Financial Arrangements for Disaster Management in India

When a cyclone batters the Odisha coast or flash floods submerge entire villages in Uttarakhand, the first question that follows the rescue effort is always the same: where does the money come from? Behind every relief camp, every compensation cheque, and every rebuilt road lies a carefully structured financial architecture designed to mobilise resources at lightning speed. Understanding how India pays for disasters, from the village panchayat level right up to the Union government, reveals a system that has evolved significantly since the Disaster Management Act of 2005.

The legal backbone of disaster finance
The shift from calamity relief to structured response
The National Disaster Response Fund
When the NDRF kicks in
The State Disaster Response Fund
The funding ratio and how it works
The 15th Finance Commission reboot
A new methodology for allocation
Sub-allocations within the SDRF
Mitigation funds: investing before the disaster
Recovery, reconstruction, and the accountability question
Audit and transparency
Why financial readiness matters

The legal backbone of disaster finance

The entire financial framework for disaster management rests on specific provisions of the Disaster Management Act, 2005. Sections 46 to 50 of the Act create the four-tier funding structure that operates today, covering response at the national and state levels along with mitigation activities. This legal foundation ensures that funds for disaster response are not left to political discretion or ad-hoc budgetary allocations; they flow through defined channels with clear rules of accountability.

Section 46 establishes the National Disaster Response Fund (NDRF), Section 47 provides for the National Disaster Mitigation Fund, Section 48 directs state governments to set up their own response and mitigation funds, and Section 49 requires every ministry and department to allocate resources for disaster management activities. This layered approach ensures that money is available both for immediate firefighting and for long-term risk reduction.

The shift from calamity relief to structured response

Before 2005, disaster finance in the country relied on the Calamity Relief Fund and the National Calamity Contingency Fund. When the Disaster Management Act was enacted, the National Calamity Contingency Fund was merged into the NDRF, with its closing balance becoming the opening balance of the new fund. This was more than a cosmetic change: it reflected a philosophical shift from reactive calamity relief to a structured, institutionalised response system.

The National Disaster Response Fund

The NDRF sits at the apex of the funding pyramid. It is placed in the Public Account of the Government of India under the head “reserve funds not bearing interest”, which means the government can draw from it without requiring fresh parliamentary approval each time a disaster strikes. This arrangement is crucial because disasters do not wait for legislative sessions.

The NDRF is entirely funded by the Central Government. It is traditionally financed through the National Calamity Contingent Duty (NCCD), a cess levied on certain items under excise and customs duty, with additional budgetary support provided through the annual Finance Bill. Since July 2020, in the middle of the COVID-19 pandemic, the Central Government also permitted any individual or institution to contribute to the NDRF under Section 46(1)(b) of the Act, opening up a channel for voluntary philanthropic support.

When the NDRF kicks in

The NDRF is not the first line of defence; it is the reinforcement. It supplements the resources of a state only when a disaster is classified as being of a “severe nature” and the state’s own funds are inadequate. The process begins with an Inter-Ministerial Central Team (IMCT) visiting the affected areas to conduct on-the-spot damage assessment. Based on the IMCT’s report, the Central Government approves additional assistance. For example, in February 2025, the Centre approved central assistance of Rs. 1,554.99 crore to five states, including Andhra Pradesh, Odisha, and Tripura, for floods, landslides, and cyclonic storms that had hit during 2024.

Notably, NDRF assistance covers cyclones, droughts, earthquakes, tsunamis, fires, floods, hailstorms, landslides, avalanches, pest attacks, cloudbursts, frost, and cold waves. The Comptroller and Auditor General audits the fund every year, and its accounts are maintained by the Chief Controller of Accounts in the Ministry of Finance.

The State Disaster Response Fund

If the NDRF is the reinforcement, the State Disaster Response Fund (SDRF) is the frontline. Constituted under Section 48(1)(a) of the Act, the SDRF is the primary pool of money available with state governments for responding to notified disasters. The National Policy on Disaster Management places the primary responsibility for disaster management, including ground-level disbursal of relief, on the state governments concerned. This makes sense operationally: the state machinery is closer to the affected population and can mobilise faster than the Centre.

The funding ratio and how it works

The SDRF operates on a cost-sharing model. For general category states and union territories, the Central Government contributes 75 per cent of the SDRF allocation and the state contributes 25 per cent. For special category states, namely the North-Eastern states, Sikkim, Uttarakhand, Himachal Pradesh, and Jammu and Kashmir, the ratio becomes far more favourable at 90:10. This recognises the higher disaster vulnerability and lower revenue base of these regions. The central contribution flows in two equal instalments every year, based on the recommendations of the Finance Commission.

There is also a critical flexibility built into the SDRF. A state government may use up to 10 per cent of its SDRF funds for providing immediate relief for disasters that are considered calamities within the local context but are not on the notified list of the Ministry of Home Affairs. To use this window, the state must list such local disasters with clear and transparent norms, approved by the State Executive Committee.

