Use of the Green Accounting Approach to Assess the Contribution of Watershed Values of the Forestry Sector to the Gross Domestic Product of Himachal Pradesh

Madhu Verma[1]


The conservation of ecosystems is often seen as a cost to society rather than an investment that sustains nature and human livelihoods, despite the fact that they are the lifeline of many stakeholders. For example, the hydrological services of forests, mainly water quality and water flow, are among the most valuable of the many ecosystem services from forests. When these ecosystems become degraded, downstream users like farmers, water supply companies and hydropower firms may suffer production losses and large investments in water treatment plants, dams, and flood control structures may be needed to replace these lost “ecosystem services”. Despite the social recognition of the economic values of forest ecosystems, the forestry sector is chronically underfunded and unsustainably managed. It is only by understanding the financial values of these services and investing in their conservation that it may be possible to save the money spent to replace lost services and to increase investments in sustainable forest management. The role of Himachal Pradesh (HP) forests, a Himalayan state of India, as a major production centre for water supplies that extend beyond HP via numerous rivers of northern India to serve the cities and agriculture of Indo-gangetic plain is quite widely appreciated in HP. The valuation of watershed benefits to various economic sectors, regions and stakeholders inside and outside of the state has not yet been made, but has been felt by many. The livelihood security of the people of Himachal and downstream is heavily dependent on the ecological security of the forests, which will be guaranteed only when we understand their real worth. Thus this paper attempts to use the Green Accounting approach to work out the true economic value of HP forests, highlighting the watershed values in the local and regional economies and in the gross domestic product of the state.

1. Introduction

Forests are one of the most important components of the terrestrial environmental system and a complete resource base. They provide not only various goods but also maintain the ecological balance & life-support systems essential health and all round development of human kind. In the State of Himachal Pradesh (H.P.) where forests and the people and sectors who depend upon them are facing increasing types and rates of change. There are multiple uses of forests by multiple - stakeholders. As per the government of India notification, H.P. has to keep 66% of its geographical area under forests so as to maintain ecological balance of itself and adjoining regions. Through there has been increasing pressure on forests but there has been little commensurate charge in the policy and institutional framework to handle such pressures. The policies have failed to recognize the role of forests in socio-economic, ecological and cultural development of the state. The forestry sector is shown to have contributed only 5.6% of the GSDP. Quite matching with the under estimated contribution of forestry sector to GSDP, the allocation of plan outlay to forestry sector i.e. around 5% - 6% and that is the major reason for degradation of forests.

2. State of Forest Resources in Himachal Pradesh

2.1 Forest Wealth

The state is one of the few States in India where more than 60 % of their geographical area is forest area. Of the total geographical area of 55,673 km2; the area under forest is 36,986 km2 (66% of the geographical area). Out of the total forest area only 12,521 km2 (33.80% of the forest area) is under tree cover. 76.35% of the area under tree cover (9,560 km2) is under dense forest (having canopy cover of 40% and above) and 23.65% (2,961 km) is under open forest (canopy density between 10-40%). The state has six different types of forests, which is reflection of richness of species in Himachal forests.Of the total forest area of 36,986 km2, 19,001 km2 (51%) area is above 4000 altitude remain covered under snow and 1510 km2. (4%) area at the altitude of 3000-4000m is not fit for tree crops. Thus the area available for raising forests is only 16,445km(40% of the total forest area). The state is unique in the country to have taken lead in imposing ban on green felling since 1984. The average annual removal is only in the form of salvage & Timber Distribution Rights to the right holders as per settlement reports.

2.2 Economic Dependence on Forest

The state has population of 51,70,877 with 91.31% of it living in rural areas. 8.61 lakh Households living in rural areas require fuel energy from forest & other farm sources. 80% of the fuel wood requirement is to be provided by forests. At the same time livestock population of the State of 51,16,933 cattle (which almost equals human population) puts demand for fodder on forest. Thus 0.71 Sq. Km per capita availability of forest has to provide equally for fodder as well as for fuel wood. Various direct consumptive benefits and non-consumption and many indirect benefits are extracted from Himachal forests.

