Forum (Spotlight Weekly)

Sustainable Economic Development and the Budget

By P.GOPAKUMAR

In the preparation for successive budgets, an issue that is routinely overlooked is that of the role sustainable development in economic growth. Neglecting the country's natural debt impacts unfavorably on society's ability to maintain equitable and healthy rates of growth. This despite the fact our rivers have been polluted an extent where they are now unable to sustain any form of aquatic life and their waters unfit for consumption by human beings and even animals.

The air in all our cities is polluted far beyond permissible limits, and the area under forest cover, which should expand to one third of the total land area in the country, is barely half of that.

Environment quality is not a matter of sentiment. It is an economic imperative, particularly in a country where a majority of the population depends for its livelihood on services provided by natural resources and the environment. Nepal is losing over 10 per cent of its gross domestic product annually because of environmental costs. Between 15 and 30 per cent of the country's agricultural output is being lost because of soil degradation due to indiscriminate use of agro-chemicals, fertilizers and pesticides. Moreover, the market is flooded with expired agro-chemicals and pesticides. Some businessmen do not have any compunction about selling the expired goods. Nepal has become a dumping site for multinational companies.

While regulation and control have a place in correcting the damage that has taken place cumulatively to our natural resources wealth, the most effective and efficient solutions will have to come from the use of fiscal instruments. Today, in a large number of developed and developing countries, there is a shift away from command-and-control methods to the use of suitably designed fiscal instruments that lead to environmentally desirable results in an economically efficient manner. This is where the annual budget must build in a set of measures that not only arrest the degradation of natural resources, but also help enhance them over time.

Gross national product is accepted as a country's annual measure of economic output and welfare, but it cannot be the sole indicator of economic health. Enlightened governments today commission or carry out assessments based on what has come to be known as natural resource accounting, which essentially includes changes in the natural resource endowment of a society. For instance, cutting down forests for market use of timber would add corresponding value to gross national product, but nowhere would account for the depletion of the natural resources wealth thus occurring. In essence, every time we produce goods or services by depleting natural resources, we are borrowing the wealth of our children and accounting for it as riches created today.

What are the official actions that the budget should include this year to check unsustainable production and consumption? First, prices can have an effect by taxation, to signal to the consumer and the producer the cost of using the environment and natural resources. For example, a fuel-efficient automobile should carry less tax than one that is inefficient. This system of taxation should be applied to all consumer durables. This would require a detailed system of testing and labeling of these durables.

A second area where action is required is in unwise subsidies. In many cases, the benefits of subsidies do not reach the beneficiaries. For instance, the benefit of the subsidy on kerosene largely goes to the people who are involved in adulteration of petroleum products. Kerosene is widely used for lighting purposes, especially in rural areas. A suitable subsidy on solar lanterns, which are now being manufactured here commercially, would provide pollution-free lighting technology for villagers, deprive undesirable elements gain from adulteration and not cause the government any revenue loss.

There is also a strong case for much higher budgetary allocations for programs to expand the country's natural resources. Investing in forests, sewage treatment or in air-quality improvements results in rates of returns generally much higher than the in other industries. However, it is essential that environmental improvement projects be implemented efficiently to produce desired goals. It is important to ensure that environmental improvement becomes part of each ministry, whether it is agriculture or transportation. The Ministry of Environment and Forests is not the sole governmental agency responsible for creating a cleaner environment.

Despite the unimpressive record of previous budgets, which largely ignored the degradation of environment and depletion of natural resource of the country, it would be heartening if in this year's makes a refreshing departure in addressing in the serious challenge of sustainable development facing our society.