The 15th Finance Commission reboot

The 15th Finance Commission fundamentally reshaped the financial architecture of disaster management. It moved beyond just response and recognised that prevention is cheaper than cure. The Commission recommended creating mitigation funds alongside the existing response funds, giving rise to two new umbrella terms: the National Disaster Risk Management Fund (NDRMF) and the State Disaster Risk Management Fund (SDRMF).

A new methodology for allocation

The 15th Finance Commission adopted a completely new methodology for state-wise allocation. Instead of the old expenditure-driven approach, it introduced a formula combining three factors: capacity (measured through past expenditure), risk exposure (area and population), and hazard and vulnerability (a composite disaster risk index). This shift rewards states that face higher risks rather than those that simply spent more in the past.

For the award period 2021-22 to 2025-26, the Commission recommended a total allocation of Rs. 1,60,153 crore for the SDRMF across all states. Of this, 80 per cent, or Rs. 1,28,122 crore, goes to the SDRF, and 20 per cent, or Rs. 32,031 crore, is earmarked for the State Disaster Mitigation Fund. For the NDRMF, Rs. 68,463 crore has been set aside, split in the same 80:20 ratio between the NDRF (Rs. 54,770 crore) and the National Disaster Mitigation Fund (Rs. 13,693 crore).

Sub-allocations within the SDRF

The Commission also introduced internal sub-windows within the SDRF itself, addressing the full disaster management cycle. According to the SDRF guidelines, the fund is divided into three sub-allocations: Response and Relief receives 40 per cent, Recovery and Reconstruction gets 30 per cent, and Preparedness and Capacity-building is allotted 10 per cent, with the remaining 20 per cent treated as a general-purpose window. While the larger SDRF and SDMF windows are not inter-changeable, states have some flexibility to re-allocate within the three SDRF sub-windows.

Mitigation funds: investing before the disaster

For the first time ever, dedicated funds exclusively for mitigating disaster risks have been created at both the national and state levels. The National Disaster Mitigation Fund (NDMF) was constituted on 5 February 2021, and state governments were advised to set up their own State Disaster Mitigation Funds. Barring Telangana, every state has since intimated the setting up of its SDMF.

The mitigation funds are not to be used for relief; they are meant for projects that reduce disaster risk in the first place. The 15th Finance Commission earmarked specific allocations from the NDMF for four activities: catalytic assistance for 12 most drought-prone states (Rs. 1,200 crore), managing seismic and landslide risks in 10 hill states (Rs. 750 crore), reducing the risk of urban flooding in the seven most populous cities (Rs. 2,500 crore), and mitigation measures to prevent erosion (Rs. 1,500 crore). The NDRF itself also has two earmarked allocations: Rs. 5,000 crore for the expansion and modernisation of fire services and Rs. 1,000 crore for the resettlement of people displaced by erosion.

Recovery, reconstruction, and the accountability question

Severe disasters often require a separate recovery and reconstruction effort that goes beyond immediate relief. In August 2024, the Government of India framed guidelines for a dedicated recovery and reconstruction funding window under the NDRF and SDRF. For severe disasters, states must conduct a Post-Disaster Needs Assessment (PDNA) through a multi-sectoral team, and projects for funding are formulated based on this detailed assessment.

Audit and transparency

Accountability is built into the system at multiple levels. The Comptroller and Auditor General audits the NDRF and SDRF annually. State governments must present CAG audit reports to both the Ministry of Home Affairs and the Ministry of Finance on demand. The fund is also accessible under the Right to Information Act, which strengthens public oversight. Despite these safeguards, challenges persist. Delays in fund disbursement, underutilisation of the SDRF in some states, and frictions between the Centre and states over the quantum of assistance (as seen in the 2024 Wayanad landslides) remain recurring concerns.

Why financial readiness matters

The effectiveness of disaster management is ultimately measured in hours and lives, not in annual reports. A well-funded SDRF means that a district collector does not have to wait for permissions to pay for relief materials. An adequately stocked NDRF means that a severe cyclone does not bankrupt a state’s development budget. And dedicated mitigation funds mean that vulnerable communities can be protected before the next disaster even arrives.

The combined allocation of over Rs. 2.28 lakh crore across the NDRF, SDRF, NDMF, and SDMF for the 2021-26 period signals a serious institutional commitment. Whether this commitment translates into resilient infrastructure and saved lives depends on how efficiently states utilise these funds and how rigorously the accountability mechanisms are enforced.

What do you think? Given the increasing frequency of climate-linked disasters, is the current allocation for mitigation funds sufficient, or should a larger share be diverted from response to prevention? And should the 90:10 concessional funding ratio be extended to other highly vulnerable coastal states beyond the North-Eastern and Himalayan regions?

References

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Table of Contents

The legal backbone of disaster finance 🔗

The shift from calamity relief to structured response 🔗

The National Disaster Response Fund 🔗

When the NDRF kicks in 🔗

The State Disaster Response Fund 🔗

The funding ratio and how it works 🔗

The 15th Finance Commission reboot 🔗

A new methodology for allocation 🔗

Sub-allocations within the SDRF 🔗

Mitigation funds: investing before the disaster 🔗

Recovery, reconstruction, and the accountability question 🔗

Audit and transparency 🔗

Why financial readiness matters 🔗