Economy

Disaster Relief Funds to States for COVID-19 Is Welcome, But Centre Must Cushion Further

While the Rs 11,092 crore given out so far is good, there is space to do far more as we deal with the COVID-19 pandemic over the next few months.

Faced with a global pandemic and a devastating lockdown on economic activity, both the Centre and India’s state governments have put in place measures to respond to people’s immediate needs.

To supplement the resource needs of the state governments, 50% of funds due to them under the State Disaster Risk Management Fund (SDRMF) in this fiscal year have been released in the first instalment by the Union government.

This is based on the interim report of the Fifteenth Finance Commission, submitted in February 2020, which has recommendations for the year 2020-21. Accordingly, necessary modifications in the guidelines for use of SDRFM funds were made to steer the future course of action on the containment of COVID-19.

The interim report recommended an amount of Rs 28,983 crore for the SDRMF, of which the Union government’s share is fixed at Rs 22,184 crore. The Union government’s share for SDRMF is set at 75% for general category states, and 90% for special category states. Acting on the recommendation, the Centre budgeted Rs 20,000 crore as ‘Grants-in-Aid to State for SDRMF’.

This amount is almost double the amount provisioned during the previous financial year.

Out of this, the first instalment amounting to Rs 11,092 crore has been provided as advance to the state governments to fund their efforts in these unprecedented times.

Year Union Government’s Share  for SDRF / SDRMF (Rs. Crore)
2015-16 8,756
2016-17 8,375
2017-18 9,383
2018-19 9,658
2019-20 Revised Estimate 10,938
Expenditure during 14th FC (period: 2015-16 to 2019-20) 47,110
Amount recommended by 14th FC 55,097
Shortfall 7,987
Amount Proposed by 15th FC (period: 2020-21) 22,184

A look at the past trend of resources allocated by the Union government under SDRF/SDRMF, when compared to the amount recommended by the 14th Finance Commission (that was applicable for the period 2015-16 to 2019-20), shows a shortfall* of Rs 7,987 crore. The Union government should also allocate this shortfall, and transfer the amount due to states as per the recommendations of the 14th Finance Commission.  

There is a similar provision of financial assistance by the Union government as immediate support to states in times of rare severity and natural calamities under the National Disaster Risk Management Fund (NDRMF). It is expected that resources will be released to state governments from the NDRMF for addressing distress.

It’s useful to highlight observations by the 15th Finance Commission in its interim report. The report noted that the present system of disaster management in the country lays too much emphasis on response to a disaster. Rather, emphasis should be on adopting and provisioning resources for preparedness, response, mitigation, recovery and reconstruction, and hence, the 15th Finance Commission recommended setting up of a National Disaster Mitigation Fund in line with the Disaster Management Act, 2005.  

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The 15th Finance Commission had recommended Rs 12,390 crore for the National Disaster Risk Management Fund in FY 2020-21. An allocation of Rs 25,000 crore, almost close to double the amount proposed, has been provisioned for by the Union government for the FY 2020-21. The commission also noted, “if the NDRMF releases to the States exceed the total budget provision, the Union Government shall make additional provision for resources”. Hence, while the budgetary allocation for NDRMF is justified, greater financial transfers to states are crucial, and at least 50% of the NDRMF fund should be shared with the state governments as per the norms stipulated for SDRMFs. 

There are three possible reasons why there is a higher budgetary provision for the NDRMF in the current financial year.

First, due to the constitution of the proposed mitigation fund, in addition to the disaster response fund, the corpus size of NDRMF at the national level has been increased substantially.

Secondly, the method of calculation (based on the expenditure method) used by the 15th Finance Commission has grossly underestimated the need for having a corpus of Rs 25,000 crore for the NDRMF.

Thirdly, over the years, the fund under NDRMF has been used for political gains and it’s possible that for this, the proposed allocation has been set at Rs 25,000 crore for FY 2020-21. 

Major action needs to be taken at the state and sub-state level for mitigating hardships, and so it is imperative to empower states financially. It is high time that the Union government provides an adequate financial package to the states from the NDRMF at the earliest.

Year NDRF / NDRMF (Rs. Crore) National Calamity Contingency Duty (Rs. Crore) Share of NCDD in NDRMF (In %)
2015-16 12,452 5,690 46
2016-17 11,441 6,450 56
2017-18 4,723 3,518 74
2018-19 10,000 1,800 18
2019-20 RE 20,000 2,790 14
Total during 14th FC Period 58,616 20,248 35
Proposed by the 15th FC 12,390 NA
Budgeted for FY 2020-21 25,000 2,930 12

Source: Union Budget Documents, Various Years, Ministry of Finance, GoI; NA-Not Applicable

Almost close to 50% of the funding requirements for the NDRMF were financed through the National Calamity Contingent Duty (NCDD) until June 30 2017. However, with the implementation of Goods and Services Tax in the country since July 2017, the NCDD is being levied only on certain specified tobacco products and on crude petroleum products. Consequently, the Finance Commission recommended that the Union government make an annual budgetary provision for it from its own resources.

It is crucial to note that during the 14th Finance Commission period, almost 35% of the NDRMF corpus fund had been collected through the NCCD.

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A review of the public provisioning for such disaster response measures shows that India needs several reforms.

First, there should be a Corpus Fund on the lines of the Contingency Fund of India to address the resource needs for pandemics, along with adequate provisioning for the NDRMF. A specific amount should be provisioned under ‘charged’ expenditure from the Consolidated Fund of India every year to the corpus.

Second, on similar lines, a Corpus Fund should be set up at the state level in lines with the national level.

Third, additional cesses/surcharges of corporation tax and personal income tax can be levied to fill the resource gap to fight COVID-19. 

Fourth, local governments should be adequately staffed and trained to respond to a pandemic of this severity, and adequate resource devolution to these agencies should be taken up urgently to tackle the situation locally.

Nilachala Acharya and Happy Pant are with Centre for Budget and Governance Accountability, and can be reached at nilachala@cbgaindia.org and happy@cbgaindia.org respectively. Views expressed here are personal.

*Shortfall indicates the difference between the amount recommended by the 14th FC and that allocated by the Union government; govt should allocate and transfer these resources to states now.