Sustainability and comprehensive wealth accounting: the case of India

Abstract

The criterion of non-declining comprehensive wealth per capita used to determine sustainability of economic growth indicates that growth in most countries is weakly sustainable, as decline in natural capital is more than offset by increase in anthropogenic capital. This paper examines the sustainability of economic growth in India by estimating the trend in comprehensive wealth during 1975–2013, utilizing recent remote sensing native forest cover data in order to obtain more accurate valuation of natural capital. This is the first study to construct wealth estimates for a period spanning four decades, apart from adopting hybrid methodology for estimating certain wealth components such as subsoil assets. We find that the composition of India’s wealth is biased toward produced capital, although given the large working-age population, India holds immense potential for human capital building. The quality of natural capital is also deteriorating due to increasing carbon emissions and particulate pollution. Although we find that growth in India is weakly sustainable, it is based on the assumption of perfect substitutability of different capital forms, which is questionable. Loss of natural forests and accompanying native biodiversity raises serious concerns of the threat it poses to future generations. Our sensitivity analysis based on variation in the discount rate also suggests cautious use of natural resources.