Environmental Accounting in India

Does the present income accounting system represent the real value of the wealth of the economy? If not, how do we evaluate the performance economy? How can the present evaluation method accommodate different aspects of the economy, society, and the environment? If these aspects are not considered in the evaluation process, can it be justified socially or environmentally? In this paper, we discuss the limitations of conventional income accounting, recent developments in environmental accounting at the international level, the progress and challenges of environmental accounting in India, and the way forward.

The growing thrust on sustainable development is getting reflected in national income accounting. Following the initiatives of the United Nations System of National Accounts (UNSNA), several countries have taken initiatives for environmental accounting. A large body of literature on sustainable development which emphasises “natural resource stocks and environmental quality” and challenges the existing national accounts methodologies is emerging (Arrow et al 2010: 1). Sustainable development, as defined by the Brundtland Commission report in 1987, focuses on both inter-generational and intra-generational human needs. The new paradigm has gone beyond human needs and changed the focus on human well-being. Several researchers have argued that human well-being should be the basis of economic evaluation (Dasgupta 2012a, 2013; NSO 2013; Arrow et al 2010) where well-being is categorised as current and intergenerational.

Intergenerational well-being is dependent on the stocks of capital assets, considered as wealth, available in an economy. Wealth comprises produced capital, human capital, and natural capital (Dasgupta 2012a, 2012b). Arrow et al (2010) define comprehensive wealth as the social value of the economy's productive base which comprises reproducible capital, human capital, natural capital, population, public knowledge, and formal and informal institutions. Intergenerational well-being increases only if the wealth of an economy increases. Sustainable development can be defined as non-declining wealth. Atkinson in 1993 proposed to use wealth as a yardstick of sustainable development (Dasgupta 2012b; Arrow et al 2010). The stock of natural capital is a major component of national wealth. Our accounting framework must not miss this component while estimating the national accounts. For this purpose, environmental accounting is a necessary step that should not be avoided by any government.