Two recent developments are likely to powerfully impact the way we look at economic growth and seek to measure it. The Nobel prize for economics acknowledges the work of William Nordhaus (one of the two to receive it this year) in creating a model that describes the interplay of the economy and the climate to find out how the two have evolved. His model can be used to examine the consequences of climate policy interventions like carbon taxes.

The other development is the latest assessment of the United Nations’ Intergovernmental Panel on Climate Change. It paints a gloomy picture and calls for a sense of urgency — act here and now to restrain further global warming to avoid the risk of permanent damage to the planet and life on it.

What the Nobel does is to take concerns about the way we pursue economic growth and measure it, long the hobby horse of “green” economists, from the academic periphery and place it within the discipline’s mainstream. Simply put, if the quality or pace of economic growth imposes a severe toll on the environment, then the intrinsic value of such growth has to be reassessed.

As it happens, simultaneously media reports have appeared on how academic heavyweight and former Chief Economic Adviser Arvind Subramanian has cautioned the estimates committee of Parliament on the need to correctly interpret GDP (gross domestic product). It is most frequently used to measure growth but has many deficiencies. It does not deserve the sanctity that is accorded to it. So we should be careful how we use and propagate GDP figures. It is not a catch all and, for example, cannot be used for environmental accounting.

Climate change threat

Both national and multilateral agencies are aware of the ravages already being wreaked and threatened by climate change and there is an attempt to quantify it. Rising temperatures and changing rainfall patterns can reduce India’s GDP by 2.8 per cent and lower living standards of nearly half the population by 2050, according to a World Bank report. This is the first time undesirable outcomes of gradual climate change have been tabulated for the region.

Further, the Agriculture Ministry has estimated that extreme weather conditions are costing India $9-10 billion annually by impacting agricultural productivity. Hence the need to adapt and change farming practices.

But the point is that despite all the foregoing, we continue to calculate GDP in a globally accepted conventional way without letting climate change imperatives affect our calculations and, more important, change policy so as to mitigate the consequences of climate change.

The need to change will be clear from the following scenarios. After we have come to a particular value for the economy’s agricultural output in a given year, there is a need to ask how water intensive that output has been. If two countries produce the same value of agricultural output but one uses more water than the other, then how can that be captured in computations? Relatedly, if there is a fall in the growth of agricultural output in a particular year but ground water stock has not been depleted to the extent it was in the previous year then that positive development should get reflected in the value of output.

Perhaps the most critical area of immediate concern is the health cost of environmental pollution. Right now Delhi is again in the grip of a severe deterioration in its air quality because of crop stubble being burned with impunity by farmers. The decline in air quality invariably leads to a rise in respiratory ailments, apart from other longer term illnesses.

Residents of Delhi have a high level of per capita income but what good is it if a good part of it (higher than in the rest of the country) goes in meeting health expenditure. Can, say, the value of industrial output which is a part of the GDP figure be adjusted for the level of disease burden even as it is being computed?

There is of course the classic case of hydroelectric power projects. Export of power is a significant source of income for hill regions. But we are now all keenly aware of the environmental degradation that the construction of hydropower projects causes — disruption of habitat for animal and plant life, soil erosion, landslides, flash floods and more. Instead of realising that hydro power is not as green as it looks initially when its generation leads to a commensurate cut in the burning of fossil fuel for power generation, can not the costs to be incurred down the line be built into the initial output estimates themselves?

All this is particularly relevant in India today as the powers that be take great credit for India being among the fastest growing economies in the world.

But India also suffers from a high death and disability burden among comparable countries. Ironically, the value addition in the healthcare sector, which goes up when people fall ill more and spend more, adds to the level of GDP.

The writer is a senior journalist

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