Fiscal Fault Lines in India’s Disaster Response

Fiscal Fault Lines in India’s Disaster Response

• Disaster relief funding in India is becoming increasingly uneven, with a widening gap between assessed needs and actual funds released.
  o For example, the state of Kerala faced significant delays and funding shortfalls after the Wayanad landslides.
• This situation raises the question of whether India’s fiscal federalism—the financial relationship between the central and state governments—is shifting from cooperative funding to a more centralised and conditional system of disaster finance.

India’s Disaster Response Financing Framework

• The framework was established under the Disaster Management (DM) Act, 2005, which lays down legal provisions for disaster preparedness, response, and recovery.
• It operates on a two-tier structure to ensure disaster financing at both state and national levels.

State Disaster Response Fund (SDRF)

• The State Disaster Response Fund (SDRF) is jointly financed by the Centre and the States, typically in a 75:25 ratio.
• For Himalayan and north-eastern States, the financing ratio of SDRF is 90:10, with the Centre contributing more due to higher vulnerability.

National Disaster Response Fund (NDRF)

• The National Disaster Response Fund (NDRF) is fully financed by the Union government.
• NDRF is intended to supplement the SDRF when a calamity is officially classified as “severe,” a term not explicitly defined in the DM Act, 2005.

Key Institutional Issues in the Framework

• Relief norms under the framework are outdated, for example, compensation ceilings like ₹4 lakh for each life lost have remained largely unchanged for over a decade.
• The classification of disasters as “severe” is ambiguous, giving discretion to authorities to decide eligibility for NDRF assistance.
• Procedural requirements slow down aid release, as the process depends on sequential approvals including a State memorandum, central assessment, and high-level sanction.
• Finance Commission allocation criteria are weak, as allocations depend mainly on population and geographical area rather than actual hazard exposure.
• Disaster vulnerability is often approximated using poverty levels instead of a comprehensive disaster-risk index, which would more accurately reflect potential hazards and exposure.

Way Forward for Better Disaster Response Financing

• Global best practices suggest adopting automatic triggers and vulnerability-based allocations to speed up and rationalize funding.
  o For instance, the Federal Emergency Management Agency (FEMA) in the United States uses per capita damage thresholds to release funds based on estimated loss per person.
• Mexico’s former FONDEN system automatically released funds when predetermined rainfall or wind limits were exceeded.
• The Philippines uses rainfall and fatality indices to trigger quick-response funds for immediate relief.
• Several African and Caribbean insurance facilities utilize satellite data for rapid payouts to affected regions.
• Other recommendations include revising allocation criteria using a comprehensive vulnerability index and updating relief norms to reflect current realities.