Sustainability and comprehensive wealth accounting: the case of India

Abstract

The criterion of non-declining comprehensive wealth per capita used to determine sustainability of economic growth indicates that growth in most countries is weakly sustainable, as decline in natural capital is more than offset by increase in anthropogenic capital. This paper examines the sustainability of economic growth in India by estimating the trend in comprehensive wealth during 1975–2013, utilizing recent remote sensing native forest cover data in order to obtain more accurate valuation of natural capital. This is the first study to construct wealth estimates for a period spanning four decades, apart from adopting hybrid methodology for estimating certain wealth components such as subsoil assets. We find that the composition of India’s wealth is biased toward produced capital, although given the large working-age population, India holds immense potential for human capital building. The quality of natural capital is also deteriorating due to increasing carbon emissions and particulate pollution. Although we find that growth in India is weakly sustainable, it is based on the assumption of perfect substitutability of different capital forms, which is questionable. Loss of natural forests and accompanying native biodiversity raises serious concerns of the threat it poses to future generations. Our sensitivity analysis based on variation in the discount rate also suggests cautious use of natural resources.

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Fig. 1

Notes

  1. 1.

    Alternatively, endogenous technological and institutional changes can be modeled in an economy’s total factor productivity growth and subsumed in comprehensive investment (Arrow et al. 2012: 326–327). Indeed, the spectrum of institutional capital is wide and difficult to measure: including formal institutions as well as informal social norms, culture and customs (MOSPI 2013: 6).

  2. 2.

    Empirical evidence based on used asset prices or resale prices shows that for most assets, a geometric pattern of depreciation is most appropriate (Fraumeni 1997).

  3. 3.

    depreciation rate of 5% is widely used (e.g., World Bank 26, 2011).

  4. 4.

    aluing human capital through the proxy of annual compensation of employees is appealing and has been used in UNU-IHDP and UNEP (2012, 2014) and IWR (2018). It may be noted that using annual per capita GDP, which is highly correlated to annual compensation of employees, gives similar results.

  5. 5.

    We have not estimated pastureland wealth separately. Implicit is the assumption that the shadow price of cropland is the same as that of pastureland. Unlike cropland, rents from products accruing from pastureland cannot be directly linked to the pastureland area used for production (UNU-IHDP and UNEP 2012, 2014; Managi 2018a, b).

  6. 6.

    When the economy is on the optimal extraction path, the quantity extracted decreases overtime and T estimated thus may be understated. But, as we find in the present study, quantity extracted has an increasing trend for various subsoil assets. In such a scenario, T estimated using the above method is biased upwards. To account for overstated T, we assume it to be lower than the estimated values in our empirical work.

  7. 7.

    Under the UNFC system, reserves are classified as proved, probable, feasibility and pre-feasibility. The ‘remaining resources’ are further classified as measured, indicated, inferred and reconnaissance.

  8. 8.

    While carbon storage is a one-time value which comes from standing timber, carbon sequestration is the service delivered by forests by storing carbon annually (Verma et al 2013).

  9. 9.

    Moderately dense forests are chosen to estimate PHB as they constitute approximately 45–50% of total forest cover in India as per the official reports of the Forest Survey of India, State of Forest Reports, 2003–2015. We did not select open forests/scrub or very dense forests to estimate PHB since application of such per hectare benefits to total forest area might bias the results toward very low or very high values.

  10. 10.

    Select forest types are Tropical Wet Evergreen Forests, North-East and Western Ghats, Tropical Semi Evergreen Forests, North-East and Western Ghats, Tropical Moist Deciduous Forests, Littoral and Swamp Forests, Tropical Dry Deciduous Forests, Tropical Thorn Forests, Tropical and Subtropical Dry Evergreen Forests, Subtropical Pine/Broadleaved Hill Forests, Montane and Moist Temperate Forests, Sub Alpine and Dry Temperate Forest, which accounts for 96% of total forest cover in 2013 (data obtained from Reddy et al. 2015b).

  11. 11.

    “Measuring the Wealth of Nations”, NCAER 6th C D Deshmukh memorial lecture by Sir Partha Dasgupta, February 9, 2018.

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Correspondence to Aparna Sawhney.

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We would like to thank the five anonymous referees for their useful comments on our earlier draft. We would also like to thank participants at the 13th Annual International Conference on Economic Growth and Development, Indian Statistical Institute, New Delhi, December 2017, for their observations and suggestions on an earlier version of the paper.

Appendix

Appendix

See Tables 12, 13, 14, and 15.

Table 12 Comparison of comprehensive wealth estimates of India with selected studies
Table 13 Data appendix
Table 14 Sensitivity analysis (wealth per capita in US$ and other figures in billion US$, all at 2004–2005 prices)
Table 15 Sensitivity analysis (figures in US$ at 2004–2005 prices)

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Agarwal, P., Sawhney, A. Sustainability and comprehensive wealth accounting: the case of India. Environ Dev Sustain 23, 3762–3786 (2021). https://doi.org/10.1007/s10668-020-00743-9

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Keywords

  • India
  • Comprehensive wealth
  • Weak sustainability
  • Natural capital
  • Natural forests

JEL Classification

  • Q56
  • Q01