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The true cost of the obsession with GDP growth

30th May 2016

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Shankar Sharma writes: It’s evident that an economic policy focusing on high GDP growth rate has not only not resulted in the elimination of poverty, but is certainly leading to accelerated depletion of our natural resources and to the unacceptable level of pollution of land, water and air, while contributing to the global warming phenomenon.

Shankar Sharma

In an article in The Hindu of 14.5.2016, C. Rangarajan , former Governor, Reserve Bank of India has said: “The “potential” to grow at 8 to 9 per cent at least for a decade exists. We have to make it happen.”  The successive governments in the country have been focusing on such a high GDP growth rate, as the road map to eliminate poverty in the country.   After decades of such focus on high GDP growth rate, it has become essential to take a stock of the experience for the society as a whole. Instead, the question should be whether such a high growth year after year is desirable or whether it is in the true interest of our communities.

The country has been recording high GDP growth rate for many years.  Since 1996 onwards the country has logged a high average GDP growth of more than 6% till 2005, and more than 7% since 2006 onwards (World Bank: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG).  Such a high growth year after year can lead to the multiplication of the size of our economy as shown in the table below.  Whereas a compounded annual growth rate (CAGR) of 4% of GDP will take about 40 years to increase the size of our economy by 4 times, 10% CAGR of GDP will take only 18 years.

Time taken for the size of economy to get multiplied at constant CAGR

If the “potential to grow at 8 to 9 per cent at least for a decade” should be made to happen, as C. Rangarajan has suggested, the country’s economy can become double in 9 to 10 years. The doubling of economy will have many issues to bother the society, besides doubling the “wealth” of the country.  The primary question should be whether this  doubling of the “wealth” comes at a huge cost to some sections of our society, and how much.

A sustained high GDP growth rate will mean the manufacture of products and provision of services at an unprecedented pace leading to: setting up of more factories/ manufacturing facilities; consumption of large quantities of raw materials such as iron, steel, cement, chemicals etc.; increasing an unsustainable demand for natural resources such as land, water, minerals, timber etc.; acute pressure on the Government to divert agricultural /forest lands; huge demand for various forms of energy (petroleum products, coal, electricity etc.); accelerated urban migration; clamour for more of airports, air lines, hotels, shopping malls, private vehicles, express highways etc. Vast increase in each of these activities, while increasing the total GHG emissions, will also add up to reduce the overall ability of natural carbon sinks such as forests to absorb GHG emissions. There will also be increased pollution of land, air and water along with huge issues of managing the solid, liquid and gaseous wastes.

At a time when our natural resources are getting depleted at an alarming rate, and when the pollution of air, water and land have become major health concerns, the above scenario cannot be ignored any longer, and hence needs a due diligence.

The consequential social and environmental impacts of high GDP growth rate in China, Indonesia, Malaysia, Bolivia etc. for many years continuously should establish that the concerns are similar everywhere, whereas the poverty has not been eliminated fully.

The net effect associated with high GDP growth target will be that the total GHG emissions will increase by considerable margin, even if we adopt most energy efficient processes, and the reduced emission intensity of the state’s GDP is feasible. The desirability of such high GDP growth rate scenario to our society needs to be questioned in the context that the increase in total GHG emissions will be closely associated with the increased pollution of air, land and water; and the increased denial of access to natural resources to the vulnerable sections of the society. Reduced area and density of forests, dammed rivers, forced displacements which will all be the consequences of a frenetic 8 – 9% GDP growth are bound to impact the vulnerable sections of our society adversely. Since the vulnerable sections of the society are also the most impacted lot due to climate change, the true relevance of such high GDP growth to our communities need to be questioned with a rational approach.