3. Economic Valuation of Himachal Pradesh Forests[2]

The study highlights that various users are well aware of multiple uses but not the use values of forests and that reason is leading forest degradation. Thus it attempts to estimate various use values of Himachal forest using the market price, substitution approach, productivity method, welfare method, avoidance cost and household production function approaches as applicable to various values. As the time related to the study was limited, for certain values it also uses findings of specific valuation studies undertaken in the state to extrapolate for the entire state. The major limitation of the study is possible overlapping of values like eco-tourism with biodiversity, watershed and carbon sink values etc. Further the study assumes total growing stock in forest as stock value and all other values as flow values and calculates them on annual basis. The study neither claims any precision nor it attempts to provide accurate monetary values of various benefits specially the intangible ones rather it is the first attempt in India to reflect an approximate total contribution of state’s forests into economic development of Himachal and other regions such that the environmental functions of the forests can find appropriate place in the economic planning. Various direct and indirect values have been worked out as follows:

3.1 Valuing Direct Consumptive Benefits from H.P. Forests

The total legal forest area of the State at the tune of 36,986 Sq. Km. has tree covers on its 33.8% area only. The total growing stock is 10.25 cubic meters from which various direct consumptive benefits like fuel wood, fodder, timber/salvage, timber for right holders & minor forest produce comprising of resin, medicinal herbs & katha flow. In the first stage broad estimate of these values has been worked out using data of last 4-5 years. For the marketed products like timber, royalty rates fixed up by the department have been used and for the non-marketed products mainly used for self consumption, approximate price of similar goods (e.g. fuel wood, fodder) sold in the other areas is considered. In other words if these people had purchased such products from the market how much they would have paid. The values were calculated as under:

(a) Value of the Growing Forest Stock

To estimate the market worth of growing forest stock, the royalty rates (1998) were multiplied by the physical quantity in ‘000 cubic meter for individual species in various conservancy circles. Thus the growing stock of 102511 th. Cu.m. is valued at Rs. 40860 crores.

(b) Value of Salvage

For this value last four years volume and royalty (at subsidized rate) collected from H.P. State Forest Development Corporation were taken & average value is worked out. For annual salvage quantity of 3.50 lakh cubic meter, the state collected Rs. 32.28 crores as royalty.

(c)Value of timber drawn by right holders (TD)

To estimate for worth of timber for right holders, data for four years is averaged to arrive at volume granted for TD and the market price of timber sold in the market was considered as value. As the villagers hold rights for this removal almost entire market value of this timber goes as effective subsidy and as such no revenue accrues to the forest department on this account. But this source greatly supports the livelihood of rural communities. The volume extracted annually stands 1.06 lakh cubic metres, having market value of Rs. 60.25 crores whereas the actual revenue collected was only Rs. O.45 lakhs annually.

(d) Value of Fuelwood Requirement

Of the total State population of 51.70 lakh, 47 lakh persons(91%) live in rural areas. There are 8.61 lakh households in Rural Himachal Pradesh which put forward an average demand of 4 tonnes of fuelwood per year per household leading to total requirement of 34.44 lakh tones of fuelwood annually. This is extracted for self consumption and not traded through markets. Of this 20% of wood fuel energy is provided by on farm crop residues, dung and agro-forestry fuelwood and imports from neighboring states like Punjab, Haryana. If the remaining requirement of 80% (27.6 Lakh Tonnes) is valued at a conservative rate of Rs. 1000 per tonne (as per rate prevalent in other markets), the annual fuelwood requirement from forest shall have a value of Rs 276 crores.

