Authors
1. Shri. Anil Kumar Sinha, IAS (Retd.) is Hon. Editor, Know Disasters Magazine.
2. Md. Altamash Khan is a Field Correspondent & Program Coordinator – Collaborative Advocacy, Sphere India.
3. Athar Imam Raza is a Public Policy Analyst, Skoch Group, Delhi.
Abstract
The 15 th Finance Commission has addressed all the layers, phases, aspects and dimensions of Disaster
Risk Management (DRM). It has taken into account not only the requirements of the law as envisioned
and enshrined in the Disaster Management Act 2005, but have taken a holistic look. It has adopted a
visionary, radical and holistic approach in taking due cognisance of all aspects of DRM currently as well
as emerging challenges and it definitely significantly alters the way financial provisions have thus far
been allocated for a comprehensive approach to dealing with and managing disaster risks in our country
with a view to reducing and mitigating the effects in the long run.
Context
Over the years, the disaster risk has increased both in terms of incidence and in terms of economic
impact. The financial and economic consequences of disasters can be mitigated through financial
management tools and available physical risk reduction measures (OECD, 2012). In India, since long the
Finance Commissions have been addressing this important aspect of financing for disasters.
The financing of disaster relief has been an important aspect of federal fiscal relations. There are
significant variations in the disaster profiles of different states and wide regional disparities in terms of
levels of economic development. This implies that the coping capacity of a majority of the states to deal
with disasters on their own is inadequate. This is compounded by the fact that the poorer states are
often the most disaster prone. The financing of disaster relief has, as a result, come to be firmly
accepted as a joint endeavor of the Central and State Governments.
The recent Fifteenth Finance Commission has acknowledged the expanding field of disaster
management. It has taken a very holistic and comprehensive approach in creating a financial structure
that will take note of various layers, phases, aspects and dimensions of Disaster Management in India.
Considering that mitigation funds had not been established at the national level and in most states,
replacement of the term ‘envisaged’ with ‘constituted’ is a significant departure in the scope of terms of
reference as compared to earlierFinance Commissions.
Introduction
The Finance Commissions are periodically constituted by the President of India under Article 280 of the
Indian Constitution to define the financial relations between the central government of India and the
individual state governments.
The First Finance Commission was established in 1951 by Dr. B.R. Ambedkar, the then-incumbent law
minister under The Finance Commission (Miscellaneous Provisions) Act, 1951. The most recent
Commission was constituted in 2017 and is chaired by N. K.Singh, a former member of the Planning
Commission.
Role of Finance Commission in Disaster Management in India
Disaster Management Act, 2005 led to the creation of institutional structures for disaster management –
NDMA, SDMAs and DDMAs. Their roles and functions are mandated by the Act and are also influenced
by the recommendations of Thirteenth and Fourteenth Finance Commissions (FC-XIII and FC-XIV). The
Terms of Reference of Fifteenth Finance Commission (FC-XV) have mandated the Finance Commission to
review the financial arrangements on financing Disaster Management initiatives, with reference to funds
constituted under the Act and make appropriate recommendations. Commission was asked to propose
measurable performance-based incentives for the states, at the appropriate level of government on the
basis of achievements in implementation of flagship schemes of Government of India, disaster resilient
infrastructure, sustainable development goals, and quality of expenditure.
For this, the Commission submitted two reports – one for the year 2020-21 and final report for an
extended period of 2021-22 to 2025-25. Both the reports have recommendations put in chapter 8 of the
15 th Finance Commission dedicated for the Disaster Risk Management.
