Disaster Financing in India: NDRF, SDRF, NDMF and UPSC Notes (UPSC Environment)

Disaster financing is the system of funds and fiscal mechanisms through which India pays for preparedness, response, relief, reconstruction and mitigation of disasters. It mirrors the federal distribution of disaster management responsibility: states lead, with the Union providing secondary support. The Disaster Management Act, 2005 set up this architecture, and the 15th Finance Commission overhauled it by operationalising mitigation funds. For UPSC aspirants, disaster financing is a core GS Paper III theme that intersects with federalism and public finance.

How the current framework works

• State governments are the first responders. They organise rescue, evacuation, relief and early recovery.
• Recovery and reconstruction also lie primarily with state governments.
• Most disaster expenditure is incurred by states and met through the State Disaster Response Fund (SDRF).
• When SDRF is exhausted, states request additional Central assistance through the National Disaster Response Fund (NDRF) by submitting memoranda.
• Union Government extends secondary support through NDRF and by deploying armed forces and paramilitary forces at the state's request.
• NDRF replenishes and reinforces state funds following a set of guidelines.

Why financing matters more than ever

Climate change is increasing the frequency and intensity of extreme weather events. India has seen large-scale floods in Tamil Nadu, Kerala and the North-East; devastating cyclones in Andhra Pradesh, Odisha and West Bengal; recurring droughts in Maharashtra and Karnataka; GLOFs in Uttarakhand and Sikkim; and historic heatwaves in North India. Each event tests fiscal capacity.

Funds under the Disaster Management Act, 2005

National Disaster Response Fund (NDRF)

• Used when calamity severity exceeds SDRF capacity.
• State submits memorandum with sector-wise damage and fund requirement.
• Inter-Ministerial Central Team visits the site for assessment.
• Release determined as per SDRF/NDRF norms.

State Disaster Response Fund (SDRF)

• States contribute 25 percent, Centre 75 percent (90 percent for NE and Himalayan states).
• Used only for immediate relief to victims of cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack, frost and cold wave.

National Disaster Mitigation Fund (NDMF) and State Disaster Mitigation Fund (SDMF)

• Provided in the DM Act 2005 but not operationalised for a decade.
• Recommended for operationalisation by the 15th Finance Commission (2020-25).
• To be used for local, community-based interventions that reduce disaster risk and promote environmentally friendly settlements.

Concerns with the present framework

Lack of focus on mitigation

SDRF and NDRF allocations help governments meet contingent liabilities during a disaster. They do not reduce those liabilities over time. Mitigation (structural and non-structural measures) is the strategic missing piece.

Inflexibility for states

Current guidelines for relief are determined centrally. States have sought greater flexibility for unique needs, especially in remote and hilly terrains.

Limited list of eligible disasters

Heatwaves, river and coastal erosion, fire hazards, lightning deaths, GLOFs and similar disasters are not always eligible for ex gratia assistance. These are often state- or region-specific and difficult to quantify.

Expenditure-based allocation

Current allocation is based on past expenditures by states and the Union. Better-off states that can allocate and spend more receive more. Risk and vulnerability are not factored in directly.

State contribution failures

Some states do not transfer their matching share to SDRF in time, leaving inadequate funds for severe disasters and forcing additional NDRF requests.

Exclusion of long-term reconstruction

Existing norms do not provide sufficient funds for reconstruction of housing and infrastructure, resettlement from floodplains or hilly areas. States rely on the World Bank or ad hoc Central assistance for long-term recovery.

Slow process

Assessment and release of Union assistance through NDRF is often slow, whereas post-disaster needs are immediate.

GST regime impact

NDRF was earlier financed by the National Calamity Contingent Duty (NCCD). A substantial portion of NCCD has been subsumed under GST, leaving it levied on only a few items like tobacco and crude petroleum. This reduces fiscal space for NDRF, forcing the Centre to incur additional fiscal deficit.

Recommendations (mostly from 15th Finance Commission)

Operationalise mitigation funds

NDMF and SDMF should amount to 20 percent of overall funds allocated to NDRF and SDRF, channelled to risk reduction.

Risk-based fund allocation

SDRF allocation should combine capacity (expenditure), risk exposure (area and population) and hazard-vulnerability (risk index).

Separate recovery and reconstruction window

About 30 percent of SDRF and NDRF should be earmarked for long-term reconstruction to help disaster-affected communities recover.

Capacity building window

Dedicated funding for early warning systems, emergency equipment, training and planning, which are essential for effective disaster management.

District-level funds

States can allocate resources to districts for annual preparedness and mitigation.

Flex-fund component of CSS

States hit by severe disasters should be permitted to use more than the 25 percent flexi-fund component of Centrally Sponsored Schemes for post-disaster permanent restoration.

Mainstreaming disaster insurance

Leverage the private insurance sector through a disaster insurance pool to reduce the financial burden of disaster response on households, especially well-to-do ones. Parametric insurance (trigger-based) is an emerging tool.

15th Finance Commission reforms

The 15th Finance Commission recommended:

• Rs 1,60,153 crore for SDMF and SDRF combined over 2021-26.
• Allocations based on capacity, risk exposure and hazard-vulnerability.
• Operationalisation of NDMF with 20 percent of NDRF allocation.
• Separate windows for response, recovery and mitigation.

Latest developments (2024-26)

• 15th Finance Commission period (2021-26) implementation on track, with mitigation funds operationalised in most states by 2024.
• Disaster Management (Amendment) Bill, 2024 introduced in Parliament to strengthen NDMA, state authorities and to clarify district-level responsibilities.
• Heatwave notification: 2024 and 2025 saw historic North Indian heatwaves; several states declared heatwave a state-specific disaster using their discretionary authority, a long-standing demand.
• Wayanad landslides (July 2024) and subsequent Kerala flood relief request; inter-ministerial team dispatched under standard NDRF protocol.
• Parametric disaster insurance pilots in Nagaland and Odisha in 2024 for cyclones and floods.
• COP29 Baku (2024): India advocated for strengthening the Loss and Damage Fund, which has a bearing on disaster financing for climate-attributable events.
• BBNJ Treaty signed September 2024 has indirect implications for marine disaster response.
• CAG audits have highlighted persistent gaps in SDRF utilisation in several states.

UPSC Relevance

Prelims focus

• Disaster Management Act, 2005 and its four funds (NDRF, SDRF, NDMF, SDMF).
• 15th Finance Commission recommendations on disaster financing.
• Contribution ratio: 75:25 for SDRF (general states), 90:10 for NE and Himalayan states.
• Eligible disasters list.
• Disaster Management (Amendment) Bill, 2024.
• Loss and Damage Fund.

Mains focus (GS III)

Typical question framings evaluate the adequacy of disaster financing, the shift from response to mitigation, the role of insurance, and climate-attributable disasters. Strong answers cite the 15th Finance Commission, specific recent disasters (Wayanad, Sikkim GLOF), and international frameworks like the Loss and Damage Fund.

Linkages

Disaster financing connects to Article 267 of the Constitution (Contingency Fund), the Sendai Framework for Disaster Risk Reduction 2015-30, SDG 11 (sustainable cities), SDG 13 (climate action), the Loss and Damage Fund (COP27 onwards), the updated NDCs after COP29, and the Disaster Management (Amendment) Bill 2024.