Green Accounts for the Economy

A question on the occasion of World Environment Day celebrated on Tuesday: would you be satisfied with a company that published its profit and loss account but its not balance sheets? But that is precisely what most governments do when they present information about their national economies.
Gross Domestic Product (GDP) is undoubtedly a very useful indicator of the flow of economic activity in a country, and there is a good why economists track it so closely. But it should be only part of the story. GDP is broadly akin to a corporate profit and loss statement. But companies also provide a snapshot of their asset and liabilities in the balance sheets. We usually do not have such measures of stock at the national level.
An economy runs down its stock of capital in the process of producing goods and services. Some of that capital can be replaced by new investment. Some is irreplaceable natural capital such as ore reserves, underground water, forests. The stock of human capital can be increased if people are healthier and better educated. Liabilities build up as well. Think about polluted air, poisoned wells and eroded land.
Several countries have now begun attempts to restate their national economic accounts taking the usage of natural capital into account. India is one of them. As minister of environment and forests, Jairam Ramesh set up a committee to design green national accounts. The committee is headed by Partha Dasgupta, perhaps the best economist in the world to undertake such a task. The goal is to have the first set of national green accounts for 2015.
Accounting for depletion of natural resources should not be used as an argument against economic growth, but it can undoubtedly give policymakers a better picture about the quality of growth is an economy. Our understanding of economic strength can get enriched.
For example, the World Bank has developed a new measure called adjusted net savings, or “the true rate of savings in an economy after taking into account investments in human capital, depletion of natural resources and damage caused by pollution”.
According to the latest available data, for 2008, India had a savings rate of 38% of GDP, but the number falls to 24.64%, once we consider adjusted net savings. That is still impressive by international standards. Some countries- especially rich countries in Africa and west Asia-actually have negative adjusted savings rate, given the rate at which they are using natural resources. But the green data on savings does give us a good idea about the effects of natural resource depletion and pollution on our level of economic wealth.