Assessing the Fiscal Implications of Flood Disasters in India: Insights for General and Special Category States

Abstract

Abstract This study provides a comprehensive analysis of the fiscal consequences arising from flood disasters in India, with a specific focus on the challenges encountered by General Category States (GCS) and Special Category States (SCS). Recognizing India's vulnerability to floods due to its diverse geographical and climatic landscape, the research emphasizes the need for a coordinated disaster response framework involving both central and state governments. Utilizing a panel vector autoregression (VAR) methodology alongside impulse response functions (IRFs), we reveal that flood disasters significantly impact fiscal variables over a medium-term horizon of 3–5 years. Our findings indicate that fiscal deficits widen for up to three years post-disaster, while expenditures on flood control surge in the following years. Notably, SCS face a disproportionate fiscal strain, exacerbated by their geographical disadvantages and heightened susceptibility to disasters, leading to a decline in non-tax revenue after flood shocks. The study advocates for tailored fiscal policies that enhance the resilience and recovery capacity of both GCS and SCS in addressing flood-induced fiscal challenges.