social harmony, etc). Sustainable growth is then
defined as that which increases per-capita national wealth, defined in
this ‘inclusive’ or holistic manner. In the absence of any measure of
sustainable growth, it is not surprising that India and its States often
embark on unsustainable growth initiatives, at a very large future cost to
the economy, to society, and to the natural ecosystems within which they
survive.

The emphasis of SNA on “GDP” as the key measure of growth will

probably be studied by future generations as the single most significant
design defect in the economic history of mankind. An appropriate
alternative, Green Accounting, entails the estimation of prices for all
national assets, including natural and human capital assets, and their
inclusion in the ‘financial statement’ of the nation, so it is no mean task.
‘Green Accounting’ is a methodology for capturing the so-called
‘externalities’ of ‘mainstream’ economics (which include most material
and unaccounted changes in natural capital, human capital, and social
capital) by estimating their stock or net asset values, and thus bringing
them within a common framework of value accounting for the nation. In
practise, Green Accounting involves an array of quantitative estimations
: modelling and valuing the non-marketed services of environmental
assets such as forests, calculating the value of education as a generator
of future incomes, present-valuing future liabilities in the form of
pollution abatement costs and healthcare costs, etc. This appears quite
daunting an exercise, however, as we describe below, there is a
sufficient body of work and precedent which will enable India to
implement holistic Green Accounts. The benefits are immense, as Green
Accounting would better enable governments to evaluate choices
without a bias against future generations, or a bias in favour of man-
made assets as against natural assets. It would present in a different &
holistic economic light choices such as conserving precious ecosystems
rather than surrendering them at throwaway prices to logging interests
for a relatively minor economic gain.

There are other legitimate grounds for dissatisfaction with GDP as a

measure of growth, such as the inability of GDP- optimizing policies and
systems to engender financial and economic inclusion, but in this paper
we do not address this issue. However, we do wish to point out that
Green Accounting - driven policy focuses on conserving forest resources
( a significant dependency for the poor household ) and on investing
more in primary and secondary education ( important means of
providing the poor with better future livelihoods) can only serve to
improve India’s current and disappointing state of financial and
economic inclusion.
 Qualitative Indexes and their Shortfalls
It is important to differentiate “Green Accounting” from what are
sometimes represented as alternative ways of evaluating changes in
holistic wealth. We refer to various indexes, such as the
Environmental Sustainability Index (‘ESI’). Another index which is
sometimes discussed in the context of sustainability is the Human
development Index (‘HDI”).We use the ESI as an example to explain
why adjusted national accounting is a preferable exercise. The ESI
was a pilot study on the relative environmental sustainability of
national economies, launched at the World Economic Forum’s annual
meeting in January 2000 at Davos.

ESI data used 21 indicators across five sustainability components :

- state of environmental systems (including air & water quality)
- level of stresses & risks (eg: rates of pollution)
- human vulnerability (eg: population without access to safe drinking
water)
- social/institutional capacity (including expertise and knowledge)
- stewardship (a country’s sense of responsibility towards global
commons)
It should be noted that the ESI is an index and not a quantitative
measure of growth, whereas the focus of Green Accounting is to
adjust traditional measures of growth & to re-cast them as measures of
sustainable growth. ESI data are a blend of relevant statistical
information, but they cannot answer the straightforward question “Is
this growth sustainable ?”. In contrast, an adjusted GDP approach
such as we propose can and does provide a quantitative answer to that
question. ESI measures are not an alternative to Green Accounting. At
best they indicate where problems lie, but they do not provide
yardsticks for economic evaluation of competing choices.
Having said that, the surge of international interest that followed
immediately from the publication of the first ESI rankings is
instructive. That the evaluated participant governments sought to
understand and improve their rankings provides insight into the
possible reaction of India’s State Governments to being evaluated by
an independent survey on a ‘true’ measure of their competitive
sustainable performance versus their peers.
We outline below some other useful Main features
but qualitative indicators showing
environmental performance and
human well being, noting again that
they do not and cannot replicate a
formal framework of Green
Accounting. Indicators
Ecological Footprint, Biocapacity and Categories of demand, supply and gap
Ecological Debt (WWF, Zoological (overshoot) based on areas of productive
Society of London and Global land (global hectares per person)
Footprint Network)
Barometer of Sustainability, Human Human well-being and ecosystem
Well-Being Index and Ecosystem indicators are combined hierarchically
Well-Being Index (Prescott-Allen) within a two-axes scale

Human Development Index ‘family The human development index can be

of indicators’, including e.g. the modified by adding an environmental
Environmental Behaviour Indicator dimension of by relating it to a well-know
by De la Vega and Urrutia measure, such as the ecological footprint
Index of Sustainable Economic The Gross Domestic Product is corrected
Welfare