Natural Resource Accounting – A step towards meeting our Commitments made under Sustainable Development Goals

1. Background

1.1 Natural resources play a crucial role for economic development of a country and are crucial for their inbuilt value of inter-generational equity and sustenance.

1.2 The need for accounting for natural resources took its first step at the United Nations (UN) conference on Human Environment in 1970 when the relationship between economic development and environmental degradation was discussed for the first time. The Brundtland Commission, set up by the UN, articulated the idea of close association between the environment and economic activities in 1987 which was followed up by environmental accounting and the Earth Summit at Rio de Janeiro in 1992.

1.3 Mankind, in its quest to rapid economic development has harmed nature and used natural resources indiscriminately. This paradigm of resource-led economic development is not sustainable and hence it has become necessary to strike a balance between uses of natural resources vis-à-vis economic growth giving birth to the concept of Sustainable Economic Development (SED) by amalgamating the economic and environmental accounting. The concept has emerged to capture the intimate interplay between the various components of the natural environment and the economic progress of a country.

1.4 With continued efforts for two decades, the UN brought out the System of Economic and Environmental Accounting – Central Framework (SEEA – CF) in August 2012 – which is the latest internationally accepted and adopted framework for resource accounting. The framework, inter-alia, prescribes for a four-stage implementation strategy as follows:

1.5 While developing the framework, the SEEA – CF acknowledged initial problems and constraints to be faced by the countries and thus allowed flexibility and country specific needs to be prioritised.

1.6 Government of India is a signatory (25th September 2016) to the UN General Assembly resolution on adoption of SDGs titled, “transforming our world; the 2030 agenda for sustainable development.” NRA has deep inter-linkage to sustainable development; and 10 of the 17 goals (Sustainable Development Goals or commonly known as the SDGs, 2030) directly or indirectly relate to management of natural resources and their accounting.

1.7 Under the leadership of the United Nations, many nations like Australia, Canada, China, France, and Germany have attained various degrees of environmental accounting while many others are contemplating to catch up.

2. Endeavour of GASAB, India

About GASAB

2.1 Government Accounting Standards Advisory Board (GASAB), constituted by the CAG of India is a representative body of the major accounting services of Government of India, regulating bodies like RBI, ICAI etc and State Governments with the responsibility of formulating, proposing and improving standards of government accounting and financial reporting. GASAB has decided in its meeting in 2018-19 to help the cause of NRA in the country.

Endeavour in preparing the Concept Paper

2.2 International Organisation of Supreme Audit Institutions (INTOSAI), of which, CAG of India is a member, has recommended in 2010 that in countries where NRA has not been developed, SAIs should get involved in the process and help the country in:

• Developing the NRA;
• Identifying challenges in applying environmental accounting;
• Recommending strategies to overcoming challenges;
• Identifying best practices in NRA.

2.3 Keeping the above in view, GASAB initiated (2019) the efforts in furthering the efforts by preparing a roadmap for implementation of NRA in India through a Concept paper on NRA.

2.4 The paper finalised by the GASAB Secretariat was digitally launched by the then Hon’ble Minister of State for Environment, Forest and Climate Change on 28 July 2020. The Hon’ble MoS had shared the paper, demi-officially, with the Hon’ble Prime Minister of India. The PMO has appreciated the endeavour of GASAB in taking up such a huge work. Electronic version is available at http://gasab.gov.in/gasab/pdf/NR-Accounting-final.pdf.

2.5 The paper, besides discussing the concept of NRA, includes related issues like the SDGs and Climate Change, endeavour of UN in bringing out the latest framework, progresses made around the world including those in India – inter-alia, envisaged short, medium and long term goals in consonance with the four stage strategy suggested by the System of Environmental and Economic Accounting (SEEA) Framework of the United Nations, as mentioned below:

2.6 GASAB, with its innovative approach has applied the concepts of NRA to visualize the three-pronged goals to implement the whole concept of economic and environmental accounting in India in a span of 10 years to converge with the target date of SDGs, i.e. 2030. Acknowledging the constraints due to the vastness of the country, magnitude of resources and the reliability of available data coupled with the federal structure of governance typical in India, GASAB has envisioned starting the process with the States.

2.7 In addition, the paper also delved deep into the issues involved, discussed possible challenges and provided comprehensive guidelines for the entities to prepare the Asset Accounts with vivid examples including sample Accounts and source of information for the Asset Accounts on Mineral & Energy Resources.

