Unveiling the Reality of Modified Green GDP

From Roaring Twenties to Green GDP: A Journey Through Finance and Sustainability

In 1929, the U.S. stock market crashed, triggering the Great Depression—a global economic disaster. The collapse wasn’t sudden; it brewed during the “Roaring Twenties,” a decade of post-World War I economic optimism. Factories thrived, people spent freely, and businesses soared.

However, this glittering prosperity masked deep issues. Investors increasingly bought stocks on borrowed money, paying only a fraction upfront. When stock prices fell, they couldn’t repay their loans. Panic set in, stocks were dumped, banks failed, and economies crumbled. Recovery took years, stretching into World War II.

Amid this chaos, U.S. policymakers struggled to quantify the economy’s performance. Enter Simon Kuznets, a Russian economist, who introduced the concept of Gross National Product (GNP). He measured the total goods and services produced by American companies, including those abroad. But Kuznets proposed tweaking it to focus solely on domestic production, birthing the now-famous Gross Domestic Product (GDP).

GDP became the global standard in 1944 at the Bretton Woods conference. It calculates the annual value of all goods and services produced within a nation. But Kuznets warned that GDP couldn’t capture everything. He famously stated, “The welfare of a nation can scarcely be inferred from a measure of national income.”

GDP reflects production and consumption but overlooks crucial factors like environmental damage, resource depletion, and overall well-being. Economist Diane Coyle aptly called it a “war-time metric,” useful in crises but insufficient to measure happiness in peacetime. It values a chair made from a cut tree but not the tree standing tall, offering shade and oxygen.

This shortcoming spurred nations to experiment with alternatives. Green GDP emerged as a solution, subtracting environmental costs like pollution and deforestation from traditional GDP. By factoring in these costs, governments gain an incentive to protect the environment.

Chhattisgarh recently took this concept further, becoming India’s first state to include the economic value of forests in its Green GDP calculations. This approach not only considers environmental costs but also highlights the benefits forests provide.

The idea of Green GDP isn’t new. Over 30 years ago, the United Nations proposed a methodology to calculate it. Countries like the U.S., China, and Norway attempted to implement it but faced challenges. Inconsistencies in valuation techniques made Norway abandon it. The U.S. dropped it when environmental costs weakened its GDP figures, and China stopped using it in 2005 after resistance from local governments.

To address these issues, the UN revised its approach, including positive environmental services like clean air and biodiversity. Chhattisgarh’s method aligns with this updated framework.

With 44% of its land covered in forests, Chhattisgarh depends heavily on its natural resources. The India State of Forest Report (ISFR) recently highlighted a rise in forest and tree cover, driven by conservation efforts. This prompted the state to adopt a modified GDP model.

However, problems remain. The ISFR defines forest cover as any area of at least one hectare with 10% or more tree canopy density. This broad definition often includes plantations like palm oil and rubber, which can harm biodiversity and disrupt ecosystems.

Plantations replacing natural forests pose a paradox: they count as forest cover but damage the environment. Ecologist MD Madhusudan summed it up: “If what replaces a forest after it is cut down is also termed a ‘forest,’ can there ever be forest loss?”

Tree planting isn’t always beneficial either. Introducing trees to grasslands or wetlands can harm native species, disrupt ecosystems, and wreck biodiversity. Even the type of tree matters. Mature, native trees absorb more carbon and support wildlife better than young or non-native species.

Flawed data collection further complicates the issue. Governments often use satellite imagery at specific times, which can mask environmental degradation like stubble burning. This selective monitoring creates an incomplete picture.

Additionally, Green GDP metrics can be manipulated. Governments may tout them to secure international funding or appear eco-friendly while approving industrial projects that harm the environment. Some Indian states have used such metrics to justify controversial initiatives like industrial corridors.

Although Chhattisgarh’s intentions seem genuine, a lack of clear methodology leaves room for misuse by others. Without a standardized framework, Green GDP risks becoming a buzzword rather than a tool for genuine progress.

Governments must revisit the concept, establishing clear guidelines on what to include and exclude. Transparency in data collection and calculations is equally crucial, ensuring trust and accountability.

Green GDP should reflect both progress and loss—a mirror of reality, not a comforting illusion.