12/11/2013

1

Framework for Green National Accounts in India

Rakesh Kumar MauryaDirector

2‐12‐2013

Social Statistics DivisionCentral Statistics Office

National Statistical OrganizationMinistry of Statistics & Programme Implementation

New Delhi

Environmental and Natural Resource Accounting in Indiais in developing stage.p g g

The entire process of Environmental and NaturalResource Accounting involves 3 steps:◦ Physical Accounting◦ Monetary Valuation and

◦ Integration with Economic Accounting.

I d t d l t i if th d l◦ In order to develop sector‐wise uniform methodologyfor Natural Resource Accounting, the Ministrycommissioned 8 studies on NRA to specializedinstitutes.

12/11/2013

2

A Synthesis Report based on 8 studies has since beenprepared under the guidance of a Technical AdvisoryCommittee (TAC) to recommend sector wise

h d l f lmethodology for environmental accounting.

The TAC recommended the preparation of a NationalAccounting Matrix that would include environmentalaccounts.

Subsequently, in accordance with the direction of Hon’blePrime Minister an Expert Group under the Chairmanship ofPrime Minister, an Expert Group under the Chairmanship ofProfessor Sir Partha Dasgupta, Emeritus Professor, Universityof Cambridge, UK was set up in 2011 to develop a frameworkof green national accounts and prepare a roadmap for India toimplement the framework. The Group held three meetings.

The Group submitted its Report in March, 2013. AnThe Group submitted its Report in March, 0 3. AnInternational Workshop was held during 5‐6 April, 2013 in NewDelhi to discuss the Report. The Workshop was inauguratedand the Report unveiled by Hon’ble Prime Minister

12/11/2013

3

Chapter 2 of the report and its appendices deal with theconceptual foundations of National Accounts. The conceptualframework lays out the conditions for sustainability under theassumption that information is not a serious constraint forassumption that information is not a serious constraint forevaluating and aggregating the diverse elements that compose aneconomy.

It provides an outline for what would ideally be needed for acomprehensive set of national accounts.

The Report’s central conclusion is that, adjusting for thepopulation, the coin on the basis of which economic evaluationshould be conducted is a comprehensive notion of wealth(adjusted for the distribution of wealth in the economy) and noton GDP and nor on the adhoc indicators of human well‐being suchas HDI.

In terms of wealth, it can means that “the social value of aneconomy’s stock of capital assets, comprising

◦ Reproducible Capital (commonly known as “ manufactured capital”: roads,ports, cables, building machinery, equipment and so forth)

◦ Human Capital (population size and composition, education, health), and

◦ Natural Capital (ecosystem, land, sub‐soil resources and so on )

In particular, Changes in the circumstances of an economyshould be judged on the basis of their effect on the economy’swealth per capita, adjusted for the distribution of wealth.wealth per capita, adjusted for the distribution of wealth.

In other words, wealth per capita tracks intergenerational well‐being averaged across the generation exactly: the formerincreases over a period of time if and only if the latter increaseover that same period of time.

12/11/2013

4

“Intergenerational well‐being” means that a numerical index of thewell‐beings of present and future people; and by sustainabledevelopment.

In other words, Economic development is sustained over a periodof time if during the period intergenerational well‐being does notdecline.

Appendix 4 of the report shows that there is a close connection

between intergenerational well‐being and wealth and that shadowprices provide the link.prices provide the link.

Its means that wealth and intergenerational well‐being track oneanother: if any brief interval of time wealth increases if and only ifintergenerational well‐being increases. [Proposition 1 of the report]

In other words, an economy’s development is sustainable over anybrief interval of time if and only if its wealth increases over theinterval. [Proposition 2 of the report]

In Appendix 5, the report shows that neither GDP nor HDI

reflects an economy wealth i.e., neither GDP per head nor HDI canserve effectively in economic evaluation by stating that “Wealth isthe appropriate criterion in both sustainability and policyanalyses.[Proposition 4 of the report]

By considering the wealth per capita as the sustainability and policy By considering the wealth per capita as the sustainability and policycriterion, the Proposition 4 can be restated as “Intergenerationalwell‐being averaged over the generations increases over a period oftime if and only if per capita net aggregate investment over theperiod is positive”. [Proposition 7 of the report]‐ prove given in theAppendix 4 (section A 4.5)

12/11/2013

5

Proposition 6 hints the possibility that Net Domestic Product(NDP) is a significant statistic in economic evaluation.

