GST 2.0 and disaster relief: A fiscal reform missing the resilience link
As India celebrates International Day for Disaster Risk Reduction, its tax reforms aid affordability of relief materials but fall short on crisis preparedness
On October 13, the world observes the International Day for Disaster Risk Reduction (IDDRR). This year’s theme, ‘Fund Resilience, Not Disaster,’ underscores the urgent need to prioritise financing that strengthens resilience over post-disaster spending.
In India, disaster management remains deeply dependent on the availability and efficient utilisation of financial resources at both the central and state levels.
Mechanisms such as the National Disaster Response Fund (NDRF) and State Disaster Response Funds (SDRFs) play vital roles in relief and recovery. Still, sustained risk reduction demands predictable, timely, and transparent financial flows.
How do the recent GST 2.0 reforms, celebrated as a fiscal innovation under the slogan, “Garv se kahen, yeh swadeshi hai” ("Say with pride, this is swadeshi"), intersect with India’s disaster management and preparedness frameworks?
Where GST falls short in terms of disaster response
♦ Disaster-hit states lack compensation for GST revenue loss
♦ Centre-state aid remains delayed and inconsistent post-disasters
♦ Poorer states earn less GST, often face bigger climate risks
♦ Compensation cess not earmarked for disaster recovery funds
♦ Prevention-focused funding remains weak and underutilised nationally
Rolled out in 2017 as One Nation – One Tax, GST consolidated India’s fragmented indirect tax structure into a unified system. After years of gradual stabilisation, GST 2.0, rolled out on September 22, has reintroduced major changes.
These changes have been showcased through widespread retail campaigns as consumer-friendly reforms designed to boost economic confidence.
Further fiscal strain
However, the implications extend far beyond consumption. The Kerala government, for instance, estimates an annual revenue shortfall of ₹8,000–₹10,000 crore following the new rate adjustments.
Without a clearly defined compensation mechanism, several states—particularly those frequently struck by natural disasters face serious fiscal strain.
Also read: How Centre flouted GST law, diverted ₹3.1 lakh crore meant for states
In 2025, severe flooding in Assam and Punjab tested India’s disaster financing resilience. Early monsoon floods submerged over 20,000 hectares of farmland in Assam, affecting more than five lakh people and inflicting damages estimated at ₹400–500 crore.
In Punjab, the worst floods in four decades inundated over 1,400 villages, impacting 3.5 lakh residents. Crop losses in rice and vegetables triggered price spikes, compounding inflationary pressure. The Union government released ₹1,554.99 crore from the NDRF, but the timeliness and adequacy of these allocations drew criticism.
GST impact on relief
Meanwhile, Kerala received central assistance for the 2024 Wayanad landslide only after more than a year, highlighting the chronic inefficiencies and procedural inertia that plague disaster relief disbursal. Such instances reinforce the necessity of a more transparent and responsive disaster funding mechanism, especially for states facing recurrent hazards.
Also read | Kerala HC slams Centre over loan waiver for Wayanad landslide survivors
Although there is no direct policy linkage between GST revenue and disaster financing, the structure of taxation can influence the affordability and accessibility of essential goods during emergencies. Reduced GST rates on food, medicines, and relief materials lower financial barriers in the immediate response phase.
The COVID-19 crisis had demonstrated how higher GST on oxygen concentrators impeded timely access; under the new structure, life-saving medical equipment now falls within the 0–5 per cent slab, minimising such constraints.
Affordability of materials
GST 2.0 supports resilience and recovery by making critical technologies and materials more affordable.
For instance, drones, taxed at just 5 per cent, are increasingly deployed for real-time disaster monitoring, damage assessment, and rescue logistics. Building materials, including cement, now fall under the 18 per cent bracket, reducing reconstruction costs.
Farmers benefit from lower GST on agricultural machinery and irrigation systems, aiding post-disaster recovery. Individual life and health insurance premiums are now tax-exempt, improving personal financial security, although group policies remain taxable, limiting broader coverage.
Still underdeveloped
Despite these apparent benefits, however, the disaster management dimension of the GST policy remains underdeveloped.
Tax reductions cannot compensate for supply chain disruptions caused by damaged infrastructure, nor can they address the fiscal inequities between richer and poorer states. High-income states with robust consumption bases naturally generate greater GST revenue, while disaster-prone, but economically weaker states, such as Assam, Bihar, or Odisha, continue to face funding shortfalls despite bearing the brunt of recurrent calamities.
Furthermore, the GST Compensation Cess, designed to offset revenue losses, has no formal linkage to disaster response or mitigation funds, creating long-term uncertainty in financing.
Also read: From 2017 rollout to latest rejig, GST remains repair-in-progress
Lack of fund resilience
India’s broader disaster financing approach continues to be response-centric rather than preventive. The NDRF and SDRFs ensure emergency relief, but pre-disaster resilience-building investments in resilient infrastructure, early warning systems, and community preparedness receive minimal and fragmented attention.
The National Disaster Mitigation Fund (NDMF), mandated under the Disaster Management Act, 2005, remains largely underutilised, illustrating a disconnect between legislative intent and fiscal reality.
Procedural bottlenecks, delayed disbursements, and lack of accountability further weaken the system’s ability to anticipate and reduce risk.
What's the solution?
To truly “Fund Resilience, Not Disaster,” India must bridge the gap between tax policy and disaster financing.
Policymakers should explore mechanisms such as an automatic GST relief trigger for essential items during declared disasters, dedicated allocation from the GST Compensation Cess to NDRF/SDRF, and integration of GST’s digital infrastructure, like e-way bills and invoice tracking, into disaster logistics management.
These measures would not only enhance transparency and responsiveness but also build fiscal resilience against recurring natural hazards.
Also read: Why govt compensation continues to elude Gujarat's poor salt workers hit hard by floods
Going forward, while GST is not a direct disaster financing tool, its integration with relief frameworks, real-time supply chain monitoring, and targeted fiscal exemptions can transform it into a strategic enabler of resilience.
Fiscal reform, when aligned with disaster preparedness, can both simplify the economy and strengthen society’s capacity to recover faster and more equitably, ensuring that India truly invests in resilience before disaster strikes.