Stakeholder Consultation Process

2.8 In order to take the stakeholders, subject experts and academia onboard, GASAB has constituted a broad based Consultative Committee consisting of representatives of stakeholder ministries in Government of India like MoMines, MoEFCC, MoSPI, MoPNG, MNRE, MoJal Shakti, Department of Land Resources, specialist agencies like Indian Bureau of Mines, ICAI, ICoAI, TERI, NRSC among others and five State Governments and Accountants General in these five States (Gujarat, Karnataka, Meghalaya, Jharkhand and Uttarakhand) and eminent environmentalist and retired bureaucrat Shri Mukul Sanwal, IAS 1971, to continuously get the works vetted and additional suggestions/comments to make the process inclusive and robust.

2.9 Two meetings of the Committee had been held in September 2021 and June 2022 besides continuous vetting of the documents like the Concept Paper, booklet on templates and Guidelines/ SOPs etc. by the Committee. (Second Consultative Committee was held in CAG’s Office in June 2022).

2.10 In addition to the Consultative Committee of NRA Cell as stated above, GASAB Secretariat has formed NRA Cells in the States consisting of the Audit, A&E and State Government Departments to enable co-ordination between the Accountants General Offices in the States with the local State Governments to enable closer coordination and steer the project at the state level.

2.11 The Chief Secretaries of the States were demi-officially informed (July 2021) about the project by the Deputy CAG & Chairperson, GASAB and presentations were made to all the State Governments regarding the concept, resources to be covered initially, the formats, approach of the work and expectations from the State Governments and their Departments. Seven meetings were held (August – September 2021) in which 28 States and 2 UTs (Delhi and J&K) were covered. The States welcomed the project and agreed to extend all co-operation.

Short-listing of Resources

2.12 Out of seven resources listed by the SEEA framework, the Concept Paper has identified and suggested commencing with five major resources, namely Mineral & Non-Renewable Energy Resources, Water Resources, Forestry & Wildlife Resources and Land Resources, of which, Mineral & Non-Renewable Energy Resources has been prioritised mainly due to their finiteness/non-renewability and sustainability for future generations as well as their contribution towards growing concerns on climate change.

Testing the Draft Templates in States

2.13 In order to test the draft templates of Asset Accounts on Mineral & Energy Resources included in the Concept Paper (Chapter XI of the Paper refers), pilot studies were carried out between July 2020 and March 2021 and successfully completed in three States, namely Goa, Meghalaya and Rajasthan. The pilot studies were conducted in coordination with the State Government Departments of Geology & Mining, Finance and Statistics and the reports were validated by both, the department of Geology & Mines and also the Audit Office.

Finalisation of the Templates

2.14 The concept visualization, detailed actionable plans, preparation of model templates and their successful test run in the pilot states coupled with extensive consultative processes and continuous trainings/capacity building has culminated into the final templates on Mineral & Non-Renewable Energy Resources and was released in the form of a booklet. The book contains the overall processes involved, works done, the templates of the Asset Accounts and mechanisms suggested for further streamlining the control mechanism on mining and allied activities in the States and ensuring regular flow of information to ease out the building up of Asset Accounts in future years. Electronic version is available at http://gasab.gov.in/gasab/pdf/TemplateAssetAc.pdf.

2.15 The books have been circulated to the Chief Secretaries, State Government Departments, Accountants General for preparation of the first draft of the Asset Accounts on Mineral & Non-Renewable Energy Resources in the States for the year 2020-21 by March 2022 with the aim of developing a well-defined methodology for preparation of Asset Accounts, including identification of underlying assumptions.

Trainings, Capacity Building and Continuous Hand Holding

2.16 Parallel to the above efforts, GASAB Secretariat has been holding workshops under the aegis of Knowledge Center at Regional Training Institute, Prayagraj to update the knowledge base of the Officers in the field Offices, both Audit and A&E Offices including the Group Officers to handle preparation of the Asset Accounts.

2.17 GASAB Secretariat has also conducted State specific workshops involving the concerned Departments besides participation from the State AsG Offices. These workshops were planned to onboard the States which are crucial in implementing the project and to convey the idea of NRA, our expectations from States besides assessing the preparedness and constraints of the States. On the other hand, these workshops helped us instill confidence in the State Governments about our endeavour mooted as a handholding exercise to enable the country to become compliant to the SEEA – CF framework. The State Accountants General Offices are continuously holding meetings and organising workshops/trainings for the State Government departments.

2.18 In order to hand hold and guide the States, monthly meetings are being held with the States since October 2021 to monitor the progresses and clarify/mitigate the queries/challenges. Along with the State Accountants General Offices, the State Government departments are also participating in these meetings. As on date 8 such meetings were held with all the states.

