Recently, the Finance Commission of India tasked UNDP to undertake a study to recommend the criteria on which states would be allocated resources for disaster risk management. The Finance Commission is a constitutional body that decides upon financial allocations between the central government and the states in India. As currently recommended, states receive a fixed amount every year irrespective of the occurrence of a disaster for the next five years.
As part of the study, we looked at the existing methodology for allocation, as well as the available options to develop criteria. The existing methodology allocates resources based on states’ expenditures on disasters. The more states spend, the more money they receive. That means relatively better off and well-administered states that can spend more are favoured. The methodology does not account for the risk and vulnerability profile of a state, leading to a huge asymmetry in state-level allocations. For instance, while Uttar Pradesh, one of India’s poorest states with more than 200 million people (nearly the population of Brazil), was allocated US $120 million for 2019-20, Maharashtra, a much richer – and much smaller – state than Uttar Pradesh, was allocated US $250 million for the same year
We consulted states for their views on allocations and organized several meetings in Delhi with key ministries to understand how the centre helps states to deal with disasters. At an international workshop in Delhi in November last year organized with the World Bank, we identified two key constraints: one, the absence of annual data on disasters at the state level; and two, that the expenditures focused just on relief, and did not consider the entire cycle of disaster management.
Our objective was to develop a set of objective and transparent criteria. After all, states compete for more resources, and the criteria would receive intense scrutiny. We were also keen that the allocations meet not just the expenditures on relief, but the needs of the entire disaster management cycle: response and relief, recovery and reconstruction, mitigation, and preparedness and capacity-building. At the same time, we did not intend a radical restructuring of the financial allocations. The aim was to change and improve the pattern of allocations, while retaining an element of continuity.
We tested several new criteria for allocations, which included area and population of an individual state, and combinations of area, population and previous expenditures. While these criteria made the allocations more objective, it was critical that we included the considerations of hazard and vulnerability in our composite criteria.
We therefore constructed a risk index that included both hazard and vulnerability. Out of a total score of 100 for each state, we assigned a score of 70 to hazards and 30 to vulnerability. The score of 70 comprised four major disasters — earthquakes, floods, droughts, and cyclones, with and equal score of 15 to each – and a residual category of other disasters, with a score of 10. For each major hazard, we assigned two scores: 15 for higher risk and 7.5 for medium risk. We used the national-level hazard maps, which show the distribution of disaster occurrences, for assigning hazard scores to states.
We used the Multidmensional Poverty Index (MPI) 2018 to measure vulnerability for each state. The MPI, prepared by the Oxford Poverty and Human Development Initiative (OPHI) and UNDP, looks beyond income to understand how people experience poverty in multiple and simultaneous ways. It identifies how people are being left behind across three key dimensions: health, education, and standard of living, comprising 10 indicators in total. We assigned the states with relatively lower MPI a higher vulnerability score.
We combined the risk and vulnerability scores and developed a composite risk index for all the states, whereby we assigned a precise score to each state out of a total of 100. Such an index serves the purpose of risk informing the process of allocation.
The final criteria that we recommended combined the existing methodology of state expenditures and the state’s area and population, assigning a weightage of 70 to expenditures and 30 to area and population, divided equally. Applying this methodology, we established the base figure for the first year of the Finance Commission cycle (2020-25). We multiplied the base figure for each state by the state risk score to arrive at the final allocation figure for the first year. We increased the state allocation for the first year by 5 percent annually for the next five years, to reflect the annual inflation rate and arrive at the total allocation for five years. We considered such a methodology sensitive to the state capacity demonstrated through expenditures, its exposure as represented by area and population, and risk-informed as measured by the risk index.
The total allocation that we propose for all the states is approximately US $16 billion over the next five years. We recommend four funding windows for the total state allocations: one, response and relief (40 percent); two, recovery and reconstruction (30 percent); three, mitigation (20 percent); and four, preparedness and capacity-building (10 percent). It was an intensive exercise in allocating state resources where we innovated at two levels: first, developing a risk-informed criterion for allocation; and second, diversifying the funding windows for disaster risk management.
The writer is recovery advisor, UNDP