Understanding India's Natural Catastrophe Risks and Economic Impacts

Table of Contents☰

What’s in today’s article?

Background
Key Events in 2023
India’s Unique Vulnerabilities
Earthquake Risks
Challenges in Resilience and Insurance
Building Resilience: A Three-Step Approach
Conclusion

Background

India has witnessed a sharp rise in economic losses due to natural catastrophes, reflecting both the increasing frequency of extreme weather events and the country’s vulnerabilities.
In 2023, natural disasters caused an estimated $12 billion in economic losses, significantly exceeding the annual average of $8 billion over the past decade, according to a report by global insurance giant Swiss Re.

Key Events in 2023

Floods in Northern India and Sikkim (July 2023):
- Affected Areas: Himachal Pradesh, including Shimla, and Delhi.
- Impact: Caused extensive damage due to heavy rains between July 10-15, disrupting daily life and infrastructure.
Tropical Cyclone Biparjoy (June 2023):
- Landfall: Category 3 cyclone struck Kutch, Gujarat, impacting Maharashtra and Rajasthan as well.
- Damage: Shut down major ports like Kandla and Mundra, causing extensive damage due to strong winds, heavy rainfall, and storm surges.
Tropical Cyclone Michaung (December 2023):
- Landfall: Hit Chennai, Tamil Nadu.
- Impact: Brought extreme rainfall, resulting in significant economic losses and urban disruption.

India’s Unique Vulnerabilities

Monsoon-Driven Floods:
- Contribution to Losses: Over the past two decades, floods have accounted for an average of 63% of annual economic losses.
Monsoon Influence: India’s geography and climate expose it to heavy rainfall during:
- Summer Monsoon (June-September): Causes severe flooding, as seen in Kerala (2018) and Uttarakhand (2013).
- Northeast Monsoon (October-December): Responsible for floods like Chennai (2015).
Economic and Industrial Exposure:
- States like Gujarat, Maharashtra, and Tamil Nadu are highly industrialized, contributing 36.8% of India’s total industrial output. These states also face heightened risks:
- Gujarat: Prone to floods, tropical cyclones, and earthquakes.
- Maharashtra: Susceptible to floods and cyclones, especially in Mumbai.
- Tamil Nadu: Regularly impacted by monsoon floods and cyclones, particularly in Chennai.

Earthquake Risks

Urban centres like Delhi and Ahmedabad face significant earthquake hazards.
A major earthquake in the Himalayas or near urban centres like Mumbai could result in catastrophic losses, potentially surpassing the devastation caused by the 2001 Bhuj earthquake in Gujarat.

Challenges in Resilience and Insurance

Despite the scale of economic losses, underinsurance remains a critical issue:
- Protection Gaps: Over 90% of households and businesses are under- or uninsured, leaving them financially vulnerable.
- Costliest Flood Events:
  - Mumbai floods (2005): Losses of $5.3 billion (2024 prices)
  - Chennai floods (2015): Losses of $6.6 billion (2024 prices)

Building Resilience: A Three-Step Approach

Swiss Re outlines a strategic framework to address underinsurance and reduce the impact of natural catastrophes:
- Hotspot Identification:
  - Identify regions most prone to disasters using granular data.
  - Prioritize mitigation measures in high-risk areas like Ahmedabad, Mumbai, and Chennai.
- Risk Assessment:
  - Employ advanced models to assess potential exposure and risk accumulation.
  - Incorporate recent and detailed data for accurate evaluations.
- Reinsurance Solutions:
  - Design targeted reinsurance programs to close protection gaps.
  - Promote affordable insurance coverage for households and businesses.

Conclusion

India’s rapid economic growth has outpaced its ability to mitigate the vulnerabilities posed by natural catastrophes.
The increasing frequency of extreme weather events highlights the urgent need for robust disaster preparedness, improved insurance penetration, and strategic resilience-building measures.
By addressing these challenges, India can better safeguard its economy and citizens from the mounting risks of natural disasters.

Q1. What is the difference between Floods and Flash Floods?

Flooding is a longer term event than flash flooding: it may last days or weeks. Flash flood: A flood caused by heavy or excessive rainfall in a short period of time, generally less than 6 hours.

Q2. When was NDMA constituted?

In December 2005, the Government of India enacted the Disaster Management Act, which envisaged the creation of National Disaster Management Authority (NDMA), headed by the Prime Minister, and State Disaster Management Authorities (SDMAs) headed by respective Chief Ministers.

Source : IE