India’s disaster risk financing needs to evolve as new options emerge
It often begins with a tremor underfoot. Or the rising howl of wind over the coastline. Or the dull, ceaseless drum of rain on rooftops that quickly evokes panic once streets begin to fill. Disasters don’t arrive with subtlety. They crash into lives, homes, cities and the economy with devastating regularity. In just the past five years, India has been battered by cyclones like Amphan and Tauktae, floods in Bengaluru, Assam and Chennai, landslides in Wayanad and erratic monsoons. The price tag? Assessed to be upwards of a staggering ₹50,000 crore annually in economic losses.
And yet, when the waters recede and the headlines fade, a quiet cost must be borne: ex-post funding from public coffers and debt to patch things up. Past Finance Commissions addressed these by providing nuanced funding for pre-disaster activities aimed at reducing the risk and intensity of future disasters. The model of ‘spend after loss’ was not only inefficient but unsustainable for our developmental aspirations. While enormous strides have been made in risk assessment, early warning, mitigation and preparedness to reduce fatalities and infrastructure damage, a lot more remains to be done.
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Let’s rewind to the early days of India’s disaster risk financing history. In the 1950s, the Second Finance Commission (FC) recommended ₹6 crore annually under ‘Margin Money’ to help states cope with natural calamities. It was largely a symbolic gesture, but the regularity and severity of disasters pushed successive FCs to raise allocations substantially. The 8th FC scaled it up to ₹240 crore annually. The 9th FC, recognizing a need for state-level autonomy, introduced the Calamity Relief Fund. This was a turning point.
The new millennium brought new urgency. The Gujarat earthquake and 2004 Indian Ocean tsunami served as brutal wake-up calls. The 11th and 12th FCs upped allocations considerably, but the approach largely remained reactive—with funding in response to a calamity, rather than anticipating or preventing it and mitigating its impact.
The Disaster Management Act of 2005 finally gave India a legal institutional framework with clear terms of reference to comprehensively tackle disasters. This legal scaffold paved the way for the 13th FC to institutionalize the National and State Disaster Response Funds (NDRF and SDRF). For the first time, the idea of structured, rule-based disaster financing took hold. And yet, one part stayed conspicuously underfunded: preparedness and mitigation—the silent work of preparing before the storm.
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The 15th FC, spanning 2020-21 to 2025-26, changed that. It not only recognized the scale of risks we face, but also proposed a financial architecture to match it. With ₹1.60 trillion allocated for states and ₹68,000 crore for the Centre—including ₹45,000 crore earmarked just for mitigation—this implied a shift to ‘Build now or pay later.’ Equally important was the adoption of a Disaster Risk Index (DRI), a data-driven formula to guide allocations based not on past expenditures but actual vulnerabilities. It marked the transition from a welfare mindset to a resilience mindset. For the first time, we were preparing for disasters.
However, this evolving framework has its limits. Rapid urbanization has turned cities into flood traps. A single rainstorm can paralyse a metropolis. Climate change has escalated the severity of storms, making once-rare events routine. Livelihoods in villages and small towns can be destroyed by disasters if they don’t get financial support.
The cost of recovery is rising—and with it, a troubling trend. In the absence of pre-arranged risk financing, governments tended to lean on multilateral development banks (MDBs) for loans to fund recovery efforts. While this is a valid emergency option, it is no substitute for national financial resilience. Borrowing to rebuild after every flood or earthquake only shifts the burden onto future generations.
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As we await recommendations of the 16th FC, some interesting new ideas have emerged. Risk-retention models are making way for risk sharing via pre-arranged financing tools like contingency buffers, catastrophe risk pools and parametric models that can release funds swiftly without delay. We also need to consider support for household-level resilience and encourage communities to adopt personal risk coverage, not just for crops and property but also lives and livelihoods.
We must foster a culture of self-protection. We must also focus on urban resilience through dedicated funds for climate-adaptive infrastructure and the retrofitting of critical but vulnerable assets. And finally, we need a strategy that ensures disaster funds aren’t merely ‘available’ but accessible, flexible and aligned with the risk landscape.
It is imperative to transform India’s disaster risk management, as guided by the Prime Minister’s 2016 Ten-Point Agenda for disaster relief and rehabilitation. In a disaster-prone world, India must become a nation where resilience is built-in, not bolted on; a country that does not scramble for funds after a disaster strikes, but is financially prepared. True independence is not just about sovereignty over land, but also about sovereignty over disaster recovery.
The author is senior consultant (DRF) at the National Disaster Management Authority.
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