A quick look at the possible impact of sustained high GDP growth on the critical sectors of the Indian economy can reveal a disturbing trend. The transport sector will demand much higher consumption of energy such as diesel, petroleum and LNG. These products which already have about 80% import content can only increase with disastrous consequences on energy security. The pollution loading of vastly increased consumption of petroleum products, which has given rise to concerns in urban areas already, is likely to reach extremely unhealthy levels. Along with increased GHG emissions and much higher levels of suspended particulate matter, the pressure on the transportation infrastructure can become unmanageable. Increased use of private passenger vehicles, which is already a huge concern in urban areas, will escalate to choke our roads and lungs.  Vastly increased industrial activities, as a consequence of high GDP growth rate, will put unbearable demand on land, fresh water, energy and other raw materials. Such a demand on land (such as in SEZs, coastal industrial corridors, large size coal power plants, nuclear power parks, IT&BT parks etc.) have already given rise to a lot of concerns to social and health scientists, and already has witnessed social upheavals as in Narmada valley, Singur in West Bengal, Niyamgiri Hills in Orissa etc.. Under such a scenario the industrial sector, which is already responsible for about 21% of GHG emissions in the country, will contribute hugely to the increase in total GHG emissions. Similarly, high GDP growth rate will lead to steep increase in demand for building activities in the form of factories, transportation infrastructure, offices, hotels, airports etc. which in turn will put huge demand for construction materials and energy. In this scenario can the increase in GHG emissions be contained adequately?

The most telling impact of frenetic economic growth over the next 20 years will be on forests, rivers and other natural resources, which in turn will lead to reduced capacity of nature’s carbon sinks. As against National Forest Policy target of 33% of forests & tree cover, the country has less than 20% of the same, whereas the forests in tropical countries are considered to be very important sinks of CO₂. The demand for additional lands and minerals for the increased activities in all the above mentioned sectors will further reduce the forest & tree cover, which in turn will severely impact the availability of fresh water and on the nature’s ability to absorb GHGs. The impact of vastly reduced forest & tree cover on human health and on all aspects of our society is well known, and hence requires no detailed elaboration. Whereas the increased economic activities associated with high GDP growth rate will certainly result in vastly increased GHG emissions, the same will also reduce the ability of forest & tree cover to absorb GHG emissions from the atmosphere. In this scenario it is anybody’s guess as to how the net GHG emissions can be reduced to an acceptable level.

The base line assumption (in Integrated Energy Policy of the erstwhile Planning Commission) that the country needs to sustain an economic growth of 8 – 9 % over next 20 years to eradicate poverty and to meet its human development goals will lead to very many intractable problems for the society from social and environmental perspectives. Such a high growth rate has never been found necessary in developed economies, where even at the highest growth period they are reported to have registered only 3-4 % growth. The so called “trickle down” benefits to vulnerable sections of our society through 8-9 % growth will be negligible as compared to the all round benefits associated with inclusive growth of a much reduced rate, say 3-4%, if we harness our natural resources responsibly and equitably. Hence the obsession with high GDP growth rate target should be considered against a paradigm shift in our developmental objective, which will give priority for inclusive growth aimed at sustainable and responsible use of natural resources.

There is the critical need to appreciate the fact that there is a limit to the nature’s ability to support human activities / desire. Such a demand on the nature must be carefully managed, which is not possible if we set a target a high GDP growth rate year after year for a huge population, which is growing every year.  The consequences of high GDP growth rate will result in depriving the weaker sections of the society even the access to natural resources (such as to the forests, rivers and ocean), while driving the fragile environment to a point of no return. Does our society need such an eventuality? Is this what we want from Climate Change perspective?

The continued economic policy of high GDP growth rate by successive governments should be reviewed keeping in view the following issues:

1. Air pollution in India is so bad that it kills half a million people every year.
2. Despite a high GDP growth rate since 1996, about 30% of the population in the country are reported to be below poverty line.

In a business as usual scenario

1. It is projected that about 60% of all the buildings we are likely to see in the country by 2050 are yet to be built;
2. Beyond 2050 at the global level the cities are projected to account for more than 60% of natural resources, energy and pollutants;
3. India’s electricity consumption is projected to increase by 4 times by 2050.