NDP=GDP‐ capital depreciation

That means in a closed economy

NDP =consumption +net aggregate investment (value of netchanges the economy’s capital assets)

Therefore Proposition 2 can be recast as Proposition 8

“I t ti ll b i d th ti“Intergeneration well‐being averaged over the generationsincreases over a brief interval of time if and only if aggregateconsumption per capita is less than net domestic product percapita.

Propositions 7 and 8 embody the ethical significance of netdomestic product.

That means consumption per head must not exceed NDP per headif development is to be sustainable.

Therefore proposition 2 and 8 reveals the connection between aneconomy’s income and capital accounts. Proposition 6 hints thepossibility that Net Domestic Product (NDP) is a significantstatistic in economic evaluation.

NDP=GDP capital depreciation NDP=GDP‐ capital depreciation

12/11/2013

6

In order to measure whether a country is growing sustainably,Chapter II of the report argued for the need to track changes inwealth or per capita, where the definition of wealth takesaccount of different forms of capital including natural capitalaccount of different forms of capital, including natural capital.Thus, there is sustainable development if net aggregateinvestment per capita is positive or, equivalently, net domesticproduct per capita exceeds consumption per capita.

The System of National Accounts (SNA) allows us to estimatethese economic aggregates.

There are three economic aggregates that are important foraccounting for the environment: Net Domestic Product,Consumption Expenditures and Aggregate Net Investment.

One measure of the ability for a country to grow sustainably iswhether its Net Domestic Product (NDP) per capita exceeds itsconsumption per capita on a continual basis.

Net Domestic Product is a standard economic aggregate and ismeasured as GDP minus depreciation on a country’s capital.Depreciation is a business accounting term while in nationalaccounts the related term is Consumption of Fixed Capital (CFC).

CFC in the existing SNA does not include depletion of environmental assetsenvironmental assets.

12/11/2013

7

The National Accounts Statistics (NAS) incorporatesenvironmental goods and services in multiple ways within thecurrent and accumulation accounts.

While there is a lot to be done in terms of strengthening the While there is a lot to be done in terms of strengthening theenvironmental components of the NAS.

GDP does not account for depreciation of natural capital stock asa result of economic exploitation and environmentaldegradation. Details in next slide

In other words, GDP may increase even when the stock ofnatural capital such as minerals soils and forests is beingnatural capital, such as minerals, soils and forests, is beingdepleted.

The NDP would more correctly measure these changes in naturalstocks; however, CFC, the measure of depreciation, is currentlynot calculated for non‐produced assets such as land, mineral andother deposits.

Environmental Factors and variablesStatus regarding inclusion in NAS

Reasons for non‐inclusion

LAND Land Improvement Included in GFCF

Change in Land UseNot Included (Dataavailable)

Depletion/Degradation of land Not IncludedData need to be updated in National

Table 1: Environmental goods and services not included in India’s National Accounts

Depletion/Degradation of land Not IncludedBureau of soil survey (NBSS)

Degradation of Soil Not Included Data need to be updated NBSS

Impact of Disasters Not Included Non‐availability of complete data

Land Use, Cover Area, and YieldNot Included (Dataavailable)

use patternNot Included (Dataavailable)

Productivity of Land Not IncludedUpdating of data in State Land Use Board(SLUB) will be required

R l E i N I l d dData available but the same to be

Real Estate prices Not IncludedData available but the same to bedisseminated by Registration offices

Cropping Pattern Not IncludedUpdating of data in Directorate ofEconomics & Statistics at State level will berequired

Output prices/ revenues IncludedGross/Net sown area IncludedSoil depth, colour, salinity and drainage (Soilerosion, run‐off and soil loss under the treatedand un‐treated micro‐watersheds, soil lossprevented by dense forests)

Not IncludedData need to be updated in NBSS. Data onsoil loss prevented by dense forests are notavailable.

