Question

Q3. Consider the following statements about Natural Capital:

1. It can cover entire ecosystems such as fisheries and forests, besides other hidden and overlooked services such as regeneration of soil, nitrogen fixation, nutrient recycling, pollination and the overall hydrological cycle.

2. GDP estimates often exclude the variations in natural capital by assuming them to be constant and indestructible.

Select the correct answer using the codes given:

• A. a) 1 only
• B. b) 2 only
• C. c) Both 1 and 2
• D. d) None of the above

Answer 1

The correct option is C

c) Both 1 and 2

Natural capital

• It can cover entire ecosystems such as fisheries and forests, besides other hidden and overlooked services — for example, the regeneration of soil, nitrogen fixation, nutrient recycling, pollination and the overall hydrological cycle.
• Valuing such ecosystems can be challenging, with their market value often termed as zero.
• When pollution happens, it is actually a depletion of our natural capital as, for example,
• Acid rain damages forests and
• Industrial seepage affects water quality.
• In a modern economy, the challenge is to estimate such depreciation to natural capital.

GDP’s exclusion of Natural Capital

• GDP computations indicate the economic activity in a country, with rising GDP growth rate often leading to international prestige.
• However, such estimates often exclude the variations in natural capital by assuming them to be constant and indestructible.
• Such natural capital is often self-generating (water, clean air) but needs to be handled in a sustainable way in order to avoid depletion.