“Disaster severely disrupts progress, destroys the hard‑earned outcomes of developmental efforts and often pushes back societies by years, sometimes decades”. With these words, the Sixteenth Finance Commission (FC-16) has set the stage for an overhaul of how India prepares for and pays for catastrophe. Recommending a total corpus of Rs 2,04,401 crore for state funds and Rs 79,406 crore for national funds over the 2026-31 period, the Commission is attempting to move the nation from a “relief-first” culture to a scientifically grounded doctrine of proactive resilience. As we say in simple language - Prevention is better than cure.
For decades, India’s disaster response was largely an exercise in “margin money”—a buffer for clearing debris and providing immediate aid after the damage was done. But as climate change intensifies, the old math no longer adds up. Floods alone now account for 55.09 per cent of all state disaster expenditure, while silent killers like lightning have become the leading cause of natural hazard fatalities, responsible for nearly 36 per cent of deaths in 2022. The Commission notes that without a pivot, these recurring events will continue to act as a tax on progress, wiping out years of hard-won economic gains. One such example is the disaster and climate risk associated with the WASH sector. My work at CEEW and UNICEF concluded that 148 districts have very high risk, 147 have high risk, 149 have moderate risk, 151 have low risk, and 136 have very low risk to WASH systems and services due to climate extremes.
The FC-16’s answer is a “directional change” in how we calculate risk. For the first time, fund allocation is being driven by a refined Disaster Risk Index (DRI) that treats risk as a multiplicative function of three variables: Hazard, exposure, and vulnerability. Under this new formula, risk only exists where these three factors intersect—a storm in a desert is a hazard, but without people (exposure) or frail infrastructure (vulnerability), it is not a fiscal disaster risk.
Hazard: The Commission expanded the hazard variable to include ten specific disasters: flood, drought, cyclone, earthquake, landslides, hailstorms, cold wave, cloud burst, lightning, and heatwave. Scores are assigned to states for each disaster based on credible datasets using quintile breaks, and a composite hazard score is derived from a weighted sum based on the proportion of historical expenditure incurred for each hazard.
Exposure: This variable is measured using the projected population for October 2026. The Commission utilises population as a surrogate for exposure because it is highly correlated with the crops and infrastructure susceptible to damage.
Vulnerability: This component is calculated using the per-capita income of States (averaged from 2018-19 to 2023-24, excluding 2020-21). Per-capita income serves as an indicator of the economic resources a State has available to provide public services and manage or prevent disaster risks.
To make this framework a reality, the Commission has made three critical structural moves:
● Expanding the safety net: Recognising the changing climate, heatwaves and lightning have finally been added to the national list of notified disasters, allowing states to provide immediate relief through the State Disaster Response Fund (SDRF).
● Funding the “Before”: In a major logic shift, “Preparedness and Capacity Building” has been moved from response funds to Mitigation Funds (SDMF/NDMF). The rationale is acute and simple, identifying that readiness is a pre-disaster investment meant to reduce impact, not a post-disaster reaction.
● Empowering the Vulnerable: To ensure that geography is not a barrier to safety, Northeastern and Hilly (NEH) States will now bear a uniform 10 per cent cost-sharing burden for central assistance, regardless of the project's size.
Despite this historic allocation, the Commission warns of a persistent “capacity gap”. Even after four years of having dedicated mitigation funds, their utilisation remains limited. States are frequently bogged down by manual relief processes, and delays in formulating technical guidelines have left complex recovery and reconstruction projects stalled on the drawing board.
Furthermore, “huge unspent balances” in some state accounts have raised concerns. To enforce discipline, the Commission has mandated that if a State’s unspent balance exceeds the total of its last three years of allocation, further releases will be temporarily withheld.
The path forward relies on turning data into a weapon against disaster. The Commission recommends transforming the National Disaster Management Information System (NDMIS) into a real-time, transaction-level database. From the second year of the award period, complete data validation on this portal will be a necessary condition for states to claim their disaster grants.
By combining scientific risk mapping with a “whole of government” approach, the 16th Finance Commission is signaling that India can no longer afford to simply survive disasters. The shift from managing relief to managing risk is the only way to protect the hard-earned outcomes of a developing nation and actualise Viksit Bharat by 2047.
Aditya Vikram Jain, a hydrogeologist works in the field of water and climate sciences
Views expressed are the author’s own and don’t necessarily reflect those of Down To Earth