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ECONOMIC IMPACT OF DISASTERS

Updated: Jan 1

Author: Navya P, V year of B.A.,LL.B.(Hons.) from Damodaram Sanjivayya National Law University (DSNLU)


ABSTRACT

Natural calamities are indispensable events that occur periodically across the globe. Globalization and industrialization impacted the environment severely that increased the risk of disasters. Risk reduction is one of the main objectives of Disaster Management. As per the “United Nations Report” in 20 years i.e. 1998- 2017 the economic loss caused to India due to natural disasters was USD 79.5 Billion. The economic aspect is given primary importance as all sufferings results in or is interrelated to economic loss. Economic assessments are done to understand the damage that occurred through property, infrastructure and others. The urban or smart cities such as Chennai, Bengaluru and others are also impacted due to these disasters that increase the risk of high economic loss. The burden falls upon the state that takes up the responsibility of Disaster Management. Measurement of economic loss helps to take up strategic action by authorities at times of disaster. In this article, the information on the economic loss caused due to natural disasters is collected and analyzed along with case laws. The effect on different sections of society is observed. The scope is restricted to natural disasters with a specific focus on cyclones, landslides and heavy rains. The official documents, journal articles and authorized materials are referred to.

Keywords: Natural Disasters, Cyclone, Landslides, Economic loss

“Sometimes it takes a natural disaster to reveal a social disaster”- Jim Wallis


INTRODUCTION

Indian Subcontinent with a coastline of 8000 kilometres frequently exposes to Cyclones and heavy rains on a seasonal/ periodical basis. The geographical position is considered one of the main reasons for vulnerability towards natural disasters.[1] The study conducted by Kahn showed that in comparison to African countries Asian states are prone to natural disasters 28.5 % more than it.[2]As per Global Climate Risk Index Report published in the year 2019, India stands at 14th vulnerable country to weather-related events. In terms of economic loss, the country ranked at 4th which recorded a loss of $13,789 million.[3] Among all the natural disasters 30 percent constitute cyclones, heavy rains and landslides of 10 percent. Hence, cyclones, heavy rains and landslides cause a major impact on India.


Cyclones occur twice a year caused due to disturbances in the atmosphere such as air circulation. These are also associated with bad weather and storms that increases the risk of vulnerability.[4]As per the United Nations Report in 20 years i.e. 1998 – 2017 the economic loss caused to India due to natural disasters was USD 79.5 Billion.[5]The recent cyclone Amphan resulted in $14 Billion loss to India making it the costliest cyclone ever that occurred in the Indian Ocean.[6] The heavy rains can be observed in smart cities such as Chennai, Bengaluru, Mumbai and others. This is a new phenomenon that can be observed due to climate change. Landslides take place simultaneously It increased the effect on the economy in addition to the Covid-19. In the first phase of the 2021 year, the country witnessed cyclone Tauktae, Yaas, Gulab that impacted the country. Despite legislations, administrative bodies and institutional mechanisms on letter lack of proper implementation affected the country. The economic impact of these disasters varies at each stage.


BACKGROUND

Section 2(d) of the Disaster Management Act, 2005 Disaster is defined as “ a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area”.[7] As per the definition disasters, heavy rains and landslides are also disasters. India is regularly vulnerable to tropical cyclones. Heavy rains are a recent phenomenon that can be observed in urban cities claimed to be the result of climate change. These are rather termed as “Floods” and Urban floods. Landslides are associated with cyclones and heavy rains as they result in wind force in hilly regions. These occur frequently in India among all other natural disasters.


The Disaster Management Act, 2005 provides a legal framework for the management of disasters in a country like the establishment of the commission, national plan, National Disaster Response Team.[8]It also specifies responsibilities and measures that government should take at the time of disaster under Chapter V.[9] Section 12 and 13 of the Act mentions minimum standard reliefs and loans repayment measures.[10]There are also NDMA Guidelines on each and every calamity. Regularly authority issues report and training materials to handle the disasters. The mechanism and policies are also issued by the authority. NDRF is a body that carries out rescue operations. In addition to infrastructure loss and relief measures the entire rehabilitation deeply affect the country in monetary terms.


ECONOMIC IMPACT

The economic impact of natural disasters such as cyclones, heavy rainfall and landslides is Multi-dimensional. Because in all cases there will be no direct economic impact on all the people. The unfortunate events cause an impact on different sections of society in varied forms either in a direct or indirect manner. In this section, the impact on the economy due to natural disasters is elucidated.