Approaches of the previous Finance Commissions
The evolution of disaster risk financing in India dates back to more than six decades. The reports of First
Finance Commission had no mention of any relief or disaster related recommendations. Although the
term ‘financing of relief expenditure’ first found place in the ToR of FC-VI, Commissions from FC-II
onwards have commented on this subject. FC-II assessed the need to finance expenditure on relief as it
was ‘struck by the dislocation caused to the finances of many states by unforeseen expenditure on
calamities like famine, drought and floods’ and was ‘impressed with the need for making some
provisions to meet this type of expenditure’. FC-II initiated the ‘margin money scheme’ which envisaged
setting apart specific amounts by states in order to meet the expenditure on relief measures. FC-VI was
the first to be given a formal term of reference relating to the financing of relief expenditure. It stated:
‘The Commission may review the policy and arrangement in regard to the financing of relief expenditure
by the States affected by natural calamities and examine inter-alia the feasibility of establishing a
national fund to which the Central and State Governments may contribute a percentage of their
revenue receipts.’
Subsequent Commissions have also had similar provisions in their terms of reference. However, none of
the Commissions up to FC-VIII felt any necessity to change the system put in place by FC-II and adopted
the same approach.
FC-IX examined the then existing scheme of margin money and acknowledged the need for replacing the
‘existing arrangements of financing relief expenditure involving the provision of margin money,
preparation of States’ memoranda, visits of central teams, etc. by a scheme which is qualitatively
different in the sense that generous funds are placed at the disposal of the states and they are expected
to look after themselves in almost all situations’.
FC-IX recommended the establishment of a Calamity Relief Fund (CRF) 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 ending 1988-89; 75 per cent of the fund was to be contributed by the Centre and 25 per cent by the states. The ToR of FC-IX also required it to examine ‘the feasibility of establishing a national insurance fund to which the State Governments may
contribute a percentage of their revenue receipts’. FC-IX, however, concluded that providing insurance cover to all affected/ vulnerable people, most of whom are poor with little to insure, would not be a viable option and would run into serious operational difficulties.
Subsequent Finance Commissions advocated the continuation of the basic framework recommended by FC-IX. FC-X recommended putting in place certain operational arrangements for the CRF. It also recommended the setting up of a National Fund for Calamity Relief (NFCR) to assist any state affected by a calamity of rare severity. It suggested that such calamities would have to be adjudged on a case-by-case basis. Management of this fund was to be under a National Calamity Relief Committee chaired by the Union Minister for Agriculture. Both the Centre and the states would contribute to this fund. The objective of this fund was to create a sense of ‘national solidarity in a common endeavour which would then abide beyond the period of distresses’.
FC-XI continued with the prevailing system of the Calamity Relief Fund, while further refining the
administrative arrangements in this respect. It also reviewed the functioning of the National Fund for
Calamity Relief and found that not only had the entire corpus of the fund been exhausted in three years,
but also that it had failed to make adequate funds available for meeting the requirements of calamities
of rare severity. FC-XI recommended the setting up of a National Calamity Contingency Fund (NCCF) with
an initial corpus of Rs. 500 crore which was to be recouped through the levy of a special surcharge on
central taxes.
FC-XII observed that the CRF scheme had, by and large, fulfilled the objective of meeting the immediate
relief needs of the states. It ‘found considerable justification in widening the list of calamities’ and added
a few events to the list covered under the scheme. The Commission also recommended continuation of
the scheme of NCCF in its existing form.
The 13 th Finance Commission(29th Dec 2009) for the first time had a dedicated section as ‘Disaster
Relief’. With the enactment of the Disaster Management Act in 2005 and consequent changes in the
design and structure of disaster management, the FC-XIII recommended the merger and transfer of
NCCF balances, as on 31 March 2010, to the NDRF which was accepted and notified by the Union
Government. In the event of a disaster of ‘a severe nature’, in which the funds needed for relief
operations exceeded the balances in the SDRF account, additional assistance would be provided from
the NDRF after following prescribed procedures. Based on the recommendations of the FC-XIII, the
available balances in the CRF on 1 April 2010 were merged with the SDRF. The NCCF’s balance was
similarly merged with the NDRF. Since financial year 2010-11, the Union Government has been financing
the NDRF through the levy of a cess and the SDRF as grants-in-aid, based on the recommendations of
the FC-XIII. The Disaster Management Act has not framed specific rules for the merger of funds or for
the financing of the NDRF and SDRF.
