Resource information
Twenty-two of India's 31 states are
regarded as particularly prone to natural disasters: 55% of
its land is vulnerable to earthquake, 8% is vulnerable to
cyclone, and 5% is vulnerable to flood. In light of
India's vulnerability to growing losses due to natural
disasters and escalating fiscal pressures at the central and
state levels, the World Bank undertook a detailed review of
India's catastrophe exposures. The goal of this project
was to examine loss potentials from rapid onset natural
disasters and to consider the opportunity to apply enhanced
country and state level risk management techniques, with a
particular emphasis on the financing of post disaster
reconstruction and the efficient allocation of public funds.
The country risk management approach is based partly on
corporate risk management principles, but accounts for key
economic and social metrics such as government fiscal
profiles and the living conditions of the poor. The first
step under this methodology is to assess the potential
losses from natural hazards on a probabilistic basis, and
detailed studies were carried out in four states. The next
step involves a formal and structured approach to understand
the funding of natural calamity losses and identify the
"natural disasters funding gap," which is the
difference between the expected fiscal cost of an event and
available ex post sources of government revenue. The study
concludes that India still adopts a primarily reactive, or
coping, approach to dealing with natural disasters. The
current program, particularly at the national level, lacks
institutional incentives and underplays the role of risk
financing through ex ante mechanisms such as catastrophe
reinsurance and contingent credit facilities. The
development of ex ante funding programs is particularly
critical because these programs typically serve as a primary
source of immediate liquidity that would reduce human
suffering, economic loss, and fiscal pressures in the
aftermath of a natural disaster, and kick-start economic
recovery. Ex ante funding approaches can also foster
mitigation and provide incentives for institutional capacity building.
