RE-EVALUATION OF INDIAN MACROECONOMIC DATA AND ECONOMIC POLICY BY INTERNALIZATION OF ENVIRONMENTAL CAPITAL

Abstract

Natural environment is essential for every economic activity. Disregarding environmental resources in the process of economic growth will lead to an unsustainable structure subjected to increasing vulnerability. The overarching aim of this study is to implement the revised macroeconomic model for the reassessment of growth in India through the inclusion of natural capital. Two models were considered in the study, the standard macroeconomic model and the revised model to compare the economic growth of India. The study revealed that accounting for environmental capital, which is considered the basis of economic growth in the latter model, the real economic state of Indian economy is unsustainable. This conclusion was analyzed from three distinct points of view. First, upon analyzing the domain of operation it was revealed that the Indian economy has been operating above its sustainable limit. Second, the annual income in the country is overstated in the standard model compared to the sustainable model. Finally, the rate of depreciation of environmental capital exceeds the rate of growth in the Indian economy from 2006-06 till 2015-16 by 2.1%.

These findings form the basis of the policy formation proposed under the revised model. The economic analysis is used to identify two distinct areas of policy in India that should be subjected to a revised outlook. The first area of focus is economic growth and sustainable development based on the revised model. This includes targeting monetary policies to focus investments in natural capital for increasing output of the country. Moreover, policy emphasis on smaller industries and consumer behavior to create a bottom-up effect for sustainable production and consumption is considered using economic incentives.

The revised model proposes a rise in aggregate demand curve to meet the full capacity of the economy through enhancement of natural capital. The second section focuses on this topic, i.e., conservation, maintenance, and restoration of natural capital to increase national output. The study suggests that valuation of natural resources will result in increased conservation and restoration efforts which will inevitably lead to higher economic gains. Furthermore, to ensure inflow of natural capital for sustained growth, scientifically guided regulations should be followed by monitoring the quality of natural resources.

While acknowledging limitations of the research, the goal of the study has largely been met. The revised macroeconomic theory has been successfully employed to showcase the environmental macroeconomic state of India. As Indian economy grows further, the environmental model of macroeconomic evaluation aims remain relevant for policymakers and economists alike and facilitate a way to evaluate the sustainable state of Indian economy.