The administrative mechanism for disaster relief was recommended to be formed as prescribed under
the DM Act, i.e., the National Disaster Management Authority (NDMA)/National Executive Council (NEC)
at the Centre and the State Disaster Management Agency (SDMA)/State Executive Council (SEC) at the
state level. Financial matters to be dealt with by the Ministry of Finance as per the existing practice.
(Paras 11.105 and 106)
The 14 th Finance Commission (FC-XIV) which was constituted on January 2, 2013 to make
recommendations for the period 2015-20 under the chairmanship of Dr. Y.V. Reddy had a whole
separate chapter for Disaster Management. It recommended that “while making appropriations into the
National Disaster Response Fund, past trends of outflows from it should be taken into account to ensure
adequacy of the Fund, while assuring the timely availability and release of funds to the States.” The
Commission also recommended that the past trends of outflows from NDRF while doing appropriation into it should be taken into account by the Union Government to ensure the adequacy of the Fund in order to assure timely availability and release of funds to the States.
The 15 th Finance Commission: 2021-2026
If we realise the very terminology used by 15 th Finance Commission (FC-XV, October 2020) in naming its
chapter-8 i.e. ‘Disaster Risk Management’ and the focus and intentions of the recommendations, we
may conclude it is going to bring about a paradigm shift in India’s disaster finances.
The 15 th Finance Commission observed that 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.
It was asked to submit two reports – one for the year 2020-21 and a final report for an extended period
of 2021-22 to 2025-26.
In its first report, the commission has briefly outlined the current mechanism of Disaster Risk
Management and has given 15-recommendations, which include – setting up of mitigation funds;
allocation of funds at national and state level; a new methodology to estimate DRM fund and the
allocation of funds to various states to cover both mitigation and response. From the total earmarked
grants for disaster management, both for the national and state corpus, 20 per cent was earmarked for
mitigation and the remaining 80 per cent for the response fund. The response fund was further
apportioned into three windows, namely Response and Relief, Recovery and Reconstruction and
Capacity Building in the ratio of 50.0:37.5:12.5. Further, four priorities were identified under the
National Disaster Mitigation Fund (NDMF) and two priorities under the National Disaster Response Fund
(NDRF).
The 15th Finance Commission has reviewed the recommendations along with feedback from the Union
and the State Governments. The Commission have also examined the context of the unprecedented
Covid-19 pandemic within the current framework of disaster management in India. They have taken into
account several considerations which include – the impact of climate change; the NDMA and SDMAs;
the provisions of the Disaster Management Act 2005 for the management of the Covid-19 pandemic;
the insurance industry and India being signatory to three large global frameworks, which were created
in 2015: Sustainable Development Goals (SDGs), Paris Agreement on Climate Change and Sendai
Framework on Disaster Risk Reduction (SFDRR).
To prepare the recommendations, it has commissioned two studies, in collaboration with the NDMA,
and organised workshops in collaboration with the United Nations Development Programme (UNDP),
the World Bank and Indian Institute for Human Settlements, Bengaluru. The Commission interacted
extensively with the NDMA and other specialists and appreciated that expertise in disaster management
have emerged with the necessary capacity and resources to take reforms and innovations to their logical
conclusions. The two broad conceptual approaches have simultaneously guided the deliberations and
helped frame recommendations in more forward-looking terms. It is envisaged that not only should the
Union and State Governments have adequate funds to deal with disasters, but these funds should also
be sufficiently diversified to support a framework which includes all aspects of disaster management.
Guiding Principles for the FC-XV
Based on a review of the established practices, both national and international, the 15th Finance
Commission report is guided by the following four principles. Guided by these principles, it has made
recommendations on all aspects of disaster risk financing:
i. The primary responsibility for disaster management rests with states
ii. A disaster management cycle consists of several functions – prevention, preparedness,
response, mitigation, recovery and reconstruction
iii. After subsuming a substantial amount of the National Calamity Contingency Duty (NCCD) into
the goods and service tax (GST) and the creation of SDMF and NDMF, the Union Government’s fiscal
space for disaster management at the national level has reduced significantly
iv. Recognising the importance of alternative sources of funding and the role that market
instruments can play in risk management.
