Fiscal arrangements in India for financing relief, recovery and reconstruction

Transcription

1 Fiscal arrangements in India for financing relief, recovery and reconstruction Ila Patnaik National Institute of Public Finance and Policy May 11, 2017 Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

2 Outline History of relief and recovery financing in India Projections of Finance Commission (FC) Current system: Sources of funds in India Financing of NDRF, SDRF, DDRF Channelising of funds Moving Forward Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

3 History of recovery and relief financing Milestones achieved India has come a long way into managing disaster recovery and relief. Disaster relief and recovery finance goes back to the 2nd Finance Commission (1957) where the concept of margin money was introduced. The 9th Finance Commission (1988) recognised the need to have a separate Calamity Relief Fund (CRF) which provides more autonomy and accountability to the states. The 10th Finance Commission (1995) recommended setting up of a National Fund for Calamity Relief (NFCR). The system evolved with the introduction of the Disaster Management (DM) Act, Under the recommendations of the 13th Finance Commission (2009), the CRF was merged into State Disaster Relief Fund (SDRF) and the National Fund for Calamity Relief (NFCR) was converted into the National Disaster Relief Fund (NDRF) as envisaged by the the DM Act, Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

4 Projections of FC with respect to margin money/crf/sdrf SDRF Rs. Crore Margin Money CRF nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th Source: 13th and 14th Finance Commission report Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

5 Types of Funds As envisaged under the DM Act 2005 Two types of funds: Response funds and Mitigation Funds 1. For post-disaster: Response funds are used. Both response funds and mitigation funds need to be set up at national, state and district level (DM Act, 2005). National level: National Disaster Response Fund (NDRF) and National Disaster Mitigation Fund (NDMF) 2 State level: State Disaster Relief Fund (SDRF) and State Disaster Mitigation Fund (SDMF) 3 District level: District Disaster Response Fund (DDRF) 4 1 Mandated under Disaster Management (DM) Act, NDMF not yet set up 3 Very few States have an SDMF (14th Finance Commission report, 2014) 4 Again, mandated under the act but DDRF is primarily financed out of SDRF (14th Finance Commission Report, 2014) Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

6 How NDRF is financed? National Calamity Contingency Duty (NCCD) 5. Approved annually through the finance bill. Additional Budgetary support provided when necessary. Person or institution contribution. 6 5 Duties on goods like Pan Masala, cigarettes, tobacco, crude products, AC cars etc. 6 Not been tapped much Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

7 How SDRF is financed? Primary Fund available for disaster response. Each state mandated to constitute an SDRF. Corpus of SDRF recommended by the Finance Commission under Article 275 (1) of the Constitution over 5 years. Corpus based on past expenditure method. 75 percent financed by Centre for general category state, 90 percent for special category states as grants-in-aid 7. Rest financed by states own budget. 7 The 14th FC report recommended changing this to 90:10 for all states Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

8 Use of SDRF The DM Act, 2005 defines a disaster to mean a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence, which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, the environment The Act, however, does not quantify terms like substantial loss of life, or human suffering. (13th FC). List of eligible disasters drawn by earlier Finance Commissions. The list however does not cover all location/state specific disasters (e.g., lightning, heat waves, cloudbursts etc.) The 14th FC recommended that states can use up to 10 percent of the SDRF for disasters not listed in the list of disasters of Ministry of Home Affairs. Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

9 How DDRF is financed? DDRF financed out of SDRF Left at the discretion of the state. Role of the Incident Commander to assess the situation and ask for resources. Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

10 Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

11 Significant gap between what State demands and what Centre provides The Tamil Nadu government had urged the Centre to sanction a sum of Rs 39,565 crore from the NDRF in January Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

12 Size of relief and delays in getting relief The relief from Centre came 9 months post the disaster and was not enough. Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

13 Not always the Centre s fault... There is no monitoring mechanism to ensure States judicious spending in mitigating the crisis in drought-hit areas. Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

14 Risk Mitigation Funds International experience with mitigation funds is limited Mexico has a small mitigation fund. The incentive to build resilience works through reduced contributions by federal government to provinces that do not buy insurance. Reduced resilience investment increases the insurance premium. This would required risk pooling, information about risks and compulsory insurance. Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

15 Mitigation Fund What needs to be done so that states invest in resilience? Should a mitigation fund be used for preparedness or reconstruction? How would the fund be distributed among states? Based on hazard indices? Based on resilience plans of states? Is there any other way to create incentives for resilience? Will it come from public pressure? Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

16 A lot needs to be done... 1 Creation of a mitigation fund. 2 Size of SDRF and NDRF. 3 Need for a stable source of financing for reconstruction. Currently funds are provided only for relief and rehabilitation not reconstruction. 4 Financing of NDRF post GST. 5 Need to create and validate the Hazard Risk Vulnerability Index. 6 The sharing ratio 75:25 or 90:10 needs to be worked upon. 7 Tapping public funds through Corporate Social Resposnibility (CSR). 8 Management of funds so they are easily available in the event of a disaster. Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16

17 Thank you Ila Patnaik Fiscal arrangements in India for financing relief, recovery and reconstruction May 11, / 16