<b>Mihir S Sharma:</b> The GDP wheeze

The costs of improving Delhi's air are known, and GDP accounts for them. But not the benefits

Delhi has, unquestionably, the worst air in the world. It is the misty grey of a dark January morning now at midday. An acrid smell of smoke gets in everywhere. 

The air is, according to government records, many times worse than it should be. Even an hour’s exposure to this will badly damage your lungs. 

What’s got us here? The air turned sharply for the worse in the past week to 10 days. The leftover sulphurous haze from Diwali fireworks combined with the agricultural waste-burning period in Punjab and Haryana to create this crisis. The states’ farmers have ignored both pleas and requirements to have the straw carried away. They claim it’s too expensive to do so. The government is subsidising a kind of seeder that would mean the straw could be left in place. The farmers claim that’s too expensive too. 

 

Let’s be clear: This a problem partly created by bad economic thinking. 

Bad economic thinking has led to Punjab being so dependent on a rice harvest. Paddy is a river-basin crop. It should be planted only in areas with abundant natural sources of water. We should not be subsidising farmers to grow it in places such as Punjab, as we do through the current procurement system. The overuse of artificially provided water for paddy means that cities and industry are starved of water and electricity, while the groundwater table constantly decreases. And now, we see what the consequences of widespread paddy crops in a semi-desert area, followed by wheat are: Smoke plumes. 

But there’s a deeper question here. When a farmer decides that it is “too expensive” for him to hire relatively cheap labour to carry away the straw left over from the paddy harvest, what does this tell you?

It should tell you, first, that there is a serious externality here. The farmers’ refusal has costs for a large number of people. He feels he has a right to pollute; that right to pollute takes away the health of millions of others, and increases health-care costs across the board. This is precisely the kind of market failure that governments are supposed to intervene in, and yet the politics of the situation appears to prevent that from happening. Perhaps if the costs of healthcare in Delhi were added on to the already considerable costs of rice and wheat procurement from Punjab, somebody might wake up. 

It should also tell you, second, that we have too weak a government. It cannot even implement something as basic as a regulation preventing crop burning when it is causing a public health crisis. There’s a Rs 15,000 penalty for burning crops. Nobody has been hauled up for it. Can someone explain how this state of affairs is permitted to continue? Why is the prime minister, elected as a supposedly “strong administrator”, so painfully weak that he will allow the city he lives in to become a vision from hell instead of pushing a government his party helps run to implement the law? Why are we pretending that this is anything less than a complete breakdown of administrative capability, with two National Democratic Alliance governments directly responsible? 

The last question we need to consider is this: What does it say for the sort of economics we apply to public policy when all we can imagine while we think about an issue like this is the costs? After all, if we implement the basic requirements here, there will be clearly accounted-for costs. The government will lose money on buying seeders for farmers. The farmers will lose money by being made to eschew the cheapest method of disposing of agricultural waste. And so on. But the costs of the current system cannot be accounted for. The man-days of work lost are not visible. The healthcare costs don’t seem to impact the GDP growth numbers.

Every time you suck in a polluted breath in this most polluted of cities, you should tell yourself: If GDP growth-oriented economics cannot account for this air being so bad, then we need to replace GDP growth as target. 

Illustration by Ajay Mohanty

Many past criticisms of GDP have come from the fact that it does not deal directly with inequality or poverty. These are reasonable criticisms. However, they contained a fatal flaw: That inequality and poverty could be relatively easily quantified, even if GDP did not do so; and that economic policies that increased growth could be shown to at least vastly decrease poverty, if not inequality. 

But it is increasingly clear that criticism of GDP obsessions focused on the wrong problem. There are far greater problems with GDP – and the biggest is precisely that it does not account properly for externalities and for the running down of the national stock of things such as clean air, clean water, and natural resources. 

Consider another thought experiment. One of the other incredible annoyances about life in Delhi – as in many other towns in this country – is the constant sound of construction. Whether the sound of demolition, of marble polishing, or of whatever other noisy activity, it’s woken many of us up at night or kept us from being productive in the day. Now, technically, this problem is easily solved: Construction sites could be sealed off by metal sheets that keep the sound inside, as is done in many other countries. Instead, in India, we cut the stone on the road. But we cannot implement the most basic regulations here because it would make, we imagine, construction more expensive. So we are willing to give up both the public space of the road, and the public resource of relative silence. And note this: This choice increases GDP. Going the other way, and imposing basic restrictions on construction, would decrease GDP. Yet that way has benefits, too: It would increase the productivity of others in the vicinity in myriad ways. It would increase their utility marginally, too: They might, conceivably, be willing to make micro-payments for that increase in utility. But the absence of any conceivable market or aggregation for that utility means that GDP effectively looks only at one side of the decision. 

I expect that one of the big changes of the next 15 years will be that more and more governments will begin to recognise that chasing GDP growth alone is, if not useless, than dangerous. Not because development is bad; or because GDP-promoting policies are bad; but because GDP is too blunt and misshapen an instrument. 

m.s.sharma@gmail.com

Twitter: @mihirssharma