BharatNotes Overview
Disaster financing is the system of financial instruments, policies, and institutional mechanisms that countries use to fund disaster preparedness, response, recovery, and reconstruction. Effective disaster financing reduces the economic shock of disasters on governments, communities, and individuals. India, with its high vulnerability to floods, cyclones, earthquakes, and droughts, requires a robust multi-layered financing architecture spanning central and state funds, insurance mechanisms, and international cooperation.
The Sendai Framework for Disaster Risk Reduction (2015-2030) explicitly calls for investing in disaster risk reduction for resilience — making financing a central pillar of global disaster management strategy.
National Disaster Response Fund (NDRF) and State Disaster Response Fund (SDRF)
SDRF — State Disaster Response Fund
| Feature | Detail |
|---|---|
| Constitutional basis | Disaster Management Act, 2005 (Section 48) |
| Purpose | Provide immediate relief to victims of natural disasters |
| Funding pattern | 75:25 (Centre:State) for general category states; 90:10 for North-Eastern and Himalayan states |
| Allocation (2021-26) | Rs 1,28,122 crore for SDRF (as recommended by the 15th Finance Commission) |
| Release mechanism | Annual central contribution released in two equal instalments |
| Permissible expenses | Gratuitous relief, search and rescue, emergency medical care, temporary shelter, provision of food, clothing, drinking water |
| Flexibility | Up to 10% of the annual allocation can be used for disasters not included in the notified list |
NDRF — National Disaster Response Fund
| Feature | Detail |
|---|---|
| Constitutional basis | Disaster Management Act, 2005 (Section 46) |
| Purpose | Supplement SDRF when a state faces a disaster of severe nature and its own funds are inadequate |
| Funding | Entirely from the Central Government |
| When released | Only after an assessment by an Inter-Ministerial Central Team (IMCT) that visits the affected state |
| Decision | National Executive Committee (NEC) or a High-Level Committee (HLC) headed by the Home Secretary recommends the release |
SDRF vs NDRF — Comparison
| Feature | SDRF | NDRF |
|---|---|---|
| Level | State | National |
| Funding | Centre + State (75:25 or 90:10) | Entirely Central |
| Trigger | Any notified disaster | Severe disasters beyond state capacity |
| First responder | State uses SDRF first | NDRF supplements SDRF |
| Assessment | State's own assessment | Inter-Ministerial Central Team (IMCT) |
| Flexibility | 10% for non-notified disasters | Case-by-case decision |
State Disaster Mitigation Fund (SDMF) and National Disaster Mitigation Fund (NDMF)
| Feature | Detail |
|---|---|
| Purpose | Unlike response funds (SDRF/NDRF), mitigation funds are for proactive risk reduction — infrastructure strengthening, early warning systems, capacity building |
| SDMF allocation (2021-26) | Rs 32,031 crore (as recommended by 15th Finance Commission) |
| NDMF allocation (2021-26) | Rs 13,693 crore |
| Significance | Represents a shift from a reactive (response-only) approach to a proactive (mitigation + response) approach in disaster financing |
For Mains: The creation of dedicated mitigation funds (SDMF and NDMF) alongside response funds (SDRF and NDRF) marks an important evolution in India's disaster financing philosophy — from merely responding to disasters to investing in preventing and reducing disaster risk. However, the actual utilisation of mitigation funds has been slow, with states prioritising response over long-term risk reduction.