SHORT AND LONG - TERM IMPACTS

Another differentiation that can be made to understand the impact of disasters is in terms of long and short. Though some effects can be observed at the initial stages there are others that cause long term effects. Initially when disasters occur all economic activities will be disrupted for the short term depending on the intensity of the disaster. In this case, in short term it causes direct loss of human deaths, disabilities (labour), there will be loss of capital like damage to physical infrastructure, Assets and buildings. These effects subsequently result in low wages thereby reducing industrial/agricultural outputs.[11]The GDP of the country will decrease due to the poor performance of the market. During cyclones in coastal states and heavy rains in smart cities, there will be a severe negative impact. The entire logistics business is disrupted along with stock markets decline. In comparison to developed countries, developing countries are sensitive to these economic slowdowns as coping up with the gap would be difficult for these countries. The economic impact ranges from short to medium term.


There are no proper studies conducted on estimates of long terms. However, natural disasters cause long term economic growth impacts as irregular human death disturbs the entire system. The human and physical capital severely affected that show long-term negatives. The funds utilized for rehabilitation, recovery measures, post-rehabilitation would have been utilized for social welfare which benefits the growth of the country.[12] This way, it eliminated future growth in the long term. The impact of landslides on the economy is the merger. But the human and capital loss exists even in this form of natural disaster. These can be mitigated easily by using a system of alarming and technological advancements.


All these are basic calculations made based on estimates by various centres and organizations. Firstly, the quantitative and theoretical assessments of economic impacts caused by natural disasters need to be made. It increases the reliability of data and takes necessary actions. Theoretical and computational macroeconomic models of natural disasters often lack spatial details; These models, like many empirical studies, ignore geography or operate on a large geographic scale, such as a region or country. Therefore, these approaches fail to take into account that most natural disasters initially have local effects; The location and the intensity of the disaster are important.


AGRICULTURE

Agriculture secures the livelihoods of more than 2.5 million people around the world. Given the sector's innate interactions with the environment, its direct dependence on natural resources for production and its importance for national socio-economic development, urgent and ambitious action is needed to build more resilient agricultural systems. The impact on agriculture caused due to natural disasters affect the food system.[13]


Agriculture lands are first affected due to cyclones and heavy rains. Recent Cyclone Amphan affected 13 million people and reduced agricultural productivity. This through the farmers and families dependent on crop into famine.[14] In the medium term with 2.13 percent effect on GDP growth they cause impact. Though water is important for agriculture, the excess amount washes away all the agricultural produce. These effects the productivity and supply chain however, it doesn’t impact the economy at large.[15] In these instances, the schemes and loans, other rehabilitation plays a significant role. If not implemented properly large section of people suffer.


HOUSEHOLDS AND MSME’S

Smart cities like Hyderabad, Chennai and Mumbai face critical rainfall every year with increasing risks. The stress and effect in urban areas are vulnerable compared to rural areas. In the urban areas along with human loss, the economic loss is greater.[16] Natural Calamities impact severely the Rural areas and people already suffering from poverty increasing socio-economic vulnerability to the country. Great damage is caused due to cyclones, heavy rainfalls. The effect of these disasters can be observed in two-folds: Firstly, on the economy through impact on agriculture, businesses etc. and Second, well-being & welfare of people increasing state responsibility.[17] The end result of all these effects impact the Gross State Domestic Product (GSDP) of states[18] that in return alters the GDP of the nation.


Low-income and other marginalized groups are most exposed to the effects of climate change. Persistently high temperatures take a disproportionate toll on those who rely on manual labour outdoors or who live in crowded and poorly ventilated homes. Floods, storm surges, and hurricanes cause the greatest damage in low-income, densely populated communities that lack risk mitigation infrastructure. A study suggests that falling agricultural productivity and rising grain prices could increase India's national poverty rate by 3.5% by 2040 compared to the zero-warming scenario; this corresponds to around 50 million more poor people[19].


FINDINGS OF THE STUDY

From the research, it can be concluded that natural disasters are indispensable for any country including India that is geographically and environmentally vulnerable to these natural events. Every year an increase in these disasters can also be observed. At that stance, a direct relationship between economic growth and natural disasters can be drawn. Macroeconomy damage is more than the micro-economy. Despite this, the studies show that India is not prepared to face these disasters. In addition, negative local effects can be weakened or intensified by indirect positive or negative economic effects elsewhere. Another important observation from our review is that empirical models and approaches for assessing the economic impact of natural disasters have evolved as two independent branches of the literature and seem to have made little use of the results of both.


