Prof. Ramakrushna Panigrahi
Specialization- Finance & Economics
Three decades ago, many environmental economists argued that nature cannot be provider of a perpetual free lunch and accounting for natural resources degradation while drawing up balance sheets could no longer be procrastinated. During last three decades, population has increased from 5.3 billion to 7.8 billion, adding 2.5 billion people in 30 years which was the total global population in 1950. The rise in population has exerted tremendous pressure on natural resources leading to a very high level of exploitation which is far from being sustainable. But are these environmental costs of degradation accommodated in the estimation of GDP? Absolutely not. Even though the green economists have been arguing that the only way to get the environment to economic agenda is to demonstrate that it matters to the economy, the issue still remains as a pure environmental issue, not an economic issue per se. If natural costs could be incorporated into System of National Accounts (SNA), a more rational valuation and appreciation of environmental and natural resources would be built in which eventually should make the process of production and economic growth more sustainable.
But why is it that accounting for natural resources and environment in SNA is not yet done? It is because the short run returns from exploiting these resources far outweighs the long run sustainability aspects of economic development. Due to this lack of incorporation of these costs in SNA in a formal way, the poorer countries have been suffering most. In many poorer economies, the resource base is disappearing very fast on which millions of people depend for their livelihood. Especially, this is true for forest resources. Ignoring the non-market value of forests has severely distorted the true economic returns of the development projects. Another resource is water, taken for granted till major cities in last decade had to live with the reality of their water reservoirs drying up in the peak of summer months. This is the most important environmental resource is depleting really fast due to poor conservation plans and lack of judicious usage. The per capita availably of fresh water is going down due to diminishing ground water reserves and increasing population. The most neglected problem is agricultural land degradation, which is given a very low priority because the people most affected by it have more pressing problems like acute poverty and lack of access to basic needs; especially in poorer countries. Among all the resources, air is most exploited which is reflected in the levels of air pollution all across the world. Each and every sector in the producing economy largely depend on all these resources and their over exploitation has become a major challenge for sustainable development of world economy.
Will the incorporation of natural and environment in System of National Accounts solve the issues related to sustainability? The answer may not be straightforward. But there is no doubt that it will help rationalize production processes in an economic sense so that over exploitation of environment and natural resources can be curtailed for a better future.