Disasters in India are becoming increasingly frequent and intense due to climate change, urbanization, and environmental degradation. According to the IMD (2024), India recorded 2,227 deaths due to extreme weather events in 2022. The economic losses from disasters are estimated to exceed ₹50,000 crores annually.
Significance of Disaster Risk Financing:
1. Ensures Timely and Adequate Relief:
- DRF enables rapid mobilization of funds for rescue, relief, and rehabilitation.
- Prevents delays due to bureaucratic procedures or intergovernmental friction. For e.g., Post-Cyclone Michaung (2023), delay in NDRF funds hindered quick recovery in Tamil Nadu.
2. Reduces Fiscal Stress on Governments:
- Acts as a financial buffer, reducing dependence on ad hoc borrowing or reallocating development funds.
- Helps maintain macroeconomic stability during disaster shocks.
3. Promotes Risk Awareness and Preparedness:
- Linking finance to risk exposure encourages investments in mitigation, early warning systems, and resilient infrastructure.
4. Protects Development Gains:
- DRF ensures that poverty alleviation, infrastructure, and social programs are not reversed by recurring disaster impacts.
5. Encourages Public-Private Partnerships:
- Integrates insurance, reinsurance, and catastrophe bonds, leveraging private capital for risk reduction and resilience.
6. Supports Vulnerable Communities:
- When targeted effectively, DRF provides livelihood security, housing assistance, and social protection, especially to the poor, women, and marginalized groups. For instance, Parametric crop insurance could help millions of farmers mitigate climate-induced losses.
7. Aligns with Global Commitments:
- Supports India’s obligations under the Sendai Framework (2015–2030), Paris Agreement, and SDG Goal 13 (Climate Action) by ensuring a risk-informed financing approach.
Structural Weaknesses in India’s Disaster Risk Financing System:
1. Relief-Centric, Not Risk-Reduction Oriented:
- Existing funds like SDRF and NDRF focus only on post-disaster relief and compensation, not on risk mitigation or climate adaptation.
- The National and State Disaster Mitigation Funds (NDMF/SDMF), provided for in the Disaster Management Act, 2005, remain non-operational.
2. Expenditure-Based Allocation, Not Risk-Based:
- Fund allocation is based on historical expenditure, which favours wealthier states.
- There is no formal integration of vulnerability or exposure levels in determining SDRF amounts. For Example, Northeast states with high seismic risk often receive less due to lower past spending.
3. Lack of Flexibility and Autonomy for States:
- States must adhere to centrally defined guidelines for spending from SDRF/NDRF, limiting flexibility to address local-specific risks like heatwaves or coastal erosion.
- For instance, Heatwaves, lightning, and erosion—responsible for thousands of deaths—are often excluded from official assistance norms.
4. Delayed and Bureaucratic Relief Disbursal:
- NDRF assistance involves submission of detailed memorandums, field visits by inter-ministerial teams, and multi-layered approval processes causing significant delays. For example, Post-Cyclone Fengal (2024), Tamil Nadu’s request for ₹6,675 crore faced inordinate delays.
5. Underutilization of Insurance and Risk Transfer Instruments:
- There is limited use of insurance mechanisms to protect assets and livelihoods.
- Parametric insurance and catastrophe bonds, used globally, are largely absent in India.
6. Inadequate Long-Term Reconstruction Support:
- SDRF/NDRF cover only immediate relief, not rehabilitation, resettlement, or resilient reconstruction.
- States often borrow from multilateral banks (e.g., World Bank) for rebuilding efforts.
7. Weak Institutional Capacity at Sub-National Levels:
- District Disaster Management Authorities (DDMAs) are poorly funded and understaffed.
- Local governments lack technical expertise and financial independence.
Measures to Strengthen Disaster Risk Financing in India:
1. Operationalize Mitigation Funds (NDMF and SDMF):
- Allocate at least 20% of the total disaster funds for proactive risk mitigation projects such as flood control, climate-resilient agriculture, and retrofitting. As per the 15th Finance Commission’s recommendation, these funds can support local and community-based resilience.
2. Adopt Risk-Based Fund Allocation:
- Use metrics such as the Disaster Risk Index (DRI), developed by the 15th FC, to allocate funds based on hazard exposure, population vulnerability, and adaptive capacity. This aligns with the Sendai Framework (2015-2030), which emphasizes risk-informed budgeting.
3. Create a Dedicated Reconstruction and Recovery Window:
- Allocate 30% of SDRF and NDRF for long-term rebuilding of infrastructure, housing, and livelihoods, ensuring climate resilience.
4. Promote Insurance-Based Risk Transfer Models:
- Develop parametric insurance schemes (triggered automatically based on measurable disaster parameters) for crops, infrastructure, and small businesses.
- Encourage micro-insurance for vulnerable populations, using platforms like Jan Dhan-Aadhaar-Mobile (JAM). For Example, African Risk Capacity (ARC) has used parametric models for drought compensation—India can replicate similar models.
5. Enhance Financial Autonomy and Flexibility for States:
- Allow flexi-use of SDRF for state-specific disasters and increase the ceiling of flexi-funds in centrally sponsored schemes for disaster recovery.
6. Establish a National Resilience Fund (NRF):
- Create a dedicated resilience and adaptation fund supported by:
- National Calamity Contingency Duty (NCCD)
- Green bonds
- CSR contributions
- Carbon market proceeds
7. Institutional Reforms for Faster Fund Disbursal;
- Digitize the damage assessment and fund release mechanism.
- Use drones, GIS, and AI for rapid verification of damage and needs assessment.
8. Strengthen Local Governance and Capacity:
- Empower DDMAs with annual budget lines and trained personnel.
- Encourage district-level Disaster Response and Mitigation Funds with local planning mandates.
9. Mainstream Climate and Disaster Financing Across Sectors:
- Integrate DRF into urban planning, agriculture, and infrastructure development.
- Align disaster spending with programs like Smart Cities Mission, Jal Shakti Abhiyan, and PM-Awas Yojana.
Conclusion:
As climate-induced risks intensify, the need for proactive, risk-informed, and locally empowered financial systems is urgent. A comprehensive overhaul integrating resilience building, insurance mechanisms, and technology-driven fund allocation can transform India’s disaster governance into a model of sustainable and inclusive resilience.
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