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First Principles IAS · Current affairs

The monthly magazine, August 2026 · Environment and Disaster Management › Disaster finance and institutions

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Paying for disasters: NDRF, SDRF and the Finance Commission formula

LeadPrelims and Mains1 Aug 2026

Why in news

  • On 1 August 2026 the Union Home Minister approved an advance release of ₹2,117.85 crore from the Centre's share of the State Disaster Response Fund to States hit by the monsoon's floods, with Inter Ministerial Central Teams sent to assess the damage.
  • Four weeks later the Nepal flood of 26 August came down the Gandak into Bihar, and in the same month States in the rain shadow were preparing drought memoranda.
  • Every one of these claims is paid from a set of funds whose size and sharing the Finance Commission fixes, and 2026-27 is the first year of the Sixteenth Finance Commission's award, which changed the formula.
  • ₹2,83,807 crorethe Sixteenth Finance Commission's provision for disaster response and mitigation over 2026 to 2031, ₹2,04,401 crore for the States and ₹79,406 crore for the national funds
  • 75:25 and 90:10the Centre's and a State's shares of the State funds, 90:10 for the North Eastern and Himalayan States
  • 80:20the split of the State funds between response and mitigation
  • 30 and 70the weights of the new Disaster Risk Index and of a State's past disaster spending in allotting the State funds
  • About 30 per centthe share of the Fifteenth Commission's ₹68,463 crore national provision actually released by July 2025

Background

  • The Disaster Management Act, 2005 creates the National Disaster Response Fund and the State Disaster Response Funds, for immediate relief, and the National and State Disaster Mitigation Funds, for projects that reduce risk. The National Disaster Management Authority, chaired by the Prime Minister, and the State Authorities, chaired by Chief Ministers, oversee the system; the Union Home Ministry administers the funds.
  • The Finance Commission, under Article 280, recommends the size of the State funds, their sharing between the Centre and the States, and the formula that divides them among the States; the Fifteenth Commission (2021 to 2026) was the first to provide for mitigation funds and to set the 80:20 split.
  • The Fifteenth Commission's formula used four hazards, cyclone, drought, earthquake and flood, with vulnerability measured by the share of the population below the poverty line, adjusted for area, population and past spending.
  • Relief is paid by the State from its fund on norms the Home Ministry fixes; a State whose fund is exhausted by a calamity of severe nature asks for the national fund, after a central team assesses the damage.
Paying for disasters: how the money flows Disaster Management Act, 2005 and the Sixteenth Finance Commission Finance Commission (Article 280) Recommends the size of the funds, the Centre to State sharing and the formula that divides the State funds among the States. State funds: SDRF and SDMF (Section 48) ₹2,04,401 crore for 2026 to 2031: response 80 per cent, mitigation 20. Centre 75 per cent; 90 per cent for North Eastern and Himalayan States; two instalments a year. Relief paid on central norms; an advance release in a bad monsoon (₹2,117.85 crore on 1 August 2026). National funds: NDRF and NDMF (Sections 46, 47) ₹79,406 crore for 2026 to 2031; ₹68,463 crore under the Fifteenth Commission. Released to a State for a calamity of severe nature after a central team assesses the damage. About 30 per cent of the Fifteenth Commission's provision was released by July 2025; the mitigation fund about 8 per cent. Who runs it National Disaster Management Authority, chaired by the Prime Minister; State Authorities by Chief Ministers. The Union Home Ministry administers the funds and fixes relief norms. Inter Ministerial Central Teams assess damage before a national fund release. The 2026 formula Sixteenth Commission reported 17 November 2025; accepted 1 February 2026; award 2026-27 to 2030-31. Allocation: 30 per cent Disaster Risk Index, 70 per cent past spending. First year ₹51,360 crore, rising 5 per cent a year.
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The Sixteenth Finance Commission's disaster formula How a State's share of the disaster funds is worked out, 2026-27 to 2030-31 State share = 30% × Disaster Risk Index + 70% × own disaster spending, 2011 to 2024 Spending net of transfers, inflation adjusted, with the pandemic years excluded. Disaster Risk Index = Hazard × Exposure × Vulnerability Hazard Ten hazards scored by quintile: flood, drought, cyclone, earthquake, landslide, hailstorm, cold wave, cloudburst, lightning, heatwave. The Fifteenth Commission used four Exposure Population projected for October 2026. More people in harm's way, higher index Vulnerability Per capita income, the 2018-19 to 2023-24 average, pandemic years excluded. Lower income counts as higher vulnerability; the Fifteenth Commission used the poverty headcount What the formula produces, 2026 to 2031 Eight States take 68.6 per cent of the State funds: Maharashtra, Uttar Pradesh, Bihar, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu and Gujarat. State funds up 27.6 per cent on the Fifteenth Commission; the North Eastern and Himalayan States up only 5.8 per cent, and six States get less than before.
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The Sixteenth Commission's formula

