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It will help authorities assess financial impact of natural catastrophes on budgets, providing roadmap for preparedness. The study cites the World Risk Index 2023, which ranks India third among 193 countries in terms of disaster risk. Over 45 million hectares of land in the country are vulnerable to flooding, with states such as Assam, Odisha
The Indian Institute of Technology Bombay campus in Powai. File pic
Researchers at the Indian Institute of Technology Bombay (IIT-B) have developed a Disaster Intensity Index (DII) to assess the financial impact of natural disasters on state budgets, providing a crucial roadmap for disaster preparedness and economic resilience. India’s geographical location and tropical monsoon climate make it highly susceptible to natural disasters, particularly floods and cyclones. The country experiences five to six tropical cyclones annually, with at least two to three classified as severe. These disasters not only result in immediate loss of life and property but also place a significant financial burden on governments, particularly state administrations responsible for disaster response and recovery.
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Nandini Suresh researcher, Trupti Mishra professor and D Parthasarathy, professor
A recent study by researcher Nandini Suresh, Professor Trupti Mishra and Professor D Parthasarathy from IIT-B analysed the financial repercussions of floods and cyclones on 25 states over 24 years (1995–2018). Explaining their methodology, the researchers noted: “For the analysis, the study used cyclone and flood data to construct a disaster intensity index and fiscal data to make a balanced panel dataset of 25 Indian states (some states were combined because of data unavailability) covering 24 years from 1995 to 2018. The years were chosen because the Finance Commission changed disaster funding allocation methodology in 2020 and we tried to get a balanced time series and cross-section units, however, there were some missing variables in 2019 for states.”
Quantifying disaster risk
The study cites the World Risk Index 2023, which ranks India third among 193 countries in terms of disaster risk. Over 45 million hectares of land in the country are vulnerable to flooding, with states such as Assam, Odisha, West Bengal, Bihar, Uttar Pradesh, Gujarat, and Maharashtra being the most affected.
Traditionally, disaster funding in India relies on estimating economic losses, fatalities and the number of affected individuals—a process often marred by inconsistencies and biases. Instead, the researchers leveraged weather and geographic data from the International Best Track Archive for Climate Stewardship (IBTrACS) and the India Meteorological Department (IMD) to measure cyclone strength (via wind speeds) and flood severity (via unusual rainfall patterns). “We relied on data from weather and geographic sources to accurately measure cyclone strength [using wind speeds] and flood severity [based on unusual rainfall],” explained Nandini.
The research outlines a pattern where increased spending coupled with revenue loss leads to greater budget deficits over time. “Between 1995 and 2018, the study integrated disaster intensity index and budgetary data to produce a panel dataset of 25 Indian states. Using panel vector autoregression, a statistical model, the study discovers that a state’s overall government expenditure goes up, and its budget deficit worsens when floods and cyclones strike. By further breaking up the fiscal variables, we could pinpoint specific areas where disasters have exerted their influence, especially in terms of decreased own tax revenue, increased social sector expenditure and capital outlay, increased outstanding liability, increased primary deficit, and reduced transfers from the centre over time,” she added.
State-specific impacts
Not all states experience disasters with the same severity. Madhya Pradesh and Chhattisgarh, which face droughts and occasional floods, manage disaster relief primarily through internal resources and suffer comparatively lesser financial damage. In contrast, highly disaster-prone coastal states such as Odisha, Andhra Pradesh and West Bengal require substantial recovery funding due to frequent cyclones and floods. Consequently, these states often depend on external aid and loans, increasing long-term state debt and limiting other development projects.
The study points to inefficiencies in the National and State Disaster Response Funds (NDRF and SDRF). Certain regulations such as the 25 per cent cap on SDRF allocations for relief operations and procedural delays hinder the timely disbursal of funds. The researchers suggest streamlining these processes to enhance disaster response effectiveness.
Proactive financing
The study underscores the importance of alternative financing mechanisms, including resilience bonds where investment is encouraged in disaster prevention projects and initiatives that minimise damage are rewarded, disaster insurance where financial protection is provided to individuals, businesses and governments against natural calamities, and catastrophe bonds where disaster risks are transferred to investors who receive returns unless a disaster occurs.
“These provide quick funds during emergencies and reduce the need to take external loans after disasters,” said Parthasarathy. However, implementation challenges remain, including low awareness, high insurance premiums and a lack of financial and legal frameworks for integrating these instruments into state budgets.
Policy recommendations
Public-private partnerships can play a crucial role in enhancing disaster preparedness. Governments can provide tax incentives for businesses investing in climate-resilient infrastructure and enforce sustainability regulations to mitigate disaster risks. The study also recommends investing in early warning systems, resilient infrastructure, and sustainable land-use planning to minimize long-term financial impacts.
Forward-looking states
Tamil Nadu has installed advanced cyclone monitoring systems. Kerala has adopted climate-adaptive urban planning and Odisha has introduced budget tracking for climate-related spending. With climate change intensifying the frequency and severity of natural disasters, Indian states face increasing financial challenges. “By adopting these measures, India can mitigate long-term financial risks while protecting lives and infrastructure and build a stronger, more sustainable future,” said Nandini.
What you need to know about DII
The index provides an objective and standardised method to evaluate disaster impacts. It accounts for the fact that floods and cyclones alone were responsible for 80 per cent of disaster-related losses in India during the study period. Using the panel vector autoregression statistical model, the study examined how revenue and expenditure interact over multiple years following a disaster. The findings highlight the dual impact of disasters on state finances.
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