India’s Disaster Risk Financing | 02 Dec 2025

Source: TH 

Why in News?

The Union Government recently sanctioned only Rs 260 crore in disaster relief to Kerala following the devastating Wayanad landslides of July 2024, against the State’s estimated losses of Rs 2,200 crore.  

• This glaring disparity has reignited debates around the weakening of cooperative federalism and the increasing centralisation of disaster-risk finance in India. 

What is India’s Current Disaster-Financing Framework? 

• 15th Finance Commission (2021-22 to 2025-26): Expanded India’s disaster-financing architecture beyond the earlier response-only funds, the National Disaster Response Fund (NDRF) and State Disaster Response Fund (SDRF) created under the Disaster Management Act, 2005.  
  • It recommended separate mitigation funds at both levels, leading to the creation of the National Disaster Risk Management Fund (NDRMF) and State Disaster Risk Management Funds (SDRMF), combining relief and  mitigation into a unified risk-management framework. 
  • The 15th Finance Commission (2021–26) allocates disaster-management funds primarily on population, total geographical area, and historical spending trends. 
• State Disaster Response Fund: Primary fund with States for immediate relief (food, shelter, medical aid, compensation). 
  • Funded 75:25 (Centre:State) for general States and 90:10 for Northeast & Himalayan States. 
  • Covers notified disasters such as floods, cyclones, earthquakes, landslides, etc. 
  • States may use up to 10% for local disasters based on State-defined norms. 
  • The annual Central contribution is released in two equal installments as per the recommendation of the Finance Commission. 
• National Disaster Response Fund (NDRF): It supplements SDRF when a disaster is declared “severe” and SDRF is insufficient. 
  • NDRF is entirely funded by the Central Government. 
• National & State Disaster Risk Management Funds (NDRMF & SDRMF): As recommended by the 15th Finance Commission central government had constituted the National Disaster Mitigation Fund (NDMF) in 2021 and also advised all the State Governments to set up State Disaster Mitigation Fund (SDMF) in the State.  
  • So far, all the States, except Telangana, have initiated the setting up of SDMF. 
  • The Centre contributes 75% of SDMF for general states and 90% for North-Eastern and Himalayan states, strengthening long-term resilience across vulnerable regions. 
  • These funds support states in implementing mitigation projects such as flood control, landslide prevention, and seismic safety. 

What are the Concerns with India’s  Disaster-Financing Framework? 

• Widening Union–State Fiscal Asymmetry: States often receive far less than the losses they report, leading to a growing gap between assessed needs and actual NDRF/SDRF disbursements, weakening cooperative federalism. 
• Outdated Relief Norms: Compensation amounts (e.g., Rs 4 lakh per life lost and Rs 1.2 lakh for fully damaged houses) have not kept pace with rising costs, leaving households unable to rebuild. 
• Ambiguous ‘Severe Disaster’ Classification: The Disaster Management Act, 2005 does not define the ‘Severe Disaster’ term clearly, creating scope for discretion and selective approval of NDRF support. 
• Procedural Delays & Uneven Relief Allocation: Fund release requires multiple clearances ( from the State’s memorandum, to central assessment teams, to the Home Ministry and high-level approvals), slowing relief when speed is crucial. 
  • The Centre delayed classifying the Wayanad landslides as a severe disaster, limiting Kerala’s access to higher NDRF support, reflecting growing gaps between actual losses and central aid. 
• Distorted Allocation and Misinterpretation: Risk funding is poorly aligned because the Finance Commission relies on population and area instead of scientific hazard exposure, 
  • The centre often counts committed SDRF funds as “unspent,” even though they are already earmarked for ongoing work, leading to a misleading picture of underutilisation. 
• Inadequate Local Capacity: Many DDMAs and urban local bodies lack staff, GIS capability, digital tools, and planning capacity, hampering implementation even when funds are available. 
• Centralisation Trends: Increasing reliance on conditional approvals and discretionary fund releases suggests a shift away from cooperative federalism towards a more centralised model of disaster financing. 

Disaster Risk Financing Across the Globe 

• United States: Uses objective, data-driven triggers, such as per-capita damage thresholds, to automatically release federal aid. This reduces discretion and speeds up relief. 
• Mexico: Released funds automatically when rainfall, wind speed, or hazard thresholds were crossed. This rules-based model ensured quick payouts and reduced political interference. 
• Philippines: Uses rainfall and fatality indices to activate Quick Response Funds, enabling rapid, predictable support for local governments. 
• African & Caribbean Risk Insurance Pools: Uses parametric insurance powered by satellite data. Payouts are triggered when predefined hazard metrics are met. 
• Australia: Links federal disaster assistance to a state’s relief expenditure as a share of its revenue, ensuring accountability and timely support.

What Reforms are Needed for an Effective and Equitable Disaster-Financing System in India? 

• Create Objective, Rule-Based Triggers: Shift to automatic fund release using clear indicators like rainfall intensity, crop loss, fatalities, and loss-to-GSDP, backed by a scientific Disaster Risk Index.  
  • Expand hazards to cover landslides, cloudbursts, avalanches, and pest attacks, and promote parametric insurance, better crop and property insurance, and regional risk pools. 
• Update Relief Norms: Revise compensation amounts for death, house damage and livelihood loss to match current costs and inflation, replacing decade-old figures. 
• Strengthen Federal Balance: Ensure NDRF/SDRF allocations are timely, transparent and predictable, and prevent conditional or negotiated fund release that weakens cooperative federalism. 
• Improve Finance Commission Criteria: Replace population- and area-based allocations with a scientific multi-hazard vulnerability index, incorporating GIS risk maps and climate-exposure data. 
• Enhance Local-Level Capacity: Strengthen DDMAs, urban local bodies, and panchayats with trained staff, GIS tools, fire services, and emergency operation centres. 
  • Expand SDMF and NDMF utilisation for flood protection, slope stabilisation, cyclone shelters, early-warning systems, and resilient infrastructure. 
  • Scale up Aapda Mitra–like programs and local volunteer networks to support first response and last-mile disaster governance. 

Conclusion 

India’s disaster-financing system is under strain, with widening gaps between assessed losses and actual central aid weakening cooperative federalism. As climate shocks intensify, a predictable, rules-based and equitable funding framework is essential to protect both States and citizens during future disasters.