India is sweltering under a heatwave, in a summer that is the hottest on record in over a century. These heatwaves are no longer a once in a lifetime event, but as per the revised IPCC assessments released over the past few months, herald a new reality for South Asian countries like India. Predictions suggest that within the next few years, some of the most heavily populated parts of the region will regularly breach the dangerous wet-bulb temperature threshold of 35 degrees Celsius. The effects of these changes are not being felt equally: less than 10% of Indians own air conditioners, over 60% of our workforce are employed in agriculture necessitating being outdoors even during a heatwave, and the failure of this year’s wheat harvest.
A 2019 report on climate vulnerability in India pointed to the dire state of some of the country’s natural resilience systems. Of the top five most vulnerable states, a low level of forest cover per capita was identified as a key factor in increasing vulnerability. In a country where 60% of the economy is moderately to heavily dependent on nature, the depletion of these natural ecosystems undermines not only our ability to cope with climate change but also the future of the economy.
The case for valuing nature
Globally, the economy is reaching the end of value generation through further extraction, exploitation or consumption. The GDP based economic model excludes the contribution of natural resources such as forestry, biodiversity, soil, and water.
This significantly undermines the value of natural capital that flows across the economy through supply chain – and the constant devaluation of nature’s contributions to the economy paves the way for reckless over-exploitation that undermines the abilities of ecosystems to regenerate themselves. Valuing natural capital, therefore, is a question of valuing our world.
Momentum is growing, internationally, on the need to value natural ecosystems. Today, sustainability is the new frontier, offering growth opportunities of up to $10 trillion, with $3.6 trillion of opportunities in sustainable food, land & ocean use systems. In 2020, the Dutch National Bank released its first biodiversity risk assessment report and last year’s Dasgupta Review, commissioned by the UK Treasury, systematically outlined how nature needs to be included in policy and economic decision-making.
Natural capital & social inclusivity
Natural assets must be carefully and robustly defined into natural asset classes to reflect the value they imbue across the value chain – for example, medicinal, household & living, food and fodder, biodiversity etc. This includes the ecosystems services that remain invisible or undervalued in the economy, e.g. water replenishment, soil nutrient cycling, pollination or carbon sequestration; services which enable continuity in agricultural and manufacturing/industrial processes. This total valuation must be added to national accounts, as a repository of standing assets generating and earning value for the economy, even when they are not being mobilized into commodities.
The exercise of natural capital valuation is not just about developing an alternative model of economic growth but also building inclusive societies. Natural capital valuation provides the scope for building useful information meant for informed economic choices. It also offers a pathway for greater social equity for communities that manage or live adjacent to these ecosystems, by channelling earnings on those values directly to those communities – as carbon-based funds are increasingly aiming to do for forest-fringe communities. Effective valuation and stewardship opens up new vistas for investing in communities using nature-debt, to create access to universal basic assets such as education and healthcare. However, leveraging natural debt must be accompanied by proper checks and balances to ensure the sustainability and survival of natural assets, as well as access and rights of forest and indigenous communities.
To effectively steward these natural assets, creating ecological budgets and integrating them into financial accounts at both the state and national level is critical. Integrating environmental factors into the fiscal structure of an economy, especially the annual national budget, will allow the government to track natural capital expenditure – and invest for its regeneration.
Using ecological budgets to foster inclusivity
An ecological budget also offers policymakers the tools to incentivize new businesses, by restructuring incentives, taxes and subsidies towards projects, businesses and infrastructure that generates both economic and ecological benefits. In states such as Arunachal Pradesh which hold the vast reserves of India’s natural capital, the weighting of an ecological budget as the progenitor of the financial budget will provide the structure for fiscal decisions that align ecological and economic growth. Budgeting natural capital will also facilitate the development of new incentive structures for businesses such as a regulatory framework for environment impact assessment that positively grades businesses creating positive impacts on the environment – paving the way for smoother clearances and tax benefits. New schemes and subsidies can be shaped to target MSMEs dedicated to regenerating natural capital – whether through the restoration of degraded ecosystems, or through transitioning industrial farmlands to better, sustainable farming practices.
Investing in regenerating natural capital can also go a long way in mitigating the current rural employment and livelihoods crisis. An estimate for the eight states constituting India’s Eastern Himalayas would benefit more than 2 million households across the region. In total, our estimates suggest this would generate up to INR 450,544 crores over a 30 year period, through natural capital generated through carbon, overall savings on flood prevention and soil regeneration activities, and sustainable businesses such as agroforestry and bamboo based produce. With these earnings channelled directly back to communities, over 6 million households could achieve better access to social assets such as healthcare, education & energy – with spending on healthcare and education matching international OECD standards.
Social inclusivity can be further fostered by aligning the national ecological budget (NEB) with the Integration and Public Participation principles within the ambit of international environmental law. Involving communities through participatory budgeting and civic decision-making regarding natural asset accessibility and governance will strengthen rural futures and pave the way for socio ecological societies.
The past few weeks have hammered home the need to invest in building natural resilience systems that can help us weather our changing climate. Until we restructure our budgeting systems and incorporate our undervalued ecosystems – and the rich natural capital reserves they hold – this change will be an uphill struggle. The quicker we can ramp up our collective efforts to make this transition the better placed we will be to face the biodiversity and climate crisis. A nature positive budget does not have to be a burden. It is an opportunity to invest in creating better, sustainable jobs in rural India, enhance the economic and spending power of households and businesses and foster a robust, future-oriented economy.
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