At large, the economic impacts can be divided into long and short terms. Depending on the disaster appropriate measures should be taken to mitigate the loss. For example: in landslides, the short -term loss can be observed such as human death, accidents, infrastructure and traffic. Warning Alert systems and awareness to people reduces the loss. Similarly, infrastructure should be built taking into consideration the disaster risks.


Despite policies such as disaster preparedness, resilience, risk reduction etc. on papers. Lack of proper infrastructure to mitigate damage, advanced technologies such as warning systems. State-level risk assessments are also essential to mitigate the loss. Though disasters are common in every other country the developing countries suffer severely due to lack of capacity. So, Mitigation is crucial rather should be a priority for India. Disaster Risk Reduction and investment in this mechanism are essential for sustainable development. For cyclones, the management of coastal zones is important. The states and coastal regions of Tamil Nadu, Andhra Pradesh, West Bengal, Odisha, Gujarat are prone to heavy floods. There is also an increase in these floods due to global warming and climate change.


Pro-active, resilience and preparedness are essential to sustain such economic shocks. Though there is legislation, guidelines, policies and directions many cases are being filed alleging lapses in the implementation mechanism. The institutional mechanism and policy implementation should be strong both in letter and spirit. Only then, the economic impact due to natural disasters can be mitigated or managed successfully.


CASE LAWS

Name of the Case: Swaraj Abhiyan v. Union of India[20]Citation: (2016) 7 SCC 498


The objective of the Case

In the present case, the court dealt with issues related to obligations of state governments in the implementation of enactments by Parliament such as the National Food Security Act, 2013 and the role of the Union is issuing directions to state on the implementation of parliament law.


Facts of the Case

Swaraj Abhiyan, the petitioner in the case filed a Public Interest Litigation (PIL) under Article 32 of the Constitution. In the year 2016, there are droughts in around 13 states such as Andhra Pradesh, Bihar, Uttar Pradesh and others. The petitioner alleges that despite the severe humanitarian crisis in regions due to droughts no proper relief and compensation was provided to the affected people. The organization prayed for compensation to affected farmers and subsidies and employment under MNREGA Scheme along with food grains under National Food Security Act, 2013. They also prayed for the implementation of Mid-day meal Schemes and crop loans for affected drought areas.


Issues Raised

  1. What is the obligation of the Central government to ensure state governments and UT’s implements laws passed by the parliament?

  2. What happens when the Union doesn’t issue necessary directions to States and UT’s?


Plea of the Respondent

Several affidavits were filed by the Union of India and the State government. They submitted the appointment of officers & commissions were made and details regarding the implementation of the Act. Attorney General appeared on behalf of Union and state governments tried to convince the court regarding measures taken by governments.


Interpretation of the Court

The Supreme Court referred to the legal framework of the Disaster Management Act, 2005 elaborately and implementation mechanism carried out. The questions related to the declaration of droughts and mechanism under the National Food Security Act is interpreted as enshrined under the act and constitution. The indicative nature of manuals and guidelines was accepted. The court was directed to prepare Model rules under Section 15 of the National Food Security Act for the guidance of state governments.


Final Judgement

Among other things, instructions are given to states to establish an internal grievance mechanism and to appoint or appoint a district grievance officer as provided for in the 2013 law; form the State Food Commission to oversee and review the implementation of the 2013 law; in states where drought has been declared or may be declared in the future, all households must receive monthly food grain entitlement under the 2013 law. It also instructed the Government of India to ensure that workers whose wages have been more than 15 days behind receive compensation for late payments under the 2005 Act; The Government of India is instructed to ensure the establishment of the Central Employment Guarantee Council under the 2005 Act. Petition kept pending to further issue directions in future.


Referred Cases

1. People’s Union for Civil liberties v. Union of India, (2013) 2 SCC 688.

2. Essar Steel Limited v. Union of India, 2016 (4) SC 242.


Name of the Case: Gaurav Kumar Bansal v. Union of India[21]

Citation: (2017) 6 SCC 730

Objective of the case

In the case, the court dealt with Uttarakhand floods and landslides that took place in the year 2013. Petitioners questioned the actions and preparedness of state disaster management authority in the mitigation of disaster. The court dealt with the role of the state in disaster management.


Facts of the Case

A petition is filed under Article 32 of the Constitution on the Uttarakhand disaster. Petitioner alleges that lack of proper implementation of Disaster Management Act, 2005 and preparedness lead to adverse impact, loss, life in the cyclone, landslides. They allege that the state is responsible for the loss and seek directions to be issued by courts for implementation of the Act.