National and State Disaster Mitigation Funds
The Commission is of the view that the mitigation fund created should be used for those local level and
community-based interventions which reduce risks and promote environment-friendly settlements and
livelihood practices. It would be desirable to link mitigation to climate change adaptation and use the
mitigation fund for supporting adaptation measures as well. Many interventions such as water resource
management, afforestation and livelihood diversification could be considered as helping both disaster
mitigation and climate change adaptation.
The Commission, taking cognizance of need for mitigation funds at both the national and state levels in
accordance with the provisions of the Disaster Management Act, has suggested allocations at these
levels. Mitigation funds should typically provide small grants for community-based local initiatives,
pursuing an approach which promotes adjustment with hazards through soft measures, rather than
controlling them through hard measures. However, the Commission found it an impractical of setting-up
of Disaster Fund at district-level.
Diversifying Funding Windows
The 15th FC has clearly diversified the funding windows into the following:
Recovery and Reconstruction Facility
The FC-XV has recommended setting up a Recovery and Reconstruction Facility, both within the SDRF
and NDRF, and suggested that 30 per cent of the resources available with these two funds be earmarked
for this purpose.
Preparedness and Capacity-building Grants
To support the critical institutional, functional and technological components of the disaster
management system, it would be essential to earmark allocations for preparedness and capacity-
building.
The Commission has recommended 6-types of earmarked allocations – two under NDRF (Expansion and
Modernisation of Fire Services; Resettlement of Displaced People affected by Erosion) and four under
NDMF (Catalytic Assistance to Twelve Most Drought-prone States; Managing Seismic and Landslide Risks
in Ten Hill States; Reducing the Risk of Urban Flooding in Seven Most Populous Cities; and Mitigation
Measures to prevent Erosion).
Over the feasibility of District Disaster Response and Mitigation Funds, the commission held
consultations with State Governments in the past on the issue of separate district-level funds. State
Governments have not supported the idea and suggested that the SDRF can take care of the
requirements at the district level as well. While setting up district-level disaster funds does not seem to
be a practical idea, the commission has recommended that State Governments must allocate resources
to districts for preparedness and mitigation on an annual basis. Empowering the district administration
is essential for improving disaster preparedness at the local level. Without the devolution of resources,
the district administration and local governments at the district, taluka and municipal levels would find it
difficult to support disaster management preparedness and implementation.
Empowering Urban Local Bodies (ULBs) Panchayati Raj Institutions (PRIs) for Disaster Preparedness and Management
Subsequent to the Seventy-Third and Seventy-Fourth Amendments, so far four Finance Commissions –
FC-XI to FC-XIV – have given their recommendations for local bodies. The ToR was the same for all the
Commissions. Each, accordingly, deliberated on the critical issues related to the effective functioning of
the local governments and made suitable recommendations.
Since the FC-X was constituted in 1992, a year before the Amendments came into force, its ToR did not
specify considering grants for the local bodies. However, it still recommended grants, which were
equivalent to 1.38 per cent of the divisible pool, to the rural local bodies and urban local bodies in order
to enable them to discharge the new role assigned to them during its award period.The 15 th Commission
has recommended the proportion of grants between rural and urban local bodies in the ratio of
67.5:32.5.
The Commission has acknowledged the role of panchayats crucial and necessary in view of their
proximity to the local community (including the weaker sections of society) and their ability to enlist
people’s participation on an institutionalised basis. Their involvement can provide a quick response to
disaster events – whether natural or man-made – and also sensitise people to deal with them and
minimise their dependence on the government for rescue and relief operations.
The Commission believes that the involvement of panchayats will lead to enhanced effectiveness of activities like rescue operations and arranging temporary shelters and also they can undertake several risk mitigation activities far more effectively. The Commission is of the view that State Governments should allocate some reasonable amount out of the allocation made for SDRF and SDMF to districts.