National Declaration at COP–26 – Inclusion in the Asset Accounting Framework

2.19 Consequent upon the national declaration on Panchamrits (five points) at COP-26 at Glasgow, the necessity of gathering information/data on reducing the carbon emissions and generation of renewable energy resources to continuously monitor the progresses towards the international commitment also became a necessity. The commitments were:

1. India will take its non-fossil energy capacity to 500 GW by 2030.
2. India will meet 50 percent of its energy requirements from renewable energy by 2030.
3. India will reduce the total projected carbon emissions by one billion tonnes from now till 2030.
4. By 2030, India will reduce the carbon intensity of its economy by more than 45 percent.
5. By the year 2070, India will achieve the target of Net Zero.

2.20 GASAB quickly comprehended the need to lay down a system of monitoring at the State level and developed templates for capturing the details of generation/progress in generation of renewable energy resources in States vis-à-vis the total need and how the surplus/shortfall are being managed.

Achievement of Short-Term Action Plans

2.21 The State Government Departments in 28 States and 1 UT (J&K) prepared the first draft of Asset Accounts in the States for the year 2020-21 with the active assistance of Accountants General Offices as per the guidance of GASAB. Further works to compile the Asset Accounts for 2021-22 is also underway. GASAB was continuously in the loop, handholding the States in achieving this crucial milestone of attaining the first and most vital stage of preparation of Asset Accounts showing the physical flows of resources.

2.22 The joint effort bore results. As on date (July 2022), Asset Accounts on Mineral and Energy Resources in all 28 States and 1 UT (J&K) stand completed and are being validated by the State Governments and cross verified by CAG field offices. As per the reports available as on date, roughly, 34 major minerals, 58 minor minerals and all fossil fuels (coal, crude oil, natural gas and lignite) are being covered in the Asset Accounts. To ensure uniformity in reporting, these Asset Accounts are being presented in the shape of a Report outlined and circulated by GASAB.

3. Continuing the Process

3.1 In order to ensure that the work is carried on unhindered in the States with continuous generation and flow of information/data from the district units through the Directorates to the Accountants General Offices periodically, preparation of a set of Guidelines/SOPs were felt necessary guiding the States to develop systems and processes and watch their compliance closely.

3.2 Accordingly, GASAB has prepared the Guidelines/SOPs amalgamating the non-renewable as well as renewable resources which has been continuously run through the Consultative Committee and also the State Governments as these evolved between December 2021 and March 2022. Electronic version of the Guidelines is at http://gasab.gov.in/gasab/pdf/Guidelines_June2022.pdf.

3.3 Besides the dataflow, the Guidelines/SOPs also suggest several recommendations for end-to-end mapping of supply and use of resources. The framework designed by GASAB envisages collecting information from the exporting, consuming, using points of resources within the States to compare with the resource extractions and dispatch to identify illegal mining which is expected to help the States in mopping up due revenues from exploitation of resources and plugging the leakage and wastage of invaluable natural resources aiding in better resource management and sustainability for the future generations.

4. Key Takeaways for the States – Once Asset Accounts are Completed

4.1 The Asset Accounts, once compiled, are designed to aid in evidence-based decision-making and good governance by providing the following inputs for the policy makers:

4.2 Thus, achievement of the short and mid-term goals by 2024-25 would not only help the entities with a consolidated database on availability, usage and sustainability of resources vis-a-vis revenues generated and the costs involved, but also will be a major breakthrough towards attaining first two out of four stage implementations of NRA as envisioned in the SEEA - CF. Also, this will help India to get into the elite list of countries where Asset Accounts on natural resources (importantly non-renewable resources) are being generated.

4.3 Besides the inputs to the policy makers, the Asset Accounts will help with an outline of resource bases across the States adding immense value towards the planning for resource exploitation and policy framing for the present as well as sustainability of resources for the future generations.

4.4 Successful implementation of Asset Accounts on Mineral & Energy Resources in the States would mean that India not only meets the first of the four-stage implementation strategy prescribed by the SEEA - CF but will also get into the elite list of countries where Asset Accounts on natural resources (importantly non-renewable resources) are being generated.

4.5 Undoubtedly, NRA would also help in attaining other pressing commitments like the sustainable development goals and targets for reduction in green-house gases to mitigate the devastation caused by climate change. The efforts may then be taken forward with the aim of achieving the remaining two stages by 2030 - the indicative target of achievement of Sustainable Development Goals set by the United Nations.

Official Publications & Electronic Portals (GASAB / CAG)

1. GASAB Concept Paper on Natural Resource Accounting: http://gasab.gov.in/gasab/pdf/NR-Accounting-final.pdf
2. GASAB Model Templates of Asset Accounts on Mineral & Non-Renewable Energy Resources: http://gasab.gov.in/gasab/pdf/TemplateAssetAc.pdf
3. GASAB Guidelines and SOPs for Natural Resource Accounting (June 2022): http://gasab.gov.in/gasab/pdf/Guidelines_June2022.pdf