  • The Commission reported on 17 November 2025 and the government accepted its recommendations on 1 February 2026; the award runs from 2026-27 to 2030-31.
  • Allocation to a State is 30 per cent by a Disaster Risk Index and 70 per cent by its own disaster spending from 2011 to 2024, excluding the pandemic years and the transfers it received.
  • The Index multiplies hazard, exposure and vulnerability: ten hazards scored by quintile (flood, drought, cyclone, earthquake, landslide, hailstorm, cold wave, cloudburst, lightning, heatwave); population projected for October 2026; and per capita income, so that a poorer State is counted more vulnerable.
  • The result: eight States, Maharashtra, Uttar Pradesh, Bihar, Madhya Pradesh, Odisha, Rajasthan, Tamil Nadu and Gujarat, receive 68.6 per cent. Six States, among them Arunachal Pradesh, Uttarakhand and Jharkhand, get less than before.
  • The first year's provision is ₹51,360 crore, rising 5 per cent a year.

Where the money goes, and does not

  • The national funds are spent far less than they are provided: about ₹20,759 crore of the Fifteenth Commission's ₹68,463 crore had been released by July 2025, and the mitigation fund had used about 8 per cent of its provision.
  • Advance releases, like the one of 1 August, are the Centre's way of keeping State funds liquid in a bad monsoon; the second instalment is otherwise released only after the first is spent and accounted for.
  • Mitigation money sits unspent because it needs projects, appraisals and State matching funds, while relief money needs only a calamity.

Analysis

  • A better formula, and the money still in the wrong place. Ten hazards instead of four, exposure by projected population and vulnerability by income instead of a poverty headcount: the Index is a real attempt to pay for risk rather than for history.
  • Seventy per cent still follows the past. A State's share mostly tracks what it spent before, which rewards the States that declared disasters often and penalises those that invested in prevention; the Himalayan States, where the Nepal disaster shows the hazard growing fastest, saw their share rise least.
  • A mitigation fund that spends 8 per cent is a response fund in waiting. The Fifteenth Commission's record shows the money for preparedness sitting unspent while relief is paid after the flood.
  • Ulaanbaatar asks for the same shift. The drought policy framework adopted this month calls for the move from relief to preparedness that these funds were built to finance.
  • Treat disaster finance as fiscal federalism. A Mains answer turns on who decides what counts as a calamity, who pays, and whether the money arrives before the flood or after.

The way forward

  • Raise the weight of the Disaster Risk Index over time and let past spending fall away, so that the formula pays for risk rather than for claims.
  • Give the mitigation funds a project pipeline through the State Authorities, with the Centre's share released against appraised projects rather than held back.
  • Publish the central teams' assessments and the norms applied, so that relief is predictable and a State knows what a flood will bring.
  • Put the Himalayan and North Eastern States on a hazard weighting that reflects the cascading floods they now face.

Exam lens

  • Prelims: NDRF and SDRF under the Disaster Management Act, 2005 (Sections 46 and 48), the mitigation funds under Sections 47 and 48; the Finance Commission under Article 280 fixes the State funds and their sharing; 75:25 and 90:10; 80:20 response to mitigation; the Sixteenth Commission's award runs 2026-27 to 2030-31; the Disaster Risk Index has ten hazards and carries 30 per cent weight; the NDMA is chaired by the Prime Minister.
  • Mains: "India's disaster funds pay for relief after the event and leave mitigation unspent." Examine the Sixteenth Finance Commission's formula in this light.

Asked before: Mains 2020 GS3 · Mains 2024 GS3 · Mains 2026 GS3

Show the questions
  1. Mains 2020 GS3: Discuss the recent measures initiated in disaster management by the Government of India departing from the earlier reactive approach.
  2. Mains 2024 GS3: What is disaster resilience? How is it determined? Describe various elements of a resilience framework. Also mention the global targets of Sendai Framework for Disaster Risk Reduction (2015-2030).
  3. Mains 2026 GS3: “Community participation is the cornerstone of effective disaster management”. Analyse this statement with suitable examples from India. Also discuss the challenges to community participation and measures to strengthen it.

Key reports

  • Sixteenth Finance Commission, report for 2026-27 to 2030-31 (submitted 17 November 2025, accepted 1 February 2026): the Disaster Risk Index and the State wise allocations.
  • Fifteenth Finance Commission, report for 2021-26: the first mitigation funds and the 80:20 split.

Connects to

Sources
  • News On AIR, 1 August 2026, “HM Amit Shah approves ₹2117.85 crore SDRF assistance for flood-hit States”
  • Rajiv Gandhi Institute for Contemporary Studies, “India's Public Finance for Disaster Management: Hits and Misses of the Sixteenth Finance Commission”

Settled facts (dates of Acts, constitutional provisions, standing definitions) are from standard references.

Filed under: Disaster finance and institutions · The monthly magazine, August 2026