Strengthening Institutional Capacities and Improving Guidelines Based on the practices followed by Mexico’s FONDEN for natural disasters, the fifteenth Finance Commission has recommended setting up of dedicated capacity building alongside the allocations for the NDRF and SDRF within the Ministry of Home Affairs and Ministry of Finance. The management of such funds will actively be done by NDMA. Building up of such dedicated capacities would be helpful in strengthening of funds at the Centre as well as at the State level. Finance Commission has also recommended setting up of online system for the allocated funds of NDMRF and SDMRF through which tracking of funds released can be done easily. The online system will also be helpful in improving the adjustment process of funds released from the Union Government. Further, the commission has also recommended the two-stage system of assessment of the damages caused by the natural calamity at larger extent than the previous system of assessing such damages. The provision of assessing the damages post-natural calamity also been recommended and that should be done according to the Post-Disaster Needs Assessment (PDNA) system as defined by NIDM in its manual.
The commission has also stressed on the need of disaster database related to disaster assessments,
allocations and release of funds, and preparedness and mitigation plans. Such a database would help to execute the objectives of disaster management as well as in diversifying and improving insurance products and services. In a view to the gender imbalances within households, the commission has recommended that cash assistance should also be transferred to women member of the households so that access to the money in a household should be equal. It is quite obvious that the resources provided by NDRF and SDRF would not be sufficient in many situations. So in such cases, the Union and States must go for other sources like reconstruction bonds, contingent credit/standby facility with international financial institutions, crowd funding platforms and corporate social responsibility for funding the disasters. The role of NDMA in developing and maintaining the financial system is bigger. From setting up of mitigation fund and the recovery and reconstruction facility until the smooth functioning of SDMAs, NDMA has to keep close watch on every development. The commission has recommended NDMA to study the proposed four insurance interventions along with the existing public fund mechanisms and their feasibility with the relevant ministries. The proposed interventions would provide an additional layer of protection to the people. Such insurance mechanisms needed an attention from the NDMA that required partnership with insurance companies too.
Other key recommendations include allocation of disaster management funds to SDRMFs be based on
factors of past expenditure, area, population, and disaster risk index (which reflect States’ institutional
capacity, risk exposure, and hazard and vulnerability respectively).
Access to International Reinsurance for Outlier Hazard Events
The FC-XV has recommended exploring an additional layer of protection against extreme hazard events
through the international reinsurance market. It emphasizes that such a protection would have a
parametric feature, aimed at low-frequency, high-intensity disaster events, and would provide an
additional layer of protection through a global risk pool. The index for such disasters could be defined in
terms of magnitude and severity. For example, a great earthquake of magnitude 8 megawatt or a super-
cyclone could be the trigger for insurance pay-out.
15 th Commission – The Game Changer
Successive Finance Commissions have followed an expenditure-based approach to determine the
allocation of funds for disaster management to State Governments. In a significant departure from the
past, the report for the Year 2021-26 had recommended a new methodology, which is a combination of
capacity (as reflected through past expenditure), risk exposure (area and population) and hazard and
vulnerability (disaster risk index) for determining State-wise allocation for disaster management.
Similarly, it has recommended continuation of mitigation funds at both the Union and State levels –
National Disaster Mitigation Fund (NDMF) and State Disaster Mitigation Funds (SDMF) – to aid the
implementation of mitigation measures in States for the award period, as provided in the Disaster
Management Act, 2005. The six types of earmarked allocations within the overall allocation of National
Disaster Response Fund andNational Disaster Mitigation Fund(NDMF) shall also continue in order to
address certain priorities related to preparedness, mitigation and recovery through special initiatives. A
set of ideas and innovations which promote market-based instruments of risk management and identify
alternative sources of funding has also been presented.
The Commission has proposed four insurance interventions – National Insurance Scheme for Disaster-
related Deaths; Synchronising Relief Assistance with Crop Insurance; Risk Pool for Infrastructure
Protection and Recovery; and Access to International Reinsurance for Outlier Hazard Events.