Crop Insurance — PMFBY
Pradhan Mantri Fasal Bima Yojana (PMFBY)
| Feature | Detail |
|---|---|
| Launched | 13 January 2016 (Kharif 2016 season) |
| Ministry | Ministry of Agriculture and Farmers' Welfare |
| Objective | Provide comprehensive crop insurance coverage against non-preventable natural risks to farmers at affordable premiums |
| Coverage | All food and oilseed crops, commercial and horticultural crops |
| Continuation | Union Cabinet approved continuation till 2025-26 with a total budget of Rs 69,515.71 crore |
Premium Structure
| Season/Crop | Farmer's Premium Share | Remaining Premium |
|---|---|---|
| Kharif (food and oilseed crops) | Maximum 2% of sum insured | Subsidised equally by Centre and State |
| Rabi (food and oilseed crops) | Maximum 1.5% of sum insured | Subsidised equally by Centre and State |
| Commercial/Horticultural crops | Maximum 5% of sum insured | Subsidised equally by Centre and State |
Performance (as of January 2025)
| Metric | Data |
|---|---|
| Farmer applications enrolled | 72.61 crore (over 9 years) |
| Farmers receiving claims | Over 19.61 crore |
| Farmer premium paid | Nearly Rs 34,507 crore |
| Claims paid out | Over Rs 1,72,192 crore |
| Claim-to-premium ratio | Approximately 5:1 — farmers received Rs 5 for every Rs 1 paid as premium |
Key Features
| Feature | Detail |
|---|---|
| Voluntary | Made voluntary for loanee farmers from Kharif 2020 (earlier mandatory for crop loan recipients) |
| Technology use | Satellite imagery, drones, and weather data for crop loss assessment (reducing dependence on manual crop cutting experiments) |
| Risks covered | Prevented sowing, standing crop loss (natural fire, storm, hailstorm, cyclone, flood, drought, pests/diseases), post-harvest losses (up to 14 days), localised calamities (hailstorm, landslide) |
| Add-on coverages | Protection against wild animal attacks (in select areas) |
Challenges with PMFBY
| Challenge | Detail |
|---|---|
| State withdrawal | Several states (Bihar, West Bengal, Gujarat, Andhra Pradesh, Telangana, Jharkhand) withdrew citing high premium subsidy burden |
| Delayed claims | Claims often delayed beyond the stipulated timeline, causing financial stress to farmers |
| Low awareness | Many farmers, especially tenant farmers and sharecroppers, remain unaware of the scheme or unable to access it |
| Assessment delays | Crop Cutting Experiments (CCEs) for yield estimation remain slow and contested |
| Adverse selection | Farmers in high-risk areas enrol disproportionately, driving up premiums for insurers |
For Prelims: PMFBY was launched in January 2016. Farmer premiums: 2% (Kharif), 1.5% (Rabi), 5% (commercial/horticultural). The scheme is voluntary for loanee farmers from Kharif 2020. Over Rs 1,72,192 crore paid as claims against Rs 34,507 crore farmer premium (approximately 5:1 ratio).
Coalition for Disaster Resilient Infrastructure (CDRI)
Overview
| Feature | Detail |
|---|---|
| Launched | 23 September 2019 by PM Modi at the UN Climate Action Summit in New York |
| Nature | International coalition of countries, UN agencies, multilateral development banks, private sector, and academic institutions |
| Headquarters | New Delhi, India |
| Objective | Promote disaster-resilient infrastructure through research, knowledge sharing, and technical support |
| Status | Categorised as an "International Organization" by the Indian Cabinet in 2022; granted immunities and privileges under the UN (Privileges & Immunities) Act, 1947 |
Membership
| Category | Detail |
|---|---|
| Founding members | 13 countries — India, Australia, Bhutan, Fiji, Indonesia, Italy, Japan, Maldives, Mexico, Mongolia, Rwanda, Sri Lanka, and the United Kingdom |
| Current membership (2025) | 60 members — 50 Member Countries and 10 Member Organisations |
| Key organisations | UNDP, World Bank, Asian Development Bank, European Investment Bank |
Focus Areas
| Area | Detail |
|---|---|
| Infrastructure resilience | Developing standards, guidelines, and tools for disaster-resilient design of transport, energy, telecom, and water infrastructure |
| Risk assessment | Helping countries assess disaster risk to critical infrastructure |
| Recovery and reconstruction | Promoting "Build Back Better" principles in post-disaster reconstruction |
| Small Island Developing States (SIDS) | Special focus on SIDS, which face disproportionate climate and disaster risks — Infrastructure for Resilient Island States (IRIS) initiative launched at COP26 (2021) |
| Knowledge sharing | Connecting practitioners, researchers, and policymakers across countries |
For Mains: CDRI represents India's leadership in global disaster governance — it is one of the few India-led international initiatives. Its focus on infrastructure resilience fills a critical gap, as infrastructure damage accounts for a significant share of disaster losses. However, CDRI is still evolving — its impact will depend on translating policy frameworks into actual infrastructure standards adopted by member countries.
