Financial Mechanisms in Disaster Management: India’s Institutional Framework

When disasters strike, the immediate question that arises is not just about rescue and relief operations, but also about funding. India has developed a robust financial framework for disaster management, rooted in the Disaster Management Act of 2005. This legal foundation ensures that both central and state governments have dedicated resources to respond to emergencies, from cyclones and floods to earthquakes and droughts.

Legal framework for disaster financing 🔗

The Disaster Management Act, 2005 established a comprehensive framework through Chapter IX, which deals with Finance, Accounts and Audits. Sections 46-50 outline provisions for various funds at national and state levels, ministry allocations, and emergency procurement procedures. This legislative framework transformed disaster financing from an ad-hoc system to a structured, predictable mechanism.

The Act defines disaster as any significant event causing substantial loss of life, human suffering, property damage, or environmental degradation beyond the community’s coping capacity. This broad definition ensures that the financial mechanisms can be activated for various types of disasters, whether natural or man-made.

From relief funds to response funds: The evolution 🔗

India’s disaster financing has undergone significant transformation over the decades. Before 1990, states would approach the central government for financial assistance on a case-by-case basis after each disaster. The Ninth Finance Commission changed this by recommending the establishment of Calamity Relief Funds at state levels in 1990.

The CRF and NCCF era 🔗

The Calamity Relief Fund operated with a 75:25 funding ratio between the Centre and states for general category states, and 90:10 for special category states including northeastern and Himalayan regions. The Eleventh Finance Commission further recommended creating the National Calamity Contingency Fund in 2000 with an initial corpus of Rs. 500 crore to assist states during calamities of rare severity.

Transition to the current system 🔗

Following the devastating 2004 tsunami and the enactment of the Disaster Management Act in 2005, the financial architecture was renamed and restructured. The Thirteenth Finance Commission recommended merging the NCCF into the National Disaster Response Fund and the CRF into the State Disaster Response Fund. This transition was completed on April 1, 2010, marking a shift from calamity-focused relief to comprehensive disaster response.

National Disaster Response Fund: The central safety net 🔗

The NDRF, constituted under Section 46 of the DM Act, serves as the primary central fund for meeting expenses related to emergency response, relief, and rehabilitation. It operates under the Public Account of India as a reserve fund not bearing interest. The fund supplements state resources when a disaster exceeds state capacity.

Funding mechanisms 🔗

The NDRF is financed through the National Calamity Contingent Duty levied on certain items under excise and customs, approved annually through the Finance Bill. The Fifteenth Finance Commission allocated Rs. 54,770 crore for the NDRF from 2021-22 to 2025-26. Additionally, the central government has enabled contributions from individuals and institutions under Section 46(1)(b) of the DM Act, though this remains an underutilized funding source.

The assistance process 🔗

When states require NDRF assistance, they follow a structured three-tier mechanism. States first submit a detailed memorandum to the Ministry of Home Affairs showing sector-specific damages. The Ministry then constitutes an Inter-Ministerial Central Team to conduct on-ground assessments. Based on IMCT recommendations, a Sub-Committee of the National Executive Committee, headed by the Home Secretary, determines funding requirements.

Finally, a High-Level Committee chaired by the Union Home Minister, including the Finance Minister, Agriculture Minister, and NITI Aayog Vice-Chairman, approves the release of funds. Since August 2019, IMCTs are constituted immediately after severe disasters, even before receiving formal memorandums from states, ensuring faster response.

State Disaster Response Fund: The first line of defense 🔗

The SDRF, established under Section 48(1)(a) of the DM Act, represents the primary fund available to state governments for immediate disaster response. It covers notified disasters including cyclones, droughts, earthquakes, fires, floods, tsunamis, hailstorms, landslides, avalanches, cloudbursts, pest attacks, frost, and cold waves.

Funding structure 🔗

The central government contributes 75% of SDRF allocation for general category states and union territories, while special category states receive 90% central contribution. The annual central contribution is released in two equal installments based on Finance Commission recommendations. For the period 2021-26, the Fifteenth Finance Commission allocated Rs. 1,28,122 crore for SDRF.

Flexibility for local disasters 🔗

Recognizing regional diversity, states can use up to 10% of their SDRF allocation for local disasters not included in the officially notified list. However, this requires the State Executive Committee’s approval and clear, transparent guidelines for such disasters. This flexibility allows states to address region-specific challenges while maintaining accountability.

The State Executive Committee, headed by the Chief Secretary, manages SDRF funds and can extend assistance periods based on ground realities. Unspent balances must be invested as per prescribed guidelines, with interest earnings credited to the fund.

Beyond response: The mitigation funds 🔗

The Fifteenth Finance Commission made groundbreaking recommendations by creating separate funds for disaster mitigation alongside response funds. This resulted in the National Disaster Risk Management Fund and State Disaster Risk Management Funds, collectively encompassing both response and mitigation components.

The Commission allocated Rs. 13,693 crore for the National Disaster Mitigation Fund and Rs. 32,031 crore for State Disaster Mitigation Funds for 2021-26. These funds include earmarked allocations for specific purposes such as expansion and modernization of fire services, drought-prone state assistance, seismic and landslide risk management in hill states, urban flooding mitigation in populous cities, and erosion prevention measures.

Implementation challenges and reforms 🔗

Despite the robust framework, implementation faces challenges. States sometimes encounter delays in fund releases, particularly when their SDRF balances are considered adequate by central assessments. The adjustment of 50% of SDRF opening balance against NDRF releases can sometimes result in zero net outgo, even when High-Level Committee approves assistance.

The Standing Committee on Finance has recommended enhancing relief rates and scales, increasing SDRF corpus by 15% annually instead of the current 5%, and providing for automatic advance releases from NDRF during disasters of rare severity. These reforms aim to make the system more responsive to actual ground needs.

What do you think? How can India further strengthen its disaster financing mechanisms to ensure faster and more effective relief? Should there be greater autonomy for states in determining local disaster priorities within the existing framework?

References

1. https://ndmindia.mha.gov.in/ndmi/responsefund
2. https://www.drishtiias.com/daily-updates/daily-news-analysis/disaster-relief-funds-from-the-centre-1
3. http://www.arthapedia.in/index.php/Calamity_Relief_Funds_(CRF)
4. http://www.arthapedia.in/index.php/National_Calamity_Contingency_Fund_(NCCF)
5. http://www.arthapedia.in/index.php?title=National_Disaster_Response_Fund_(NDRF)
6. https://prsindia.org/policy/report-summaries/central-assistance-for-disaster-management-and-relief