The report made landmark recommendations for urban local bodies (ULBs) directly implying more
funding support for India’s cities as well as ushering in unprecedented governance reforms that could
improve the quality of lives in India’s cities in the long term.The total fund allocation for ULBs for the
next five years could well be in the vicinity of Rs 2 lakh crore – a watershed moment for financial
governance of India’s municipalities.
The 15th FC for the first time has recognised and brought to the centre stage the metropolitan
governance footprint, which is a welcome step and is essential to meeting the challenges of bad
ambient air quality, ground water depletion, sanitation, drinking water and solid waste management.It
also discussed about pressing issues of stopping dumping and providing collection and environmentally-
sound disposal services to all citizens as well as about the need to introduce alternative methods of
waste management in order to reduce waste disposal requirements.
Conclusion
Yes, this is one of the unique reports of the Finance Commission which has addressed all the layers,
phases, aspects and dimensions of DRM. It has taken into account not only the requirements of the law
as envisioned and enshrined in the DM Act, but have taken a holistic look. And therefore, the financial
structure created out of the recommendations is going to enable and strengthen the state governments,
the SDMAs and the district administrations, the DDMAs in terms of Capacity Building, Mitigation, and
Response.
However, since the District Disaster Management Authorities (DDMAs), being nearest to the grass-roots
level and the communities, are the most important of the three levels of authorities’ viz. NDMA, SDMA
and DDMA, there is clear need to look at its structure and build its capacities in terms of existing and
emerging challenges as invariably it is the district level which happens to be the first institutional
responder to a disaster situation in the district. Further, it should have a particular budgetary provision
as well depending on its disaster profile and history. Also, given the immense utility of Emergency
Operation Centres viz. command and control, response, rehabilitation, it is imperative that a nation-
wide network of multi-hazard resistant state-of-the-art EOCs is envisaged and set up over a period of
time. There is a need for separate funds to be earmarked for setting up and capacity building of network
of EOCs at the national, state and district levels.
It is evident that this Finance Commission has adopted a visionary, radical and holistic approach in taking
due cognisance of all aspects of disaster risk management currently as well as emerging challenges and
it definitely significantly alters the way financial provisions have thus far been allocated for a
comprehensive approach to dealing with and managing disaster risks in our country with a view to
reducing and mitigating the effects in the long run.
Nonetheless, let’s hope the day is not far when ‘Finance Commission’ becomes a more relatable topic
for us, and we discuss the impact of the FC on our urban and rural wallet along withrisks with as much passion as we discuss impact of the Union Budget on our personal wallets. We hope the 15th Finance Commission is certainly going to be a Game Changer in this direction in years to come.
References
https://digibuo.uniovi.es/dspace/bitstream/handle/10651/38992/TFM_JhonRangel.pdf?sequence=6&is
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https://en.wikipedia.org/wiki/First_Finance_Commission
For Basic questions on Finance Commission –
https://fincomindia.nic.in/ShowContentOne.aspx?id=8&Section=1
https://fincomindia.nic.in/ShowContent.aspx?uid1=3&uid2=0&uid3=0&uid4=0&uid5=0&uid6=0&uid7=0
13 th Finance Commission, Chapter 11 – Disaster Relief:
https://fincomindia.nic.in/writereaddata/html_en_files/oldcommission_html/fincom13/tfc/Chapter11.p
df
14 th Finance Commission, Chapter 10 – Disaster Relief
https://fincomindia.nic.in/writereaddata/html_en_files/oldcommission_html/fincom14/others/14thFCR
eport.pdf
15 th FC
https://fincomindia.nic.in/ShowContentOne.aspx?id=9&Section=1
https://digibuo.uniovi.es/dspace/bitstream/handle/10651/38992/TFM_JhonRangel.pdf?sequence=6&is
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https://www.financialexpress.com/opinion/15th-finance-commission-report-city-kitty-bang-
bang/2179422/