(e) Value of Grasses & Grazing

Himachal Pradesh is a unique state in the sense that human and cattle population are almost in equal numbers. 14,346 Sq. Kms. of area covering dense forests (9,560 Sq. Km), open forests (2,961 Sq. Km.) and scrub forests (1,825 Sq. Km.) constitutes 38.78% of forest area & 25.76% of geographical area of the state has to provide grazing support to its 50.87 lakh livestock population. This population when converted into sheep units work out to 157.69 lakhs. Each sheep unit requires on an average 2 Kg of fodder everyday and thus put requirement at the tune of 730 Kg per annum per sheep unit of which 584 Kg (80%) is required from the forestry sector as rest is provided by other sources. This is also extracted for cattle consumption and not traded through markets. Thus 92 lakh tonnes of fodder is required from forests which is rated as Rs. 750 per tonne is worth Rs. 690 crores.

(f) Value of Minor Forest Produce

Medicinal herbs are considered as major components of non-timber forest produced. About 1161.56 tonnes of NTFPs are extracted and sold annually by Himachal Pradesh Forest Corporation which at prevailing royalty rates generate value of Rs. 24.98 crores

3.2 Valuing Direct Non-Consumptive & Indirect Benefits from Himachal Forest.

a) Valuing Eco-tourism & Recreaction Benefits

Looking to the rate of growth of tourists at 20% per annum, 66.56 lakh tourists were expected to visit in the year 1999-2000. The total number of tourists comprise of of Indian tourist & Pilgrims(49% each), 2% international tourists. Keeping a moderate expenses @ Rs. 5000 per tourist & expecting that 50% of expenses are due to forest / nature based tourism, the eco tourism value comes to Rs. 1664 crores. Using the estimated expenditure of Rs. 0.18 lakhs per hectare which the tourists are willing to incur on account of eco-tourism in India, (Chopra 1997), the value of eco-tourism for the state come to Rs. 6657 crores (Area under forests * Annual ecotourism value per hectare of forest).

b) Valuing Watershed Benefits

The state of Himachal in account of its location advantage provides large amount of watershed values to its downstream stakeholders who use these benefits in the form of water availability and regulation, soil conservation, silt control, flood control etc. but no payment or compensation is being paid to the upstream conservationists i.e. the forest department as such and large number of Joint Forest Management Committees (JFMCs). Considering the angle of horticulture & agriculture productivity changes on a account of soil & water conservation function provided by the forests using the rule of thumb, 10% of the production can be attributed of forests (using estimates of study titled 'Forests; A component of farming systems in Himachal Pradesh by D.V. Singh, 1996). Average production of crops stood at 2362 thousand million tones in recent years has market value Rs. 1954.81 crores. Attributing 10% this due to watershed value of forests, Rs. 195 crores should be attributed to forests. Similarly if we attribute 10% production of irrigation water & power generation to forests in the watershed, the value shall stand at Rs. 61 crores (10% of the contribution of power & irrigation sector to GSDP). In other words we can say Rs. 195 crore worth of agricultural & horticultural productivity & Rs. 61 crore worth of power & irrigation benefit would have been lost without forests.

In case of flood control, 2.31 lakh hectares of the area of the state is subject to yearly flood havoc. Approximate cost of works to be done under various flood protection programmes in Rs 621 crores. Using the same rule of thumb we could say the cost would have been 10% higher incase of less forests in the catchment area. Thus forests save Rs. 6.2 crores per annum in terms of flood proofing which is actually a lower bound estimate. The multiplier effects of flood control can further be calculated in terms of human lives saved, cattle heads saved, crop damage avoidance, avoidance of in undated agricultural areas & therefore production losses, avoidance of damage to public utilities such as roads bridges, water supply schemes, electricity & telephone lines etc. Further on account of existent forests, the rate of siltation gets checked. Else curative expenditure would have been incurred for dredging and sediment control. Thus contribution of forests in terms of avoidance cost must be acknowledged. Similarly ground water recharge due to water conservation function of forests could also be valued. Further many mineral water bottling companies use water flowing from upland forest regions for bottling but as such no payment again is made by them to forest department. These values have been listed only so as to further compound the benefits on account of watershed functions of Himachal forests. But for working out the overall watershed value of forests estimated of from a recent specific watershed study on Yamuna Basin by Chopra & Kadekodi (1997) in term of Rs./Hectare has been used. Thus the watershed value of entire forest area comes to Rs. 73972 crores annually (69% of total values). Many such values are actually embedded in the production system of various other sectors but their large proportion needs to be accounted under forestry sector.

