THE VERACITY OF THE KUZNETS CURVE HYPOTHESIS IN INDIAN CONTEXT
Kuznets Curve hypothesis proselytizes the inverse relationship between different pollutants clinching the vitality of a country’s ecosystem. Promulgated by an American economist Simon Kuznets, the theory claims that environmental quality of a nation deteriorates at the early stages of development and improves as the fortune of the country changes and burgeons when the GDP of a country reaches higher levels. This hypothesis is based on the industrialization of an agrarian economy. With the creation of quality products and a wave of innovation, the GDP of a nation gets bolstered and thus increases the standard of living and per capital income of the people. With the increased Income, people discern better environmental practices. In the context of India, however, there are anomalies in the curve. India, which is the third largest by purchasing power parity (PPP) and sixth largest economy by nominal GDP, is witnessing decelerating GDP post the recent demonetization. India which was an agriculturally predominant economy post its independence in 1947, drafted the road map to an industrialized economy with the Second Five-Year Plan in 1956.Having embarked the journey to an industrialized economy and with the implementation of the new Economic policies of 1991, India has garnered the epithet of a mixed economy. The Service Sector accounts for 2/3rd of the GDP and has a tax net of more than 50%.
However, over the years, the bio-diverse Eco zones of India has been depleted and left in a devastated plight due to extensive developmental policies. The various fundamental economic reforms enacted by the government has contributed to the irrevocable degradation of the environment.On the other hand, enforcement of pollution control reforms by the government has engendered the GDP to plummet. I will discuss the antithetical nature of the Economic and the Environmental policies and economic cost of environmental degradation in context to India. Understanding the relationship between the GDP and environmental regulation would contribute to formulation of policies directing towards the environmentally desirable growth rate and sustainable development.
India’s pollution accounts for welfare loss estimated at Rs.3.75trillion (2009) worth of Environmental damage cost. Environmental degradation costs India nearly 6% of its GDP.These values are underestimated and do not capture the wide range of Economic Impacts on the environment due to non-availability of data. The environment generates a range of ecosystem services- provisioning (food, shelter) regulating (climate regulation, water quality regulation) religious and cultural services which cannot be assessed in the absence of adequacy of data.
- The current method of GDP estimation treats environmental damage costs as income. Since development policies give more priority to income and employment generation, implementation of pollution control policies is poor. Regional poverty and inequality are caused by such ineffective policies. The GDP contains a whopping 7.69% (Rs.31, 316.2 billion-2013) of damage cost and it is misleading in terms of environmental welfare.
- If we increase income and employment in traditional sectors, we lose them in other sectors that are dependent on environment. The size of environmental social costs is significantly higher than the social benefits brought forward by the GDP growth.
- GDP growth and environmental damage have a strong positive relationship, lower growth in GDP could afford benefits. Though there is an uncertainty in determining environmentally desirable growth rate, maintaining 5-6% with strict environmental regulations is supposed to reduce environmental damage significantly.
The antithetical nature of the Economic and the Environmental policies and economic cost of environmental degradation should be considered before devising any economic policies.
Understanding the relationship between the GDP and environmental regulation would contribute to
formulation of policies directing towards the environmentally desirable growth rate and sustainable
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