Disaster Risk Transfer and Insurance Mechanisms
Catastrophe Bonds (Cat Bonds)
| Feature | Detail |
|---|---|
| Definition | Insurance-linked securities that transfer disaster risk from sponsors (insurers, governments) to capital market investors |
| Mechanism | Investors buy the bond; if a predefined catastrophe trigger occurs (e.g., earthquake above a certain magnitude, hurricane causing losses above a threshold), investors lose their principal, which is used to pay claims; if no trigger occurs, investors get their money back plus interest at maturity (typically 3-5 years) |
| Origin | Created in the mid-1990s after Hurricane Andrew (1992) and the Northridge earthquake (1994) |
| Sovereign cat bonds | Governments of Jamaica, Philippines, Mexico, and others have issued sovereign cat bonds — often with World Bank support |
| Example | Jamaica received a USD 150 million payout from a World Bank cat bond after Hurricane Melissa |
| India | India has explored cat bonds but not yet issued sovereign catastrophe bonds; potential exists for earthquake and cyclone risk transfer |
Other Risk Transfer Instruments
| Instrument | Detail |
|---|---|
| Parametric insurance | Payouts triggered automatically by a physical parameter (e.g., wind speed, rainfall level) rather than actual assessed loss — faster disbursement, lower administrative cost |
| Micro-insurance | Small-value insurance products for low-income populations — covers crops, livestock, health, and property against natural hazards |
| Risk pooling | Countries pool disaster risks to access cheaper reinsurance — e.g., African Risk Capacity (ARC), Caribbean Catastrophe Risk Insurance Facility (CCRIF) |
| Weather-indexed insurance | Payouts based on weather indices (rainfall, temperature) — used for crop insurance in India (Restructured Weather Based Crop Insurance Scheme) |
India's Disaster Insurance Landscape
| Scheme/Product | Detail |
|---|---|
| PMFBY | Crop insurance (discussed above) — largest disaster insurance scheme in India |
| PMJJBY & PMSBY | Life and accident insurance for low-income populations — indirectly relevant for disaster-related deaths and injuries |
| Property insurance | Private sector property insurance covers natural disasters but penetration is low in India — less than 1% of residential properties are insured against natural disasters |
| Livestock insurance | Government-subsidised livestock insurance schemes exist but coverage remains limited |
Build Back Better (BBB)
Concept
| Feature | Detail |
|---|---|
| Origin | Formalised in the Sendai Framework for Disaster Risk Reduction (2015-2030) as Priority 4: "Enhancing disaster preparedness for effective response, and to Build Back Better in recovery, rehabilitation, and reconstruction" |
| Principle | Use the recovery and reconstruction phase as an opportunity to reduce future disaster risk — do not simply rebuild to pre-disaster conditions but improve resilience |
| Application | Applies to physical infrastructure (stronger buildings, better drainage), governance (updated building codes, land-use planning), and social systems (improved early warning, community preparedness) |
BBB in Practice — Indian Examples
| Example | Detail |
|---|---|
| Odisha cyclone resilience | After the 1999 Super Cyclone (over 10,000 deaths), Odisha invested heavily in cyclone shelters, early warning systems, and community-based disaster preparedness; Cyclone Fani (2019) — a comparable storm — killed 64 people; Odisha is a global BBB success story |
| Gujarat post-earthquake | After the 2001 Bhuj earthquake (over 20,000 deaths), Gujarat adopted stringent seismic building codes and established the Gujarat State Disaster Management Authority — subsequent earthquakes caused far fewer casualties |
| Kerala floods | After the 2018 floods, Kerala initiated the "Rebuild Kerala Initiative" focused on resilient infrastructure, sustainable drainage, and land-use regulation |
Sendai Framework for Disaster Risk Reduction (2015-2030)
Overview
| Feature | Detail |
|---|---|
| Adopted | 18 March 2015 at the Third UN World Conference on Disaster Risk Reduction in Sendai, Japan |
| Duration | 2015-2030 (15-year framework) |
| Predecessor | Hyogo Framework for Action (2005-2015) |
| Monitoring | 7 global targets measured through 38 indicators |
Four Priorities for Action
| Priority | Focus |
|---|---|
| Priority 1 | Understanding disaster risk |
| Priority 2 | Strengthening disaster risk governance to manage disaster risk |
| Priority 3 | Investing in disaster risk reduction for resilience |
| Priority 4 | Enhancing disaster preparedness for effective response; Build Back Better in recovery, rehabilitation, and reconstruction |
Seven Global Targets
| Target | Objective |
|---|---|
| (a) | Substantially reduce global disaster mortality by 2030 |
| (b) | Substantially reduce the number of affected people globally by 2030 |
| (c) | Reduce direct disaster economic loss in relation to global GDP by 2030 |
| (d) | Substantially reduce disaster damage to critical infrastructure and disruption of basic services (health and education) |
| (e) | Substantially increase the number of countries with national and local DRR strategies by 2020 |
| (f) | Substantially enhance international cooperation to developing countries |
| (g) | Substantially increase the availability of multi-hazard early warning systems and disaster risk information by 2030 |
For Prelims: Sendai Framework: adopted 18 March 2015, duration 2015-2030, 4 priorities, 7 global targets, 38 indicators. It succeeded the Hyogo Framework (2005-2015). CDRI launched 23 September 2019 at UN Climate Action Summit by PM Modi; HQ New Delhi; 60 members (2025).