Issues Raised

  1. Whether the formation of an Advisory Committee is mandatory under Disaster Management Act, 2005?

  2. What is the responsibility and role of the state under the Disaster Management Act?


Plea of the Respondent

The State Government filed affidavits stating actions taken by the government. In response, the central government also immediately took action after filing the case. It issued directions to Chief Secretaries of Disaster Management Authorities to frame standards that need to be taken for victims of the disaster.


Interpretation of the Court

The Supreme Court revisited all key provisions of Act i.e. Section 11, 23, 31, 7,8, 12 and 14. The provisions related to the formulation of the National Plan include a state-specific plan for disaster management. It found that in the past 10 years there has been no state plan formulated. It considered the actions taken after 2017 as the formation of an advisory committee by state governments.


Final Judgment

The court held that the establishment of an Advisory Committee is not mandatory. The State Disaster Management Authority has the discretion to form the committee as per requirement and necessity. It further declared that the state followed all necessary steps and no directions are required. However, it stated that state and National & State Disaster management should be vigilant, prepared for disasters. Hence, disposed of the petition.


CONCLUSION

Economic loss and disasters are interrelated aspects. However, the impact can be reduced with due efforts and mechanisms. India is one of the developing countries fighting against the evils of poverty since independence. The effects of disaster further worsen the situation. As observed above, some million loss occurs and continues to take place due to disasters that affect the economic growth of the country. However, with proper infrastructure, mechanisms and Disaster resilience economic impacts of disasters can be controlled. Climate change alert and its adverse impacts are being studied and evaluated. It is a caution towards declining economic growth. Proper assessments and an action plan are essential to reduce economic costs. The study is an effort to elucidate the relationship between economic growth and natural disasters.


[1]Derek Kellenberg & A. Mushfiq Mobarak, The Economics of Natural Disasters, 3 ANNU REV RESOUR ECON., 297, 299 (2011).

[2]Kahn ME, The death toll from natural disasters: the role of income, geography, and institutions, 87 REV. ECON.STAT, 84, 271 (2005).

[3]Yashobanta Parida & Prarthna Agarwal Goel, India is not prepared for natural disasters, BUSINESS LINE https://www.thehindubusinessline.com/opinion/india-is-not-prepared-for-natural disasters/article30463153.ece. (Jan 3rd,2020).

[4]Cyclone, https://ndma.gov.in/Natural-Hazards/Cyclone (last visited Oct 17th, 2021).

[5]Terri Lore, World Economic Situation and Prospects, United Nations, 109 (2020), https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESP2020_FullReport.pdf.

[6]Press Trust of India, Cyclone Amphan resulted in $14 bn economic losses in India: UN Report, BUSINESS STANDARD,https://www.business-standard.com/article/current-affairs/cyclone-amphan-resulted-in-14-bn-economic-losses-in-india-un-report-121042000353_1.html(Last updated April 21, 2021).

[7]The Disaster Management Act, No.53, §2(d), 2-28 (2005).

[8]The Disaster Management Act, No. 53, (2005).

[9]The Disaster Management Act, No.53, Chapter V, 16 (2005).

[10]The Disaster Management Act, No.53, §12,13, (2005).

[11]Vikrant Panwar & Subir Sen, Economic Impact of Natural Disasters: An Empirical Re-examination, 13 J. APPL. ECON. 110, 114 (2019).

[12]Id.,

[13]CHANDRA SEKHAR BAHINIPATI ET AL., WHAT CAUSES ECONOMIC LOSSES FROM NATURAL DISASTERS IN INDIA? 267 (2015).

[14]TAHA CHAIECHI, ECONOMIC EFFECTS OF NATURAL DISASTERS, Academic Press (2020).

[15]Pradeep Thakur, India at No.3 in disaster ranking; worldwide losses at $3 trillion, TOI, https://www.un.org/en/chronicle/article/economic-recovery-after-natural-disasters

(last updated on 13th Oct, 2020).

[16]Yashobanta Parida, Economic Impact of Floods in The Indian States, 25 CUP 267 (2020).

[17]Archana Patankar, Impacts of Natural Disasters on Households and Small Businesses in India, Asian Development Bank, 5 (2019), https://www.adb.org/sites/default/files/publication/547031/ewp-603-disasters-households-small-businesses-india.pdf.

[18]The devastating impact of floods in India- and what can be done, https://www.unep.org/news-and-stories/story/devastating-impact-floods-india-and-what-can-be-done (27th April, 2020).

[19]Terri Lore, Supra at note 5.

[20]Swaraj Abhiyan v. Union of India, (2016) 7 SCC 498.

[21]Gaurav Kumar Bansal v. Union of India, (2017) 6 SCC 730.