'CAT' BOND: SHIELD AGAINST CALAMITY

INDIA stands at a critical juncture in its approach to managing natural disasters.

- DR AISHWARYA NAGPAL & DR MEGHA JAIN

With the escalating threat of climate change, the frequency and ferocity of extreme weather events from devastating floods and droughts to powerful cyclones have intensified. This new reality demands a fundamental shift away from our traditional, reactive disaster funding model towards a proactive, sophisticated strategy. It's time for India to embrace catastrophe bonds, a financial innovation that could provide a robust and rapid-response funding mechanism for climate-driven crises.

Currently, India's disaster response relies on a reactive strategy. When disaster strikes, the government allocates emergency funds from the national and state budgets, often supplemented by international aid and ad-hoc borrowing. This approach, while well-intentioned, is inherently slow and often leaves the country scrambling for resources in the immediate aftermath of a tragedy. The numbers paint a stark picture of this vulnerability: India suffers economic losses of approximately $9-10 billion annually due to natural disasters. A single event, like the 2013 Uttarakhand floods, can cause damages exceeding $6 billion, wiping out years of development progress and plunging vulnerable communities back into poverty. This reactive model is simply no longer relevant in the era of climate volatility.

Understanding 'Cat' bonds