Answer

Introduction

The recent Centre–State friction over funding for the 2024 Wayanad landslides has exposed weaknesses in India’s disaster-financing system. Large gaps between assessed losses and Union assistance highlight structural strains in fiscal federalism under the Disaster Management Act, 2005. Strengthening this framework is crucial to ensure cooperative, timely, and rule-based disaster response.

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Vulnerabilities in Fiscal Federalism Exposed

• Widening gap between losses and aid: States face large funding shortfalls as central assistance often covers only a fraction of assessed damages.
  Eg: Kerala sought ₹2,200 crore after Wayanad but received only ₹260 crore.
• Outdated and inflexible relief norms: Low compensation ceilings and rigid expenditure rules leave States unable to support reconstruction.
  Eg: Norms such as ₹4 lakh for lives lost and ₹1.2 lakh for damaged houses remain unchanged for a decade.
• Discretion in disaster classification: Absence of clear criteria for declaring ‘severe’ disasters gives the Centre excessive control.
  Eg: Delay in classifying Wayanad as a severe disaster limited Kerala’s access to higher NDRF funds.
• Procedural and approval bottlenecks: Aid release depends on multi-layered approvals rather than automatic triggers, slowing response.
• Misinterpretation of SDRF balances: States are penalised for temporary unspent balances even when these reflect committed works or late installments.
  Eg: Kerala’s SDRF balance of ₹780 crore was cited to justify reduced assistance.
• Flawed allocation criteria: Finance Commission allocations based on population/area overlook real hazard exposure.

Reforms the 16th Finance Commission Should Prioritize

• Update relief norms: Raise compensation amounts and align them with present-day costs to support meaningful recovery.
• Adopt objective, rule-based triggers: Use rainfall intensity, fatalities per million, or loss-to-GSDP ratios for automatic fund release.
  Eg: Countries like Mexico and the Philippines use objective indicators for quick payouts.
• Create a vulnerability-based allocation formula: Develop a scientific disaster-risk index incorporating hazard exposure, climate risks, and local capacities.
• Ensure grant-based, not debt-based, support: Disaster relief should not push States into additional borrowing or fiscal stress.
• Give operational autonomy to States: Permit States to utilise SDRF flexibly for livelihood restoration and reconstruction, while Union oversight remains post-audit.
  Eg: SDRF’s limited scope forced Kerala to retain funds and slowed response.
• Streamline processes: Reduce bureaucratic steps in NDRF approval and introduce time-bound disbursement protocols.
  Eg: Repeated delays across Kerala, Tamil Nadu (Cyclone Gaja), and Karnataka (2019 floods).

Conclusion

India’s disaster-financing framework is under increasing strain, as frequent climate shocks heighten Centre–State tensions. The 16th Finance Commission must adopt transparent, vulnerability-based, rule-driven reforms to rebuild trust and strengthen cooperative federalism. A resilient, equitable system is vital for protecting citizens and preserving constitutional balance.

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