India needs catastrophe bonds to cover disaster relief expenses

We could reduce the fiscal burden of disaster relief by using the money invested in high-risk ‘cat bonds’ offering high returns

- G. N. BAJPAI & PRAVEEN TIWARI

India’s geographical location makes it highly susceptible to a wide array of natural disasters, such as extreme heat, floods, droughts, storms, cyclones, earthquakes, etc., which can cause thousands of casualties and displace millions, hurting their livelihood and the economy.

The Economic Survey of 2024-25 described India as the seventh most vulnerable country to climate change. The Global Climate Risk Index 2025, based on the experience of extreme weather events from 1993 to 2022, places India sixth. A 2018 report from the UN Office for Disaster Risk Reduction (UNDRR) ranked India among the five most risk-exposed countries, with about $79.5 billion in losses due to natural disasters over the last 20 years. Asia’s emerging and developing economies have a massive annual climate-action funding gap of over $800 billion, according to an International Monetary Fund report of 2024.

CoP-27 at Sharm El Sheikh, Egypt, concluded with a breakthrough agreement on providing loss and damage funding for vulnerable countries hit hard by climate disasters. But that commitment is unfulfilled. The news from CoP-30 in Brazil has been depressing. Esther Dweck, Brazilian minister for management and innovation in public services, observed that governments must invest in their own capacities.

Climate action must be funded jointly by the government and private sector. The latter should be obligated by legislative directions. Funding can be strengthened by credit enhancement, blended finance and guarantees, among other means. The market for green bonds should be expanded substantially.