Context: Between 2019 and 2024, states requested approximately ₹1.5 lakh crore from the Central government. However, the Central Government has released only ₹29,263 crore under the National Disaster Response Fund (NDRF).
Relevance of the Topic: Mains- Concerns with the present disaster financing framework.
Financial Assistance Framework for Disaster Management in India:
- The Financial Assistance Framework for Disaster Management includes two primary mechanisms:
- State Disaster Response Fund (SDRF):
- Centre provides 75% of the amount for general-category States.
- 90% for the north-eastern and Himalayan States.
- The remaining contribution is done by respective state governments.
- National Disaster Response Fund (NDRF):
- Fully funded by the Central government to assist the States when SDRF funds are exhausted.
Disaster Financing in India:
- Role of State Governments:
- First response to disasters- organising rescue, evacuation and relief and providing people with assistance.
- Responsibility for recovery and reconstruction also lies primarily with State Governments.
- Fund these activities using SDRF.
- Can request additional financial assistance from NDRF, by submitting memorandums to the Union Government.
- Role of Union Government:
- Extends secondary support to states via NDRF and Armed forces.
- NDRF replenishes and reinforces the State funds following a set of guidelines.
Funds created by Disaster Management Act, 2005:
Disaster Management Act, 2005 lays down the framework for disaster financing in India. The act establishes the following funds:
1. National Disaster Relief Fund (NDRF):
- Supports the State Government in the event of severe calamities, where the requirement of funds for relief operations is beyond SDRF.
- The State Government is required to submit a memorandum indicating the sector wise damage and requirement of funds.
2. State Disaster Relief Fund (SDRF):
- The State Disaster Response Fund shall be used only for meeting the expenditure for providing immediate relief to the victims of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack, frost, and cold wave.
3. National Disaster Mitigation Fund (NDMF) & State Disaster Mitigation Fund: (SDMF):
- Though provided in the Disaster Management Act, 2005, these funds had not been operationalised.
- The 15th Finance Commission has recommended the constitution of NDMF and SDMF.
- The Mitigation Fund would be used for local level and community-based interventions to reduce disaster risks and promote environmentally friendly settlements.
Concerns with the present disaster financing framework:
- Lack of focus on Mitigation: Allocations made through the SDRF and NDRF help governments meet their contingent liabilities in the face of disaster. However, these allocations do not help in reducing contingent liabilities (failure to reduce disaster risk).
- Lack of flexibility for states: Current guidelines for providing relief from the SDRF and NDRF are determined by the Central Government. States have been demanding greater flexibility for their unique needs of certain areas, especially remote and hilly terrains.
- Limited list of disasters eligible: Many State Governments have been arguing for widening the scope for inclusion of several calamities in the eligible list of disasters for funding support from the SDRF and NDRF. However, most of these calamities are State-specific or region-specific and can be difficult to quantify. For example, Heatwaves, river and coastal erosion, fire hazards, lightning deaths are not eligible for ex gratia assistance.
- Limited quantum of funds allocated to SDRF and NDRF: Current practice of allocating funds to SDRF and NDRF is based on past expenditures incurred by States and Union government on Disaster Management and Relief. The expenditure-based approach tends to favour better off states, which can allocate resources and show higher expenditures. Risk and vulnerability to disasters are currently not taken into consideration.
- Inability of states to meet matching grants towards SDRF: Mandates relating to operating of disaster-related funds require the States to transfer their matching share towards the SDRF along with Union's share received by them. However, some States do not make transfers into the public account maintained by them in a timely manner. This results in inadequate funds being available with States to tackle disasters of a severe nature and they seek additional central assistance from the NDRF.
- Exclusion of long-term or permanent restoration works from the ambit of NDRF/SDRF: Existing norms for disaster relief from SDRF and NDRF do not provide sufficient funds for reconstruction of housing and infrastructure, resettlement of people from floodplains, coastal and hilly areas. This forces states to look after the World Bank or Central Government for long term resettlement and recovery efforts.
- Slow process: Current process of assessment for the determination of Union assistance through the NDRF as well as its release is slow. Often funds required for disaster relief are required immediately, especially after severe disasters.
- GST regime: NDRF was financed by National Calamity Contingent Duty (NCCD). However, a substantial amount of NCCD has been subsumed under the GST. NCCD is currently being levied on very few products such as Tobacco and crude petroleum. This leaves very less fiscal space for the Union Government to finance the NDRF. Thus, the central government will have to incur additional fiscal deficit for financing NDRF.
Recommendations to strengthen disaster financing in India:
- Focus on Disaster Mitigation: NDMF and SDMF should be operationalised which should amount for 20% of overall funds allocated to NDRF and SDRF.
- Risk based fund allocation: Allocation to SDRF should be a combination of capacity (as reflected by expenditure), risk exposure (area and population) and hazard and vulnerability (risk index).
- Separate window for long-term reconstruction: A separate Recovery and Reconstruction facility should be created with SDRF and NDRF with about 30% allocation. This will help people affected by disasters on a long-term basis.
- Separate window for capacity building: Current disaster financing mechanism overlooks capacity building required to effectively respond to disasters in the States. Capacity building measures like early warning systems and emergency equipment etc. are essential for effective disaster management. Thus, a separate window for capacity building should be created in SDRF and NDRF.
- Constitution of District level Disaster Response and Mitigation Funds: State Government can allocate resources to districts for preparedness and mitigation of disaster on an annual basis.
- Using flex-fund component of CSS towards Disaster Management: States hit by severe disaster should be permitted to use more than the 25% flexi-fund component of centrally sponsored schemes to carry out post-disaster permanent restoration works.
- Mainstreaming Disaster Insurance Pool: After the liberalisation of India's insurance industry, it is essential to leverage insurance sector to substantially reduce the financial burden of disaster management by households, particularly well-to-do ones.