Climate Adaptation Finance and Disaster Financing
Global Climate Finance for Adaptation
| Feature | Detail |
|---|---|
| Paris Agreement (2015) | Calls for making finance flows consistent with low-emission, climate-resilient development |
| Green Climate Fund (GCF) | Major multilateral fund; aims for a 50:50 split between mitigation and adaptation financing |
| Adaptation Fund | Established under the Kyoto Protocol; finances adaptation projects in developing countries |
| Loss and Damage Fund | Agreed at COP27 (Sharm el-Sheikh, 2022); operationalised at COP28 (Dubai, 2023); addresses losses from climate change that go beyond adaptation capacity |
| India's position | India has consistently demanded increased climate finance from developed countries; argues that developed nations must honour the USD 100 billion per year commitment and scale up adaptation finance |
Disaster-Climate Finance Nexus
| Connection | Detail |
|---|---|
| Climate change intensifies disasters | Rising sea levels, more intense cyclones, erratic rainfall, prolonged droughts — all increase disaster frequency and severity |
| Adaptation = DRR | Climate adaptation and disaster risk reduction overlap significantly — resilient infrastructure, early warning systems, and ecosystem-based approaches serve both |
| Finance gap | Global adaptation finance needs are estimated at USD 140-300 billion per year by 2030; actual flows are far lower |
| India's vulnerability | India is among the most climate-vulnerable countries — the Global Climate Risk Index consistently ranks India among the top 10 most affected countries |
Recent Developments (2024–2026)
15th Finance Commission — Disaster Risk Reduction Funding (2021–2026)
The 15th Finance Commission (2021–26) allocated ₹1,60,153 crore to SDRF (State Disaster Response Fund) across all states — a 2.6x increase over the 14th Finance Commission's ₹61,220 crore allocation. The 75:25 Centre-State funding formula was maintained. Critically, the 15th FC for the first time recommended that 10% of SDRF allocations could be used for disaster preparedness (prevention and mitigation activities) — not just post-disaster relief. This is a significant policy shift: SDRF was previously restricted to post-event relief only.
The 16th Finance Commission (constituted December 2024 — under V.K. Malhotra) is expected to review the DRR financing framework, potentially creating a dedicated Climate Resilience Fund alongside SDRF/NDRF, reflecting the increasing integration of climate adaptation into disaster risk management. State finance commissions are also being encouraged to replicate this at the local body level.
UPSC angle: Prelims — SDRF: 75% Centre, 25% State; 15th FC allocated ₹1,60,153 crore; 10% for preparedness. Mains (GS3) — disaster financing through FC; shift from response to prevention funding; 16th FC implications for climate-DRR integration.
PMFBY — Crop Insurance Data 2024 and Reforms
Pradhan Mantri Fasal Bima Yojana (PMFBY) — India's flagship crop insurance scheme — paid claims of approximately ₹22,000 crore in FY 2024–25, covering farmers whose crops were damaged by floods, drought, hailstorms, and unseasonal rainfall. Enrolment was 5.5 crore farmers in Kharif 2024 and 2.2 crore in Rabi 2024–25. The scheme uses technology for loss assessment: satellite-based crop health monitoring (NDVI/NDWI indices), drone surveys for localised crop loss verification, and mobile-based yield estimation.
PMFBY reforms in 2024: (i) insurance sum extended to cover post-harvest losses for crops drying in the field; (ii) yield data from the Crop Area Sown Estimation app (CASE) integrated with actuarial pricing; (iii) state governments compelled to clear insurer payments within 60 days or pay interest. However, enrollment remains voluntary for non-loanee farmers, and awareness gaps persist in marginal and rain-fed farmer communities — who are most vulnerable.
UPSC angle: Prelims — PMFBY: ₹22,000 crore claims FY24-25; satellite + drone loss assessment; 5.5 crore Kharif 2024 enrolees. Mains (GS3) — crop insurance as DRR tool; basis risk (insurance payout not matching actual loss); technology in agricultural risk management.