A World Bank report of June 5, 2013 has highlighted how the environment has suffered in India consequent to past decade of rapid economic growth. The report with the title “Diagnostic Assessment of Select Environmental Challenges, Economic Growth and Environmental Sustainability: What Are the Trade offs?” has many revelations of critical importance to the future of our communities; provided our leaders take cognizance of it. Salient features of this report are as follows:

• Although the past decade of rapid economic growth has brought many benefits to India, the environment has suffered, exposing the population to serious air and water pollution.
• The report finds that environmental degradation costs India $80 billion per year or 5.7% of its economy.
• Green growth strategies are needed to promote sustainable growth and to break the pattern of environmental degradation and natural resource depletion. Emission reductions can be achieved with minimal cost to GDP.
• In this context it can be added that in the medium to long term such emission reductions can even add to GDP through positive feedback impacts.
• Simultaneously, poverty remains both a cause and consequence of resource degradation: agricultural yields are lower on degraded lands, and forests and grasslands are depleted as livelihood resources decline. To subsist, the poor are compelled to mine and overuse the limited resources available to them, creating a downward spiral of impoverishment and environmental degradation.
• Environmental sustainability could become the next major challenge as India surges along its projected growth trajectory.
• A low-emission, resource-efficient greening of the economy should be possible at a very low cost in terms of GDP growth. While a more aggressive low-emission strategy comes at a slightly higher price tag for the economy it promises to deliver greater benefits.
• For an environmentally sustainable future, India needs to correctly value its natural resources, and ecosystem services to better inform policy and decision-making The report says Green growth is eminently feasible: Green growth is necessary; Green growth is affordable; Green growth is desirable; Green growth is measurable. It can be argued that without green growth, India’s future development however measured will be at great risk.
• A low-emission, resource-efficient greening of the economy should be possible at a very low cost in terms of GDP growth. A more aggressive low-emission strategy comes at a slightly higher price tag for the economy while delivering greater benefits.
• Emissions reduction would have a minimal impact on GDP which would be offset by savings through improving health while substantially reducing carbon emissions. A 10% particulate emission reduction will lower GDP only modestly. GDP will be about $46 billion lower in 2030 due to interventions, representing a loss of 0.3 % compared to business as usual. A 30% particulate emission on the other hand reduction will lower GDP by about $97 billion, or 0.7 %.  GDP growth rate will be negligibly reduced by about 0.02 to 0.04% in both scenarios. There will be significant health benefits under both scenarios which will more than compensate for the projected GDP loss.
• The savings from reduced health damages will range from $105 billion in the 30% case and by $24 billion with a 10% reduction.  Under both the scenarios, another important benefit would be a substantial reduction in CO₂ as a co-benefit which has a potential of being monetized.
• Taken together the CO₂ reduction and the health benefits will be greater than the loss of GDP in both cases.

It should become clear from these discussions that, whereas it is evident that an economic policy focusing on high GDP growth rate year after year has not resulted in the elimination of poverty, it is certainly leading to accelerated depletion of our natural resources and to the unacceptable level of pollution of land, water and air, while certainly contributing to global warming phenomenon.  Keeping in view the need to contain the global warming and the vastly increasing pollution loading, the relevance of a high GDP growth rate paradigm for the country needs to be effectively discussed at the societal level from the perspective of overall welfare of every section of our society.

Shall we not focus on those economic activities which will not lead to further diversion of forest/agricultural lands, which will not demand much of water and energy, which will not lead to pollution of land, air and water, and which will lead to sustainable harnessing of our natural resources?  Such activities may include, sustainable agriculture, horticulture and animal husbandry, forestry, health and educational services, IT&BT, eco & health tourism etc.

In this context it is pertinent to know what Tamil Nadu State Action Plan on Climate Change (TNSAPCC) has said.  It says: “Global development experience reveals that one percent growth in agriculture (and associated activities ?) is at least two or three times more effective in reducing poverty than the type of same growth emanating from non-agricultural sector.”

Are we rational enough to take a diligent view of all these and other associated issues in our development pathway as a truly welfare society?

Shankar Sharma is a Power Policy Analyst
shankar.sharma2005@gmail.com