(c) Value of Micro-climatic Factors

Making a broad estimate based on personal discussion it was found that Rs. 3000 per annum per household is spent on electricity charges on cooling devices in the plain areas, the households in Himachal save this on account of low temperatures due to forests in & around urban & rural areas. If we assign 50% of costs so saved in Himachal goes for heating devices per household to provide warmth during winter, when temperature is considerably low, (which is not so in case of plains) taking total number of households in Himachal Pradesh (9,69,018), the value accrue to the forest shall be 145.35 crores or we can say household in Himachal save worth Rs. 145 crores on account of microclimatic factos of forests.

(d) Value of Carbon Sink

The Growing stock of 10.25 crore Million cubic meter (excluding in the protection circles) provides an excellent sink for CO2 emission & thereby thus influence global climate. Thus it becomes essential to quantify and assess carbon stock & flows in forestry activities though the carbon sink function shall considerably vary with changing density of the growing stock but (Kadekodi & Ravindranath, 1998), taking the area only under dense, open & scrub forests i.e. 14, 346 sq. km. (14,34,600 hectares) which contain the growing stock & using all India value of Rs. 1.23 lakhs per hectare for carbon store function of forests (Manoharan, 2000), the Himachal forest tree cover & scrub forest provide Rs. 17,645 crore worth of carbon sink function. In this case if the forest in agricultural farm land, cantonment and urban areas are also considered, the value of carbon sink shall be even more.

(e) Value of Biodiversity

The forest of H.P. are rich in vascular flora which form the conspicuous forest cover 3,295 species constituting 7.32 % of species of the species found in the country are existent in the state. Biodiversity values are option value & provide an insight into potential future values of genetic information & organic compounds derived from wild plant & animal species found in tropical forests besides their, ´raw material’ value for the development of new crops cultivators, pharmaceutical products and peticides, among other use (Bishop, 1999). The value of bio diversity varies considerably according to its richness. In India it is estimated to be Rs. 0.21 lakh /hectare (Lal, 1991). Extrapolating it to the entire forest area of Himachal Pradesh, (36, 986 sq. km.) it come out be Rs. 7137 crores.

(f) Employment generation through forestry works.

Many state and central sector schemes going on in the state’s forestry sector provide employment through construction of roads, paths, buildings, soil conservation works etc. Such schemes on an average generate 48.80 lakh mandays of work which if rate at daily wage rate of Rs. 51/- generates value of Rs. 248 Crores.

3.3 Total Economic Value of Forests of Himachal Pradesh

The values so generated above are summarized in the following table. For calculating the Rs. / Hectare contribution of various benefits, the total geographical area under forests and area under actual tree cover are separately used as denominators to reflect two different values.

Table: 1 Economic Value of Forests of Himachal Pradesh (On Annual Basis)

Total geographical forest area of H.P.: 36,986 Km2

Area under tree cover & Scrub Forest: 14,346 Km2

Goods/services from Forests

Physical value

Monetary value (Rs. Crores)

Rs. Per ha. Value of goods/services in terms of total geo. Area of forests

Rs. Per ha. Value of goods/services in terms of area under tree cover and scrub forest






Total growing stock (one time value)

10.25 crores m3


1.10 lakhs


Economic Value of Direct and Indirect Benefits (on annual basis)

I. Direct Benefits

A. Direct Consumptive benefits


3.50 lakhs m3

32.00 (0.029)

0.08 thousand

0.22 thousand

2.Timber for right holders

1.06 lakhs m3

60.00 (0.056)

0.16 thousand

0.42 thousand

3. Fuelwood

27.60 lakh tons

276.00 (0.25)