12/11/2013

8

Environmental Factors and variablesStatus regarding inclusion in 

NASReasons for non‐inclusion

Forest Extraction of minerals in forests Not Included (Data available)

cover/Forest cover change Not Included (Data available)

Accumulation of timber due to natural regeneration/natural growth

Not IncludedRegular and complete data are not available

Loss in timber volume due to insects, pests and diseases  Not Included  No data available after 1972

Animal grazing Not Included Data not available regularly

Shift in cultivation Not Included Data available, but more details are requiredrequired

Carbon stock Not Included (Data available)

Asset valuation of forest & livestock Not Included  Data not available

Deforestation Not Included (Data available)

Land area under forest Not Included (Data available)

Physical volume of timber Included

NTFPs Included

Carbon sequestration potential Not Included  Data not available

Area of Sacred  Not Included  Data not available

Medicinal Plants Included

Volume harvested for timber and fuel wood Included

Volume of forest stock affected by forest fire Included

Area regenerated/Area afforested Not Included (Data available)

Mangrove cover Not Included (Data available)

Biodiversity Not Included  Limited data available

Biomass: Litter Deadwood Solid organic carbon (below ground and above 

ground)/Impact of worms

Not Included (Some data are available)

Environmental Factors and variablesStatus regarding inclusion in 

NAS Reasons for non‐inclusion

MINERALSDepletion of Minerals Not Included (Data available)

Pollutant loads from mining Not Included  Data not available

WATER* Surface and ground water quality

Not Included  Limited Data available

BOD, COD and SS Not Included Data generated through primary surveys in case studies need to be updated

Sedimentation in water ways and their treatment costs

Not Included  No reliable data available

AIR CO2 Not Included  Limited data available

SO2 Not Included  Limited data available

SPM Not Included  Limited data available

N2O, Methane, HFCs, SF6 Not Included Limited data available

Carbon monoxide Not Included  Limited data available

Nitrogen dioxide Not Included  Limited data available

Fuel Consumption Not Included Data available through ASI, but not on a regular basis

Ozone depleting substance; CFCs, Halgon, CTC

Not Included (Production/consumption data available)

12/11/2013

9

The System of Environmental–Economic Accounting (SEEA)Central Framework is a multi‐purpose framework that describesthe interactions between the economy and the environment, thestocks and changes in stocks of environmental assetsstocks and changes in stocks of environmental assets.

Central Framework consists of three parts:i. physical flows of materials and energy within the economy and between

the economy and the environment;

ii. stocks of environmental assets and changes in these stocks; and

iii. economic activity and transactions related to the environment.

The classification of different environmental assets within SEEACentral Framework is presented in Table (next slide)

1 Mineral and Energy resources1.1 Oil Resources1.2 Natural gas resources1.3 Coal and peat resources1.4 Non‐metallic mineral resources (excluding coal and peat resources)

Table :  SEEA Central Framework classification of environmental assets

( g p )1.5 Metallic mineral resources2 Land3 Soil resources4 Timber resources4.1 Cultivated timber resources4.2 Natural timber resources5 Aquatic resources5.1 Cultivated aquatic resources5.2 Natural aquatic resources6 Other biological resources (excluding timber resources and aquatic

resources)

7 Water resources7.1 Surface Water7.2 Groundwater7.3 Soil water

12/11/2013

10

The Central Framework (SEEA) organizes and integrates theinformation of the various stocks and flows of the economy andthe environment in a series of tables and accounts. These tablesand accounts can be linked to relevant employmentand accounts can be linked to relevant employment,demographic and social information.

The Central Framework(SEEA) comprises the following types oftables and accounts :Supply and use tables in physical and monetary terms showing flows ofnatural inputs, products and residuals;

Asset accounts for individual environmental assets in physical and monetaryterms showing the stock of environmental assets at the beginning and endof each accounting period and the changes in the stock;

A sequence of economic accounts that highlights depletion adjustedeconomic aggregates; and

Functional accounts which record transactions and other information abouteconomic activities undertaken for environmental purposes.

