Green Accounting: Reshaping National Income Accounting System

The System of National Accounts (SNA), as defined by the United Nations and used internationally, has been subjected to severe criticism that it ignores the value of resources (on and in the ground), as well as the value of environmental degradation. Very often, policymakers either ignore or destroy the environment, in the name of economic development. The concept of Green Accounting, which has been developed to address the above shortcoming of the traditional national accounting, is based on the principle that, a proper assessment of a country's income and wealth needs to account for the contributions of activities made by all sectors of the economy and their impact on resource depletion and degradation. Despite a number of difficulties and controversies, there seems to be a growing interest in modifying national income accounting systems to promote understanding of the links between the economy and the environment. This article focuses on the initiatives taken to modify or reshape the national accounting system. Description - Some countries are rich, some are poor and yet some others are in between. How do we measure the performance of an economy? The performance of an economy is related to the level of production (of goods and services) or total economic activity. Measures of national income and output are used in economics to estimate the total value of production in an economy. The standard measures of income and output are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), and Net National Income (NNI). In India, the Central Statistical Organization (CSO) has been estimating the national income. National income estimates date back to the late 17th century, but it was only in the half-century since the Second World War that economic accounts developed in their present form, becoming an indispensable tools for macroeconomic analysis, projections and policy formulation, The System of National Accounts (SNA) is the set of accounts which national governments compile routinely to track the activity of their economies. SNA data are used to calculate major economic indicators including GDP, GNP, savings rates, and trade balance figures. The data underlying these aggregate indicators are also used for a wide range of less publicized but equally valuable policy analysis and economic monitoring purposes. The GDP calculated, as per the guidelines provided by SNA, was never intended to measure well-being. Its key flaw is that it fails to distinguish between costs and benefits, productive activities and destructive ones, or sustainable and unsustainable practices. For example, GDP regards pollution and natural resource depletion as an economic gain, while social activities like care for the elderly and children get a zero-rating. Natural and `man-made' disasters, crime and accidents, are seen as positive contributors to GDP since they generate production but do not add to society's well-being. GDP is not adjusted to account for harm, resulting from industrial, household and vehicle emissions, or waste disposal. Instead, it is assumed that all monetary transactions add to social well-being. But we can't assume that things are improving just because more money is being spent!