Fiscal Transfers, Climate Risks, and Partisan Politics: Does the Nature of Climate Risk Matter?

Natural calamities such as drought, floods and cyclones are not uncommon in India, with almost all states affected by one or the other form of hydro-meteorological risks every year. Potential changes in climate are expected to manifest in the form of increased frequency and severity of the climate risks. In a federal system of governance, the transfers from the Central government serve as an important mechanism for the State governments to effectively address the adverse impacts of the natural disasters. Interestingly, there is often a significant gap between the relief sought by the states to cope with the hydro-meteorological risks and the assistance provided by the Centre. Taking note of some recent evidence in the literature on the role of partisan politics in the context of fiscal transfers from the Centre to different states affected by natural calamities, this study explores whether the nature of climate risk provides scope for the Central government to exhibit favoritism towards states that are politically aligned than those that are not aligned. The empirical analysis based on total and non-plan fiscal grants from the Centre to different states over three decades and occurrence of drought and floods across different states over the same period, suggests that while grant allocation in response to drought is higher for the politically aligned states, no evidence for partisan politics could be established in case of grant allocation in response to flood. The study argues that the nature of risk – viz., relatively slow emergence of drought compared to sudden manifestation of flood events, could perhaps provide scope for partisan politics. In the context of changing landscape of political alignment and the dynamically changing nature of climate risks in India, the evidence from this study provides crucial inputs for better understanding of the political economy of disaster management.