Considering the Indian scenario and SEEA Framework,Expert Group has recommended that:

1. Prepare PSUTs and Asset Accounts for (i) land, (ii)forest and timber,(iii)minerals This can be completed within a year or so(iii)minerals. This can be completed within a year or so.

2. Develop a medium‐term plan (extending to a period of, say, 5 years) thatwould include (i) the preparation of Monetary and Supply Use Tables(MSUT) for land, forest and timber, and minerals for implementing the SEEAin those sectors; (ii) the development of PSUTs and Asset Accounts for soil,water, carbon, and energy; and (iii) planning and collecting data for thepurposes of valuing changes in water, carbon, and energy sectors. We notehere that MSUTs for minerals can probably be prepared more quickly thanthose for the other sub‐sectors because of the availability of market pricesfor minerals and data on extraction costs.

3. Develop a medium‐term plan for estimating net domestic product (NDP). Inaddition to adjusting for depletion of reproducible and the types of naturalcapital that were identified in (1)‐(2) above, the move would requiresubtracting defensive expenditure on the environment from GDP andidentifying better ways to account for human capital as investment.

12/11/2013

11

4. Initiate exploratory research in two areas: (i) the development of a morecomplete set of national accounts, including a balance sheet for thenation; and (ii) the identification of principles for valuing and periodicallycollecting and compiling data on environmental assets and flows. Thiswould culminate in a valuation‐and‐data manual that can be used for

ki dj h SNAmaking adjustments to the SNA.

5. Develop a long‐term plan (extending, say, to a period of ten years) for (i)institutionalizing mechanisms for periodic collection of data and fororganizing periodic studies and surveys for environmental accounts; (ii)collecting and compiling data for valuation and preparation of MSUTs foraquatic resources, air, and biodiversity.

6. The Planning Commission could fruitfully put in place a mechanism forestimating shadow prices and their natural ranges.

Taking in to account the recommendation of the ExpertGroup and the suggestions emerged out of the workshopheld in April 2013, the following steps of implementationf h b d f d fof GNA have been suggested for consideration of

National Statistical Commission:

1. Preparation of Asset Accounts in forest and land on pilot basis.2. Preparation of PSUTs for those sub‐sectors of environment

where data readily available. Fairly good amount of relateddata already do exist in the Government set up and what isrequired is to pool them together for preparation of completetables.

3. PSUTs for forest sector and land sector can be taken in the firstinstance.

12/11/2013

12

4. Dialogue with State/UT Governments even in case of selectedsectors(not a closed list) on which work has to start as the tables totake care of requirements of State/UTs and also for available of datawith State/UTs.

5. On issues of additional data needs both central Ministries andStates/UTs to be taken on Board to cope up with the challenges.Data need assessment to be done for different sectors.

6. Other Sectors were even physical data are not available may betaken up later after ensuing data flow and also various related issuesto be worked out.

7. Planning for converting studies in to a regular data flow system.

8. Monitoring accounting exercise to be done for those sectors forwhich PSUTs are made before this valuation studies are to beundertaken.

9. Continuing discussion and dialogue with Central Ministries‐Ministryof Agriculture(Land and Soil), Department of Animal Husbandry(LiveStock), Ministry of Water Resources(Water), Ministry of Environmentand Forest(Forest, timber, carbon, bio‐diversity, Air), Ministry ofMines(Minerals), Central Electricity Authority and Ministry ofMines(Minerals), Central Electricity Authority and Ministry ofPower(Energy) with regard to pooling of existing data available withthem and other sources and for putting in place a system forcollection of new data sets.

10. Consultations with States/UTs in order to take into account theirrequirements for Environmental Accounting and also to cope up withthe challenges with regard to collection of new data sets.g g

11. Preparation of action plan for implementation and carrying outresearch studies to scale up for national level figures and valuationpurposes.

12/11/2013

13

THANK YOU