emissions originating from fuel use and production activities. A detailed description of the model, assumptions and corresponding equations is given in Annex 1.

4. This is the first time that a CGE model for India has looked at the trade-offs between economic growth and ―local‖ pollution mitigation.<sup>5</sup> The open economy model incorporates links among 57 sectors — various sectors within agriculture, manufacturing and services — of the Indian economy as well as links between the economic output of these sectors and air pollution emissions, principally PM10 and emissions of SO2 and NOx which give rise to health effects. Other CGE models for India have so far included only 11 to 36 sectors and have not tracked emissions such as PM10.

5. The model‘s database developed by the GTAP network<sup>6</sup> (GTAP database version 8 for 2007) includes data from the India‘s National Accounts. This was complemented with statistics on urban pollutants (from national statistical sources) and macroeconomic variables (i.e. growth rate projections and total factor productivity (TFP) from the literature). Specifically, the model was extended by several external inputs, such as demographics, labor productivity and labor supply, and corrected for environmental health impacts, sectoral coefficients for PM10 emissions.

# **Methodology**

6. In terms of the methodology, first, an economic growth scenario was developed, reflecting the most likely path that the Indian economy could follow from 2010 through 2030. This path represents the "economic baseline". The GTAP model was calibrated to reproduce actual GDP growth rates in the country during 2007-2010 and growth projections in line with World Economic Outlook projections.<sup>7</sup> While the recent IMF survey of the Indian economy suggests a robust 7-8 percent growth in the next few years in spite of a global economic slowdown, it will be necessary, according to the IMF, to focus on reinvigorating the structural agenda, rather than relying on monetary and fiscal stimulus to ensure sustainable growth. Measures to facilitate infrastructure investment, reform the financial sector and labor markets, and address agricultural productivity and skills mismatches stand out. Also according to IMF, reorienting expenditure toward social areas is vital to make growth more inclusive (which, in turn, would boost growth).<sup>8</sup> 7. Second, an "environmental baseline" was constructed according to our estimations of PM10 and other small particles.<sup>9</sup> Third, a health module was developed outside 5 Another CGE model that looks at the carbon impacts of different growth paths for India is Ojha, 2005, 2008. His model is much smaller (11 sectors) and does not look at local pollutants such as PM10.

6 The standard version of the model represents the world economy in the form of 57 sectors/economic units trading with each other for 113 countries/regions. In this study, India is disaggregated from the rest of the regions and from the other South Asian countries.

7 IMF (2011). World Economic Outlook: Slowing Growth, Rising Risks, September 2011.

8 IMF (2012). India: 2012 Article IV Consultation-Staff Report.

> 9 From the literature, the contribution to the costs of environmental degradation traditionally include not only PM10 and poor water supply and sanitation, but also groundwater depletion and soil degradation, which play a significant role in agriculture.  These are not included in this study due to data and modeling constraints.

4