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Business News/ Economy / India’s GDP growth makes the switch to eco-friendly path

India’s GDP growth makes the switch to eco-friendly path

A common criticism of GDP calculation is that it ignores cost of degradation of environment and, so, is short-sighted in its approach

Green GDP adjusts the conventionally calculated GDP for the environmental costs of economic growth (Photo: Mint)Premium
Green GDP adjusts the conventionally calculated GDP for the environmental costs of economic growth (Photo: Mint)

India’s “green gross domestic product" has turned a corner in the 21st century by growing faster than traditional GDP as the country took measures to cut carbon emissions, improve resource use efficiency and boost clean energy capacity, a recent Reserve Bank of India paper said.

While traditional GDP accelerated at an annual average pace of 6.27% and 6.61% in the 2000s and 2010s, the “green GDP" rose 6.34% and 6.71%, respectively. The trend had been the opposite in the past three decades of the 20th century, implying that the growth in that period was more damaging to the environment, Mint calculations based on the RBI paper showed.

Growth track
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Growth track

Green GDP adjusts the conventionally calculated GDP for the environmental costs of economic growth. It is less than GDP if economic growth is not eco-friendly and was around 6% lower in 2019, the last year covered in the paper. At the turn of the millennium, it was lower by around 8%. A smaller deficit now means India has been able to cut down on environmental losses.

However, a finer look shows that green growth slowed in the years before the pandemic as the normal GDP growth also slowed. The pace peaked at 8.51% in 2016 and dropped to 3.99% in 2019.

These first-of-its-kind estimates were published in the RBI’s October bulletin in a paper written by central bank staffers Anupam Prakash, Kaustav Sarkar and Amit Kumar. However, it does not reflect RBI’s views.

The authors suggest that India’s trajectory of green GDP has displayed an upward movement with visible improvements, particularly since 2012.

The green GDP formula starts with annual GDP at 2015 prices, from which it subtracts various damage costs to the environment each year while adding the expenditure by the government on environmental protection.

But since data is not available for all years, the authors use three different estimates—G1, G2 and G3. The first, G1, is available from 1971 to 2019 and involves subtracting only environmental damage indicators, such as carbon dioxide damage, energy and mineral depletion, and net forest depletion, from conventional GDP.

Particulate emissions damage costs are also subtracted from 1990 onwards to get G2.

The third measure, G3, became available from 2006 onwards, where it adds back to the Centre’s expenditure on environmental protection. This makes it the most comprehensive of the three measures.

The green GDP (G3) in 2019 stood at 165.9 trillion, while the conventional GDP at 2015 constant prices was 175.8 trillion.

(The GDP numbers used in the paper are based on World Bank data, which reports GDP in 2015 dollars).

In the years after independence, as the country focused on gaining an economic foothold, GDP growth often came at the cost of environmental damage. This is reflected in the green-GDP-to-conventional-GDP ratio’s downward trend through the 1970s, 1980s and 1990s.

However, since 2009, India’s green GDP ratio has mostly seen an upward trend, indicating a greater emphasis on maintaining a healthier balance between the country’s growth aspirations and environmental protection.

The ratio slid back in 2018 but remained higher than it was at the turn of the millennium.

A common criticism of how GDP is calculated is that it ignores the cost of degradation of the environment and, therefore, is short-sighted in its approach.

The United Nations first proposed the idea of green GDP in 1993. However, it failed to catch on as countries such as the US, China, Norway, Australia and Canada, which flirted with the idea, were spooked by the fact that the ‘environmentally-adjusted’ GDP numbers were far lower than the conventional GDP figures. This was because the formula only focused on deducting the cost of the depletion of natural resources.

Therefore, more recently, the statistical arm of the United Nations has been experimenting with a new kind of green GDP—one that includes both the positives (such as measures to protect the environment) and the negatives.

The RBI paper’s measure of G3 is more in line with this.

The paper suggested that a dedicated in-house group be formed in the ministry of environment, forest and climate change to provide such data periodically.

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Nandita Venkatesan
Nandita Venkatesan is a data journalist at Mint, and has a keen interest in understanding the usefulness of data in driving sound public discourse and informing policymaking. She has over four years of experience across journalism and health research. She previously worked with the Economic Times, Mumbai, and the Vaccine Confidence Project in the UK. An alumnus of the Indian Institute of Mass Communication, Nandita also pursued a masters’ in public policy from University of Oxford as Chevening-Weidenfeld Hoffmann scholar.
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Updated: 24 Oct 2022, 05:19 AM IST
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