Extracted from a presentation in the Plenary session of the 5th World Congress on Disaster Management, New Delhi on Technology, Finance, Capacity for Building Disaster Resilience.
In the wake of COP-26 which emphatically brought to fore the vulnerability of the developing countries and the vast majority of the population inhabiting these countries to the vagaries of climate change and resultant disasters, building resilience against disasters assumes importance in development discourse.
When we visualize resilience holistically, are our extant financial outlays and mechanisms adequate? What are the existing mechanisms and what are their limitations? What should be the approach? And, where do we stand in terms of policy and response?
Historically in India, the approach to disaster financing has been viewed as a contingent liability of the government. Thus, once the liability is met the task of government is seen to be over. No steps were contemplated in reducing risk. During the late 1870s, the first Famine Commission suggested the formulation of Famine Codes with a view to taking preparedness measures for meeting situations of failure of rains, but these were limited to building buffer stocks of food and fodder. Even after Independence, disaster management efforts were limited to fighting natural calamities, particularly severe droughts resulting in famines or famine-like conditions. The enactment of legislation on Disaster Management (DM) in 2005 brought about a paradigm shift by viewing DM as a continuum where a proactive strategy would cover a wide range of functions encompassing relief and response, preparedness and mitigation, as well as recovery and reconstruction.
The 13th FC had very perceptively noted that in India disaster relief has long come to be viewed as a public good, to be delivered gratis by the state. The variations in the disaster proneness profiles of different states and wide regional disparities in terms of levels of economic development makes the financing of disaster relief an important feature of federal fiscal relations. While the States, as per assigned constitutional allocation of responsibility, are the front-line for providing disaster relief and take up post-disaster reconstruction, for calamities of significant magnitude, the Centre has become the focal point for providing additional assistance beyond the financial capacity of the States. Finance Commissions, since the 2nd FC have therefore felt it necessary to provide for mechanisms to factor the requirements on this account for each of the States.
Briefly, from the 2nd till the 8th FC, the Commissions, included in the estimate of the states’ committed expenditure, a ‘margin for enabling them to set apart annually from their revenues sizeable sums to be accumulated in a fund for meeting expenditure on natural calamities’. These were calculated, state-wise, based on the average expenditure on relief in the past decade. It was the 9th FC which examined the then existing scheme of ‘margin money’ and acknowledged the need for replacing it with a scheme which was qualitatively different. The 9th FC recommended the establishment of a Calamity Relief Fund for each state, the size of which was decided on the basis of the average of the actual ceiling of expenditure approved for a state over a 10-year period. 75 per cent of the fund was to be contributed by the Centre and 25 per cent by the states. Subsequent Finance Commissions, up to the 14th FC continued with the basic framework recommended by 9th FC based totally on the past expenditure profile of the states with incremental recommendations to improve both the design of the scheme and its operational framework.
A notable feature of the entire approach was the traditional perception that limited the scope of the idea of “calamity relief” as a non-plan item of expenditure. It was felt first in the 10th Plan, and later elaborated more extensively during the 11th Plan and 12th Plan, that State Governments need to make full use of the existing plan schemes and give priority to implementation of schemes that would strengthen resilience to reduce disaster risks. It was recognized that prevention and mitigation are socially and economically more profitable investments than relief and rehabilitation. In effect, disaster mitigation components that built resilience needed to be built into all development projects.
How has this system worked? In the two decades since 2000-01 up to 2019-20 (i.e the period from the 11th to the 14th FC), the SDRF (erstwhile CRF) releases to states ranged from 0.05 % to 0.08 % of GDP. The releases from the Centre through NDRF (erstwhile NCCF) has been about half of that, i.e in the range of 0.03 to 0.04 %. It would be of interest to note that against the demand of the States, the FCs provided a mere 6-7 % of the requirements under SDRF. In terms of the allocations and utilization from the Plan funds, there is absence of data as to the extent States have invested in building disaster resilience or making the lives of poor and vulnerable more secure against disaster risks. However, the broader impact of these allocations is reflected in improved early warning and preparedness nationally and, consequently, reduced human mortality over the years.
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. Though there has been a certain degree of predictability in the dispensation designed by the FCs, the arrangement also suffered from multiple funding windows which often work in silos.
In contrast with the past, and in a welcome departure from the past expenditure based approach, the 15th FC took a more comprehensive view of the provisions under the DM Act by expanding the scope of disaster relief management to include relief and response, recovery and reconstruction, preparedness and mitigation by combining mitigation and adaptation. It introduced mitigation funds namely earmarked allocation 20 per cent of the total with the balance 80 per cent flowing to the disaster response funds.
It has also recommended exploring in due course of time alternative options of reconstruction bonds, borrowing from international financial institutions, crowd funding, expanding the scope of CSR funds and insurance and risk pooling in niche areas to supplement public expenditure by the Centre and the States.
Even though the 15th FC award increased the share of disaster grants substantially over the past, is this enough in terms of the massive requirements for building disaster resilience in the country? Given the limitations of the available fiscal space and stickiness of government expenditures, what then are the options for financing disaster resilience encompassing, mitigation, adaptation and loss and recovery?
One immediate solution lies in a review of the Central Sector and Centrally Sponsored Schemes to find the necessary resources. If we list the major schemes and interventions that the Centre implements and categorize them into the very broad baskets of mitigation and adaptation we find that in 2019-20 about 64 percent of the total expenditure of Rs.11.37 lakh crores will fall into those baskets, in 2020-21 (RE) almost 80 percent of the total expenditure of Rs.16.37 lakh crores and in 2021-22 (BE) 67 percent of the total of Rs.15.82 lakh crores. The current dispensation provides for 25 percent of the scheme money to be used as a flexi-fund that can be used for such activities that will lead to mitigation and adaptation requirements. In effect, therefore, rationalizing and restructuring of CSS and CS schemes will enable the government to push, within the available fiscal space, investment into key areas of a magnitude in multiples of what the 15th FC has provided.
To conclude, such an effort would enable an expanded expenditure programme to not only revive growth but provide the much needed thrust to reduce risks on lives and livelihoods of a very large mass of the population. It will also strengthen India’s continuing efforts to be in the forefront of the battle to combat climate change.
Ajay Narayan Jha is former Finance Secretary, Government of India; and former Member, Fifteenth Finance Commission.
The views expressed in the post are those of the authors only. No responsibility for them should be attributed to NIPFP.