The impact of climate change on extreme weather events (EWEs) is now well established in scientific literature. Among the various slow-onset and quick-onset events, floods are among the most devastating for India, in terms of the economic damage and disruptions they cause within a short period. EM-DAT data reveal that floods constituted over 63 per cent of total costs imposed by all disasters in India for the period 1992-2022. As climate change intensifies disaster risks, domestic fiscal policies must address the states’ increasing vulnerabilities. Currently, Relief Commissioners and State Disaster Management Authorities (SDMAs) play a crucial role in coordinating post-disaster relief and disbursing compensation from the State Disaster Relief Fund (SDRF). However, the existing institutional architecture is predominantly oriented towards response and relief, rather than building pre-disaster resiliency. That said, appreciable efforts are being made to overturn this paradigm. The 15th Finance Commission, in a departure from the previous expenditure-based approach, recommended the creation of a disaster mitigation fund, along with new criteria for allocating disaster risk management funds based on a combination of factors, including hazard risk, exposure, vulnerability, and capacity. The 16th Finance Commission’s terms of reference include reviewing the current disaster financing arrangements, but the correct estimation of disaster-induced losses must precede any such exercise to understand the scale of the finance gap.
To illustrate the nature of this challenge, consider the state of Assam, which faces extensive flooding every year, with waves starting as early as May and lasting through late September. Nearly 40% of the state is flood-prone due to its unique physiography. As a result, Assam faces one of the highest impacts in terms of disruption to ecosystems and the economy, necessitating large sums to be drawn from state and national disaster relief funds for rescue, relief and rehabilitation. In 2015, for instance, the central assistance sought by the Assam government was Rs. 1523.79 crores. Using the Annual Survey of Industries data, the damage to private sector assets was estimated to be Rs. 207.2 crores. While this figure is lower than the figure for public damages—largely due to industrial units being located away from flood-prone regions and on higher ground—a previous ICRIER study estimated that overall damages to assets translated into additional losses in value added and production to the tune of Rs. 684 crores. This points to a considerable underestimation of disaster-induced loss and damage.
Effective disaster adaptation planning requires a transparent and comprehensive assessment framework for estimating such loss and damage. This framework must also be contextualised to local and regional vulnerabilities and risk profiles, particularly in the light of climate change. This would be crucial in ensuring adequate measures for relief, rehabilitation, and recovery, as well as enhanced resilience to future disasters. As part of a forthcoming study proposing such a framework, the ICRIER team conducted extensive stakeholder consultations with affected industries in Assam, which provided important insights into the challenges faced in post-disaster situations. A key observation was that several industrial units that suffered damage to physical assets or inventories rarely had their losses covered by insurance. This implies two pitfalls: first, that most industrial losses are absorbed by industries through borrowings or private savings, negatively impacting their investment demand and growth; and second, that this contributes to the problem of underreporting of flood damages.
A major aspect that prolonged disruptions and delayed the resumption of normal business operations was the interruption of essential utilities, such as electricity. This forced businesses to either operate at reduced capacities or resort to more expensive sources of energy, such as diesel generators, which lowered their profitability. Some industries reported transportation disruptions, resulting in shortages of raw materials and inputs. However, it was generally the case that industries with diversified suppliers or nationally or internationally integrated supply chains recovered faster. Larger and more organised units also reported receiving insurance pay-outs that mitigated a significant share of damages incurred.
These insights provide policy direction to enhance the state’s resilience to disasters. While the focus of post-disaster relief currently includes ex gratia or compensation for loss of livestock and/or housing, the scope of recovery and rehabilitation efforts needs to expand. A crucial first step would be to update the data collection framework utilised by state departments to include losses in the industrial or services sectors. This implies a more proactive role for the state department of industries and commerce in conducting surveys to assess damages and establish industrial profiles of different regions, enabling nuanced and targeted interventions to aid their recovery. Measures can include subsidising insurance premiums for industries located in high-risk zones, providing short-term loans with interest subvention to affected MSMEs to help them rebuild without heavily leveraging their operations, and disaster-proofing critical infrastructure—particularly energy, transportation, and telecommunications. Finally, enhanced urban planning that incorporates the latest geospatial analysis tools is required to ensure that development imperatives are aligned with climate change adaptation goals.
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