Loss and Damage Fund — COP28 Operationalisation (2023–2024)
COP28 (Dubai, December 2023) operationalised the Loss and Damage Fund with the World Bank as interim trustee. Initial pledges totalled approximately USD 700 million — widely acknowledged as insufficient given annual climate disaster losses in developing countries exceeding USD 150 billion. The fund specifically targets irreversible losses (displacement, cultural heritage destruction, ecosystem loss) from climate change that cannot be prevented by mitigation or adapted to.
India's position: supports the fund but insists on differentiated responsibility (historical emitters must fund it), opposes voluntary contributions from developing countries, and demands automatic trigger mechanisms (rather than country applications) for disbursement. The fund's operational modalities (eligibility criteria, governance structure, access rules) are being finalised by an Advisory Board in 2025.
UPSC angle: Prelims — Loss and Damage Fund: COP28 operationalised; World Bank trustee; USD 700 million pledged. Mains (GS3/IR) — loss and damage vs adaptation vs mitigation finance; climate justice; India's position on climate finance.
Key Terms for Quick Revision
| Term | Meaning |
|---|---|
| SDRF | State Disaster Response Fund — funded 75:25 (Centre:State); 90:10 for NE and Himalayan states; for immediate disaster relief |
| NDRF | National Disaster Response Fund — entirely Central; supplements SDRF for severe disasters |
| SDMF/NDMF | State/National Disaster Mitigation Fund — for proactive risk reduction, not just response |
| PMFBY | Pradhan Mantri Fasal Bima Yojana — crop insurance; farmer premium: 2% Kharif, 1.5% Rabi, 5% commercial |
| CDRI | Coalition for Disaster Resilient Infrastructure — India-led; launched 2019; 60 members (2025); HQ New Delhi |
| Cat bonds | Catastrophe bonds — transfer disaster risk to capital market investors |
| BBB | Build Back Better — use recovery as an opportunity to reduce future disaster risk |
| Sendai Framework | Global DRR framework 2015-2030; 4 priorities, 7 targets, 38 indicators |
| Parametric insurance | Insurance payouts triggered by physical parameters (wind speed, rainfall) not assessed loss |
| IRIS | Infrastructure for Resilient Island States — CDRI initiative for SIDS, launched at COP26 |
Exam Strategy
For Mains Answer Writing: Disaster financing questions require you to demonstrate understanding of the entire financing architecture — from immediate relief (SDRF/NDRF) to insurance (PMFBY, cat bonds) to long-term resilience (CDRI, BBB). Always connect to the Sendai Framework targets. Use Odisha as the best Indian example of BBB. For crop insurance, cite the 5:1 claim-to-premium ratio but also discuss state withdrawals and implementation challenges. For CDRI, emphasise India's leadership role in global disaster governance.
For Prelims: Key facts — SDRF funding 75:25 (general) and 90:10 (NE/Himalayan); NDRF entirely Central; PMFBY premiums (2%, 1.5%, 5%); CDRI (launched 2019, UN Climate Action Summit, 60 members, HQ New Delhi); Sendai Framework (2015-2030, 7 targets, 4 priorities); Odisha cyclone model (1999 Super Cyclone 10,000+ deaths vs Fani 2019 64 deaths); 15th Finance Commission allocated Rs 1,60,153 crore for SDRMF (2021-26).
Vocabulary
Moral Hazard
- Pronunciation: /ˈmɒrəl ˈhæzəd/
- Definition: The risk that a party insulated from risk (by insurance or government bailout) behaves differently than it would if fully exposed to the risk — in disaster financing, moral hazard arises when governments or individuals take fewer precautions because they expect to be compensated after a disaster.
- Origin: Originally used in insurance terminology in the 17th century; from English moral ("relating to principles of right conduct") + hazard ("risk, danger"); became a central concept in economics through the work of Kenneth Arrow (1963).
Resilience
- Pronunciation: /rɪˈzɪliəns/
- Definition: The ability of a system, community, or society exposed to hazards to resist, absorb, accommodate, adapt to, transform, and recover from the effects of a hazard in a timely and efficient manner — including through the preservation and restoration of essential basic structures and functions through risk management.
- Origin: From Latin resilire ("to spring back, rebound"), from re- ("back") + salire ("to jump, leap"); first used in the physical sciences (elasticity of materials); adapted to disaster management and ecology in the 1970s-80s.
Sources: NDMA (ndma.gov.in), PIB (pib.gov.in), 15th Finance Commission Report, CDRI (cdri.world), UNDRR — Sendai Framework (undrr.org), World Bank — Disaster Risk Financing (worldbank.org), PMFBY (pmfby.gov.in), Ministry of Agriculture
