Disaster Risk Management Financing based on the Report of the Fifteenth Finance Commission (India)

     I.           Introduction: Natural disasters cost India $80 billion in 20 years[1]. As a reaction to mitigate this, the disaster management system until recently laid too much emphasis on response and expenditure-based approach to determine the allocation of funds for disaster management. Four years since the adoption of the Sendai Framework https://ndma.gov.in/Global/sendai-framework, the government has been focusing on reducing mortality from major disasters and from small or medium, and locally specific disasters (Target A).[2] The responsibility of disaster risk financing under the current mechanism of Disaster Risk Management is shared between the States and the Union Government, with the former bearing the primary responsibility for responding to disasters – organizing rescue, evacuation, and relief and providing people with assistance – and the Union Government providing the secondary support in the form of additional financial and technical assistance whenever necessary. The XIV Finance Commission (FC-XV) https://fincomindia.nic.in/ has adopted a holistic approach by earmarking financial allocations for preparedness, response, mitigation, recovery, and reconstruction.

     II.           Development of Disaster Risk Financing: Disaster Management Act, 2005 expanded the area of concern and action of both the Union and State Governments to a wide range of disaster management functions. The Act also led to the creation of a new institutional structure for disaster management, with the setting up of the National Disaster Management Authority (NDMA) and State Disaster Management Authorities (SDMAs). The NDMA and SDMAs, which have become well-established institutions, have expanded the scope of disaster management beyond the traditional response-and-relief functions to include preparedness, mitigation and recovery and reconstruction. The World Bank and ADB have been among the most important sources of financial assistance for post-disaster recovery and reconstruction in India. The FC-XV has dedicated chapter 6 on Disaster Risk Management in its first report for the year 2020-21 and chapter 8 in a final report for an extended period of 2021-22 to 2025-26.

After any disaster event, the responsibility for recovery and reconstruction lies primarily with the State Governments. The Union Government extends secondary support through deploying the National Disaster Response Force and the armed forces at the request of State Governments. The Union Government and its agencies also provide financial and technical assistance whenever necessary. As a result, it is the State Governments that incur most of the expenditures on disaster management. These expenditures are, at present, met through the State Disaster Response Fund (SDRF). When States exhaust their SDRF resources, they can request financial assistance through the National Disaster Response Fund (NDRF) by submitting memorandums to the Union Government. (Guidelines for National Disaster Response Fund, Ministry of Home Affairs, Disaster Management Division)

The NDRF replenishes and reinforces the State funds following a set of guidelines. This has been the central feature of disaster risk financing in India, and it has met the requirements of States for disaster assistance on a predictable basis. The broader impact of these allocations is reflected in improved early warning and preparedness nationally and, consequently, reduced human mortality over the years. However, as disaster risk has increased – both in terms of incidence as well as economic impact – the existing disaster risk financing arrangements appear less than adequate in terms of both source and application. It is now envisaged under FC-XV that NDMA should take a leadership role in developing and maintaining the financial system for disaster management and work closely with the SDMAs. 

    III.           Assessments under FC-XV: In public finance, disasters are looked upon as a contingent liability of the state. Governments should invest in estimating risk exposure and taking appropriate measures to reduce contingent liabilities. The NDRF and SDRF, which function as dedicated reserve funds, are presently the only financial mechanisms for meeting the contingent liabilities. When risk exposure is high and contingent liabilities could increase significantly, multiple instruments and funding windows need to be introduced to meet these liabilities. The significant reduction in collections under the NCCD following the implementation of GST, puts a substantial constraint on the availability of Union finances for disaster risk financing.

The expenditure on disaster response and relief across States has increased from Rs. 14,008 Cr. in 2011-12 to Rs. 29,448 Cr. in 2018-19. The share of all States is 25%, except for the North-Eastern and Himalayan (NEH) States which shall contribute 10 %). 

For a period of 2021 to 2026 in the figure below, disaster management (blue) and earmarked financial allocations (brown) for different functions, covering both relief and mitigation as per provisions made under the Disaster Management Act, for the creation of a National Disaster Risk Management Fund (NDRMF) and State Disaster Risk Management Funds (SDRMF) and proposed allocation as per FC-XV is as below.  

[1] UNISDR and CRED report, Economic Losses, Poverty and Disasters 1998-2017

[2] Statement made at the Global Platform for Disaster Risk Reduction (2019)