XV Finance Commission Recommendations

Do you know what is the basis of disaster financing in India?

Yes, it is based on the Finance Commission (FC) recommendations.

The FC recommendations decide both, the amount to be made available to the states, and the Union, and the ground rules for spending this amount.

The FC is constituted at five-year interval as provided by the Constitution (Art. 280), and the resources available, and ground rules applicable presently, i.e. for the period 2021-22 to 2025-26 for various disaster management related purposes are based on the recommendations of the XV FC.

The Covid crisis has certainly taken limelight away from various important issues, and this is evident from the fact that despite heralding a paradigm shift in disaster financing in India not many are fully aware of the recommendations of the XV FC.

It is worth noting out here that the XV FC recommendations are a major milestone in disaster financing in India for two reasons; (ii) it diverges from the traditional approach of expenditure based resource allocation, and took note of the disaster risk faced by the states, (ii) it for the first time provides dedicated resources for pre-disaster mitigation, and capacity building related activities.

It therefore becomes necessary for everyone to be aware of the highlights of the XV FC recommendations.

Background

In India, states have the primary responsibility for responding to disasters while the Union Government provides the complimentary support in the form of additional financial, and technical assistance whenever necessary. Before finalizing its recommendations XV FC carried out an in depth analysis of the existing disaster management system, and brought forth the following points:

• Most disaster-related expenditure incurred by the states out of State Disaster Response Fund (SDRF) that is augmented by National Disaster Response Fund (NDRF) in case of disasters of rare severity.
• The disaster management system is biased in favour of response rather than adopting a holistic approach by earmarking financial allocations for preparedness, response, mitigation, recovery, and reconstruction.
• Though stipulated by Disaster Management Act, 2005 mitigation funds are not created, despite directions of the Supreme Court.
• Adequate importance is not paid towards developing the capacities of the institutions responsible for handling disasters.
• XIII FC no doubt provided grants for capacity building, but these were discontinued by XIV FC.
• Expenditure-based approach has been pursued for determining SDRF/CRF allocation of the states.
• XIV FC recommended risk and vulnerability assessment to support the process of resource allocation, but the same was not carried out.
• The expenditure-based approach has increased the divergence in the allocations between the states with low initial allocation, and expenditure, and those with higher base of this expenditure, creating a highly asymmetric situation.
• 90:10 contribution to SDRF for all states as recommended by the XIV FC was not implemented as the Union government decided to continue with the pattern of 75:25 for general states, and 90:10 for North-East, and Himalayan states that was recommended by the XIII FC.
• The Union government, in its Action Taken Note on XIV FC recommendations however stated that with the implementation of the goods and service tax (GST), the sharing pattern of 90:10 would be implemented for all States. But with partial implementation of GST, and the substantial reduction in the NDRF corpus following the discontinuation of a large number of cesses contributing to the National Calamity Contingent Duty (NCCD), the Union government continued with the 75:25 sharing pattern.

The recommendations

After detailed deliberations with various stakeholders as also experts XV FC made the following recommendations:

Mitigation Funds

• Mitigation funds to be set up at both national, and state level in the form of a National Disaster Mitigation Fund (NDMF), and State Disaster Mitigation Funds (SDMF) as provided by the Disaster Management Act, 2005 (Ss. 47 and 48).
  

  

• Mitigation funds to be utilized for local level, and community-based interventions that reduce the risks, and promote environment-friendly settlements, and livelihood practices.
• Large-scale mitigation interventions to be pursued through regular development schemes, and not from the mitigation fund.
• Detailed guidelines for the operation of mitigation funds to be issued by the Ministry of Home Affairs (MHA) in consultation with National Disaster Management Authority (NDMA).
• Mitigation funds to be supervised by the NDMA at the national level and State Disaster Management Authorities (SDMAs) at the state level as per the Disaster Management Act, 2005 (Ss. 47 and 48).

