The Hindu Business Line : The politics of `national calamity'

IN the post-tsunami scenario, when there is a repeated clamour on one side to declare `national calamity', and hesitation on the other side to yield to such a demand, one is curious to know a little more about the calamity business.

It was days after the Bhuj quake on January 26, 2001 that the President promulgated an Ordinance further to amend the Finance Act, 2000 and the Income Tax Act, 1961, levying two per cent surcharge on corporate tax and Income Tax, to meet the extra expenditure on account of natural calamity.

The idea of such an impost was not new because the Eleventh Finance Commission (EFC) had spoken of the same in its report submitted in 2000, to "instil a feeling of national participation for a national cause".

Among the EFC's recommendations was the proposal to levy a special surcharge on the Central taxes for a limited period; this was to be accumulated in National Calamity Contingency Fund (NCCF).

The report of EFC discusses at length `calamity relief' and traces the history of how funding has happened over the years. One of the first ways in which the government met expenditure on natural calamities was through `margin money scheme', a phrase first used in the report of the Second Finance Commission. The size of the margin money provided annually to the States rose from Rs 6.15 crore then, to Rs 240.75 crore by the time the Eighth Finance Commission was on.

The Ninth Finance Commission broke from the margin mould and suggested the creation of a Calamity Relief Fund (CRF) for each State; to this, the Centre and the State were to contribute in the ratio 3:1. There is some clue on `national calamity' from the recommendations of the Tenth Finance Commission (TFC), which had proposed the setting up of a National Fund for Calamity Relief (NFCR), under the Ministry of Agriculture, "to provide assistance to the States affected by natural calamity of rare severity."

The Fund was to be managed by the National Calamity Relief Committee (NCRC). The TFC was of the view that if a calamity of rare severity occurred, it should be dealt with as a national calamity, requiring additional assistance and support from the Centre.

However, TFC did not define `calamity of rare severity', because "any definition would bristle with insurmountable difficulties and was likely to be counter-productive."

It was, therefore, felt that such a calamity was to be assessed on a case-by-case basis, considering the intensity and magnitude of calamity, level of relief assistance needed, capacity of the State to tackle the problem, alternatives and flexibility available within the plans to provide relief.

During 1995-98, States sought a total assistance of Rs 24,000 crore from the NFCR while the total corpus of NFCR for the five-year period was barely Rs 700 crore. Even what was given came under adverse scrutiny.

For the year 1998, the report of the Comptroller and Auditor General of India (CAG) on the Department of Agriculture and Cooperation highlighted: "The Calamity Relief Fund and National Fund for Calamity Relief have not met the intended objectives satisfactorily due to emphasis on expenditure from CRF by the states rather than on calamity relief per se."

And there were more calamities: Many States credited the receipt from CRF into their general revenues and there was a general tendency among most of the States to book all types of expenditure, not related to calamity relief.

TFC's report speaks of guidelines issued by the Ministry of Finance on October 24, 1995 empowering the NCRC to decide whether a calamity is to be treated as one of rare severity to qualify for relief from the NFCR.

While that is theory, practice reverted to the pre-1990 situation. Thus, as TFC noted: "Whenever a State is not in a position to meet the expenditure on relief from the amount available in the CRF, a request followed by a memorandum is made to the Central Government to provide funds from the NFCR. A Central team is then deputed to make an on-the-spot assessment."

That, perhaps, explains the current happenings on the calamity front.

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