Disaster Financing Crisis in India: 16th Finance Commission Formula and Odisha Paradox 

General Studies Paper – III: Technology, Economic Development, Bio-diversity, Environment, Security and Disaster Management

Context

India's geographical location makes it vulnerable to various natural disasters. Coastal states, particularly Odisha, stand at the front line of 'climate change'. Recently, the 16th Finance Commission has presented a new approach for the distribution of disaster funds. However, this new framework creates a serious paradox: on one hand, Odisha’s model of disaster management is appreciated globally, while on the other hand, in the new financial allocation, this very state is suffering the most significant loss.

Disaster Risk: Legal and Scientific Definition

Under the Disaster Management Act, 2005, a disaster is defined as a catastrophe occurring in an area that is beyond human capacity to manage.

But disaster 'risk', according to the modern scientific framework (per the IPCC’s 6th Report), is measured on three pillars:

• Hazard: Intensity of the natural event (such as a cyclone or earthquake).
• Exposure: The population and property present in the path of the hazard.
• Vulnerability: The inability to withstand a disaster (economic and social factors).

Why in News?

The 16th Finance Commission has allocated ₹2,04,401 crore for the State Disaster Response Fund (SDRF) (a 59.5% increase from the 15th Commission). Despite this, the main cause of controversy is the new 'multiplicative formula' of the Disaster Risk Index (DRI):

• Odisha’s Loss: There has been a sharp decline of 1.57 percentage points in Odisha’s share of disaster funds, which is the highest among all 28 states.
• Inequality: The share of 20 states has decreased. The shocking fact is that even though Odisha has the highest 'Hazard Score' (12) in the country, it is receiving less funding.

The 16th Finance Commission’s New Formula: Structural Problem

The Commission has used the formula: Disaster Risk Index (DRI) = Hazard × Exposure × Vulnerability. The problem lies not in the theory, but in its parameters:

Error in Exposure

• The Commission has measured 'Exposure' based on the state’s total population (on a scale of 1 to 25).
• Logic: UP received 25 and Sikkim received 1.
• Error: Scientifically, 'Exposure' means the population living in the disaster-prone area. The risk to a population of 10 crore living on a safe plateau is less than that of 3 crore people settled along a cyclone-prone coastline.

Narrowness of Vulnerability

• This has been measured by the inverse of the per capita Net State Domestic Product (NSDP).
• Error: This measures only 'fiscal capacity', not 'disaster vulnerability'. Vulnerability means the lack of proper housing (kutcha houses), poor health infrastructure, and a lack of warning systems, not just low income.

Odisha and Other States

Odisha: A Global Model of Disaster Management

Odisha has developed a 'Zero Casualty' model through investment over the last two decades:

• Investment: Early warning systems, multipurpose cyclone shelters, and community participation.
• Paradox: The state that made the deepest investment in disaster preparedness is receiving a financial 'penalty' instead of a 'reward'.

Constitutional and Legal Provisions

• Article 280: Gives the Finance Commission the power for the equitable distribution of resources.
• Seventh Schedule: Disaster management is not formally in any list, but it is the responsibility of both the Centre and the States through residual powers and the Concurrent List.
• Act of 2005: This sets the statutory mandate for the proper management of financial resources (State Disaster Response Fund/National Disaster Response Fund).

Necessary Changes: Suggestions for Reform

According to experts, the following improvements should be made to the formula:

• Population Data: Instead of total population, the population of 'risk zones' should be counted using the BMTPC Vulnerability Atlas and Census block data.
• Multidimensional Index: Data from NFHS-5, PM-Fasal Bima Yojana, and NHM should be used to measure vulnerability (e.g., % of kutcha houses, agricultural dependence).
• Institutional Standardization: The NDMA should be statutorily mandated to issue an annual 'State Disaster Vulnerability Index'.

Analysis: 'Risk vs. Population'

The current formula has become a 'population headcount' rather than a 'risk index'. It discourages states that:

• Have succeeded in population control.
• Are trying to reduce their 'vulnerability' through economic progress.

If a cyclone hits Odisha, the need for disaster relief depends on the affected 'coastal population', not the 'total population' of the state. The 16th Finance Commission’s current model ignores this fundamental scientific truth.

Way Forward

• Scientific Measurement: Funding should be removed from politics and administrative convenience and based on scientific data (like IMD and disaster atlases).
• Climate Resilience: Future climate projections should be included in fund allocation because the frequency of disasters in states like Odisha, Kerala, and Assam is set to increase.

Conclusion

It is imperative for India to prioritize 'Cooperative Federalism' and 'Fiscal Justice' in disaster financing. The 16th Finance Commission should make 'actual regional risk' and 'structural vulnerability' the basis of allocation instead of just population. A reduction in the security funds of disaster-prone states like Odisha could weaken the 'disaster resilience' developed by them over the years. Therefore, a scientific and risk-based financial framework is the fundamental cornerstone for ensuring the overall security of the nation.

Source - The Hindu Analysis