0.75 thousand

1.92 thousand


92.0 lakh tons

690.00 (0.64)

1.86 thousand

4.81 thousand

5.Minor forest produce

1161.56 tons

25.00 (0.05)

0.067 thousand

0.17 thousand

Total Direct consumptive benefits

1083.00 (1.02)

3 thousand

7 thousand

B. Direct Non Consumptive Benefits


66.56 lakh - Tourists

6657 (6.22)

18 thousand

18 thousand

Total Direct Benefits (A+B)

7740 (7.24)

21 thousand

25 thousand

II. Indirect Benefits


6.77crore m3 - Growing stock in river Basin Forest Circle and 36986 km2 - entire forest area

73972 (68.94)

2.0 lakh

2.0 lakhs

8.Microclimatic factors

969018 Households

145 (0.13)

0.39 thousand

1 thousand

9.Carbon Sink*

14346 km2 - Area under tree cover and scrub forest

17645 (16.50)

4.7 thousand

1.23 lakhs

10.Biodiversity*/Endangered Species

8966- Total no. of species found in Himanchal Pradesh & 125 - Endangered species

7137 (6.67)

20 thousand

20 thousand

11.Employment Generation

48.40 Man days

248 (0.23)

0.67 thousand

2 thousand

Total Indirect Benefits (7+11)

99147 (92.76)

2.6 lakhs

6.91 lakhs

Total Economic Value(I+II)

106888 (100.00)

2.89 lakhs

7.45 lakhs

Note: (i) Values marked with asterisk (*) have been estimated using all India averages based on certain case studies, therefore average value per hectare for these goods and services are same in column (4) & (5).

(ii) Figures in column (3) are rounded off as they are broad estimates.

(iii) Figures in parenthesis are percentage of total economic value

Table 2: Contribution of Himachal Forests in GSDP

I. Forest Resource Contribution vs. Investment

1. Value of Growing Stock

Rs. 40860 Crore

2. Total Economic Value of Forests

Rs. 106888 Crore

3. Total Expenditure incurred in forest (Annual Budget)

Rs. 109 Crore

4. Revenue realised by forests

Rs. 41 Crore

II. Contribution of Forests to the GSDP

1. Total GSDP

Rs.9258 Crores

2. Forestry & logging

Rs. 487 Crores

3. Forestry as % of GSDP

Rs. 5.26 %

4. TEV of forests of HP (as per current estimation)

Rs. 106888 Crores

5. Corrected GSDP

Rs.116146 Crores

6. Forestry as % of corrected GSDP

92.00 %

The above table finds that total economic value is 2.61 times the value of the growing stock, 980 times the total expenditure incurred in the forestry sector of Himachal Pradesh and 2607 times the revenue realized by the forests annually. This comparison proves gross underestimation of forestry sector’s contribution in the economy of the state. Further when the GSDP of the state is corrected for Total Economic Value calculated through the current study the contribution of forestry sector increases from 5.26% of GSDP to 92.00 % of GSDP. Recently (August 2002) the total economic value of Himachal forests so estimated by the author has been used by the Himachal government to issue the notification for user agencies who are diverting forest lands for non forest use by imposing one time levy on them (Rs. 10 lakhs/hectare and Rs. 8 lakhs/hectare in dense and other forests respectively) besides the clause of compensatory afforestation, cost of catchments area treatment plan, rehabilitation of dumping sites etc. Thus H.P. has become the third state in India to impose an environmental value tax on agencies using forestlands where the major contribution comes from the watershed values of forests.


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[1] Associate Professor, Faculty of Forest Resource Economics and Management, Indian Institute of Forest management, Nehru Nagar, Bhopal - 462 003, M.P., India. Tel: 91-755-2775726/2773799; Fax: 91-755-2772878; Email: mverma@iifm.org; madhuver@hotmail.com
[2] The rate of excahnge used is One US $ = 47 Indian Rs.; One Crore = 10 Million; One lakh =.1 Million