Integrated environmental and economic accounting: An application to the forest resources in India

Forests contribute to the economy in several ways. While forests are a sour ce of timber with market values, they also influence local and regional cli mate, preserve soil cover on site, and in the case of watersheds, protect s oil downstream from floods - functions, which are not in the production bou ndary of SNA. Further, the net value added in forestry sector does not refl ect sustainability of forest resources, because it ignores the consumption of natural capital (depletion) that occurs when forests are harvested or co nverted to other uses. The only costs of depletion considered in the nation al accounts are the extraction costs and records the potential loss in fore st wealth as other changes in assets that have no effect on Gross Domestic Product (GDP). The study tries to incorporate forest resources into the nat ional accounts and adjust the Gross Domestic Product (GDP) for the depletio n of forest capital, using the Satellite System of Integrated Environmental and Economic Accounting (SEEA). The value of net accumulation (positive or negative) of forests is calculated and the net Domestic Product is adjuste d for the depletion of the forest resources to get Environment adjusted Dom estic Product (EDP). The results show that the EDP equals 98.4% of the adju sted net domestic product in 1993-1994. A proper accounting framework would better reflect not only the long term value of the state's natural wealth but also its immediate contribution to the state economy in the current acc ounts.