Allocation of Funds for Disaster Risk Management

• National Disaster Risk Management Fund (NDRMF), and State Disaster Risk Management Funds (SDRMF) created.
• In view of strained Union finances due to significantly reduced NCCD collection following the implementation of GST, and creation of mitigation fund, share of Union and state governments towards SDRF, and SDMF to be in 75:25 ratio.
• The share of the North-East and Himalayan states to be 10%.
• Allocation of SDRMF to be Rs. 1,60,153 crore for the period 2021-22 to 2025-26 of which the Union share is Rs. 1,22,610 crore.
• Share of SDRF and SDMF to be 80%, and 20% respectively of SDRMF.
• Three sub-allocations provided under SDRF; (i) Response and Relief (40% of SDRMF or 50% of SDRF) (ii) Recovery and Reconstruction (30% of SDRMF or 37.5% of SDRF), and (iii) Preparedness and Capacity Building (10% of SDRMF or 12.5% of SDRF).
• Flexibility provided for re-allocation within the three sub-windows of the SDRF but such re-allocation not to exceed 10% of the allotted amount of that sub-window.
• Departing from the expenditure-based approach state wise allocations assessed using a methodology that reflects risk, and vulnerability profile of each state. This methodology is a combination of (a) capacity reflected by past expenditure, (b) risk exposure reflected by area and population, and (c) proneness to hazard, and vulnerability reflected by disaster risk index.
• In view of reduced NCCD collections, Union government to make annual budgetary provision for disaster financing from its own resources.
• Allocation for NDRMF to be Rs. 68,463 crore for the period 2021-22 to 2025-26.
• The NDRMF allocation to be subdivided into funding windows (NDRF and NDMF) similar to that of the states’ allocation.
• NDRF, and SDRF allocations for the period 2021-22 to 2025-26 to be Rs. 54770 crore, and Rs. 128122 crore respectively.
• NDMF, and SDMF allocations for the period 2021-22 to 2025-26 to be Rs. 13693 crore, and Rs. 32031 crore respectively.
• Allocation for Response and Relief component under NDRF, and SDRF for the period 2021-22 to 2025-26 to be Rs. 27385 crore, and Rs. 64061 crore respectively.
• Allocation for Recovery and Reconstruction component under NDRF, and SDRF for the period 2021-22 to 2025-26 to be Rs. 20539 crore, and Rs. 48046 crore respectively.
• For recovery and reconstruction assistance each disaster to be followed by a Post-Disaster Needs Assessment (PDNA); undertaken by the state for relatively small-scale disasters, and jointly by the Union, and state governments in case of disasters of rare severity.
• The PDNA to cover damage, loss, recovery, and the reconstruction needs of different sectors such as housing, infrastructure, livelihood, and the others. Such an assessment to indicate entire inter-sectoral needs and the annual requirements of each such sector.
• MHA to issue guidelines for recovery and reconstruction assistance under NDRF/SDRF in consultation with the NDMA.
• Allocation for Capacity Building under NDRF, and SDRF for the period 2021-22 to 2025-26 to be Rs. 6846 crore, and Rs. 16015 crore respectively.
• Preparedness and capacity-building grant to support the SDMAs, State Institutes of Disaster Management (SIDM), training and capacity-building activities, purchase of emergency equipment and emergency response facilities.
• Preparedness and capacity-building grant not to be used towards establishment expenditures.
• Preparedness and capacity building grant available under NDRF to be used to support national agencies.
• MHA to issue guidelines for preparedness and capacity-building grants.
• MHA to review norms of assistance and issue fresh guidelines providing requisite flexibility to the state governments.

Earmarked Allocations

• XV FC has earmarked some resources within NDRF and NDMF for certain priorities related to preparedness, mitigation and recovery such as fire incidents, coastal and river erosion, urban flooding, landslides and drought that cut across states and have acquired national dimensions.
• 6000 crore earmarked within the NDRF for the period 2021-22 to 2025-26 for two priorities: (a) expanding and modernisation of fire services; Rs. 5000 crore, and (b) resettlement of displaced people affected by coastal and river erosion; Rs. 1000 crore.
• 5950 crore earmarked within NDMF for the period 2021-22 to 2025-26 for four priorities: (a) catalytic assistance to twelve most drought-prone states for preparing district-level drought mitigation plans, Rs. 1200 crore; (b) managing seismic and landslide risks in ten hill states, Rs. 750 crore; (c) reducing the risk of urban flooding in seven most populous cities, Rs. 2500 crore; and (d) mitigation measures to prevent erosion, Rs. 1500 crore.
• State governments to contribute 10 per cent of the allocated resources under these priorities, except for assistance to twelve most drought-prone states and managing seismic and landslide risks in ten hill states.
• MHA and/or NDMA to frame the guidelines for these earmarked allocations.

Expanding and modernisation of fire services

Rs. 5,000 crore to be allocated for strengthening fire services at the state level through the preparedness and capacity-building component of the NDRF for the period 2021-22 to 2025-26. The states to submit specific proposals for these funds to MHA.

Catalytic assistance to twelve most drought-prone states for preparing district-level drought mitigation plans

Rs. 1200 crore earmarked out of NDMF for Andhra Pradesh, Bihar, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Odisha, Rajasthan, Tamil Nadu, Telangana, and Uttar Pradesh for the period 2021-22 to 2025-26; Rs. 100 crore each, in order to develop long-term district-level drought mitigation plans to address the challenges posed by successive droughts.

Managing seismic and landslide risks in ten hill states

Rs. 750 crore to be provided out of NDMF for seismic and landslide risk reduction programmes for the period 2021-22 to 2025-26; Rs. 250 crore each to Himachal Pradesh and Uttarakhand and Rs. 250 crore for all the states in the North-East.

Reducing the risk of urban flooding in seven most populous cities

 Rs. 2500 crore to be provided out of NDMF to enable the cities with a population of more than five million for the period 2021-22 to 2025-26; Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Ahmedabad, and Pune, to prepare integrated solutions for flood management, in view of the regular incidence of flooding and heavy losses. Rs. 500 crore for each of the three metros (Mumbai, Chennai and Kolkata) and of Rs 250 crore each for the four other cities (Bengaluru, Hyderabad, Ahmedabad, and Pune).

Mitigation measures to prevent coastal and river erosion

Rs. 1500 crore to be allocated out of NDMF to mitigate the risk of erosion for the period 2021-22 to 2025-26. The states to submit specific proposals for undertaking erosion mitigation works to MHA.

Resettlement of displaced people affected by coastal and river erosion

Union and the state governments advised to develop a policy to deal with the extensive displacement of people caused by coastal and river erosion. Rs. 1000 crore allocated under recovery and reconstruction window of the NDRF for the implementation of this policy for the period 2021-22 to 2025-26. The state governments to submit specific proposals for the assistance to resettle displaced people.

Hope by now you have fair idea of the kind of resources that are  available for disaster risk reduction. This would help you in effective planning so as to avail benefit of the various new funding windows that have been made available; Mitigation Fund as also Recovery and Reconstruction and Preparedness and Capacity Building components of SDRF.