Ex Gratia: Why GoI Should Pay

Ex Gratia: Why GoI Should Pay

Centre’s revenue has surged, states are fiscally weak. Avoid a long debate on fiscal federalism

NR Bhanumurthy

24.09.2021

As the country slowly recovers from the Covid pandemic, a debate has started on compensating victims of Covid. At the core of any such debate is the extent of compensation as well as the question who will fund the compensation, that is, whether GoI or states.

A lot of time has already been lost on debates on whether ex gratia as included in the Section 12 of the Disaster Management Act of 2005 is relevant for the Covid deaths. Under this, the guidelines for the minimum standards of relief for any ‘notified disaster’ should include ‘ex gratia assistance on account of loss of life’ (Section 12

(iii)). While the Act does not suggest the extent of ex gratia, in 2015, the National Disaster Management Agency (NDMA) had fixed the ex gratia of Rs 4 lakh for natural disasters.

Now, after rounds of discussions, and after the judgment from the Supreme Court, the Union government, as determined by NDMA, has decided on Covid ex gratia of Rs 50,000 for each deceased person ‘including those involved in relief operations or associated in preparedness activities, subject to cause of death being certified as Covid’.

But where the issue appears to be tricky and is already controversial is that the Union government has said that this compensation would be provided by state governments from their respective State Disaster Relief Funds (SDRF). Following this, there was some criticism that this is an imposition of the whole compensation burden on states, which are already in a weak fiscal position.

Funds for SDRFs are contributed by both the Union as well as state governments (this is as part of successive Finance Commissions’ recommendations). For the current year, the Union government’s share was Rs 17,747.20 crore, of which it has already released the first instalment (50% of its share) by the end of April 2021 –much earlier than the normal release schedule. This was done to help states to cope with the surging second wave.

It is also important and rather easy to recognise that states have been at the forefront in fighting the pandemic but at the same time face severe funding crunch due to declining revenues. Therefore, pushing states to fund the ex gratia could severely dent resources for other disaster-related expenditures.

Another issue is that even before these NDMA guidelines, many large states, in fact more than half the states, had already declared cash compensation ranging from Rs 10 lakh to Rs 1 lakh. Beneficiaries have varied from orphaned children to poorer households. However, states have paid these compensations from other funds such as Chief Minister’s Relief Fund, not from their SDRF.

Also, NDMA guidelines suggesting an ex gratia of Rs 50,000 looks insufficient. The argument is that the number of beneficiaries is very large. But the Union’s fiscal situation merits a closer look when discussing the total payout.

It is true that on its part, GoI has been extremely proactive with various pandemic-related measures, and it has also allocated Rs 35,000 crore for vaccination and is prepared to spend more. But of late, the Centre is enjoying a surge in revenues much more than what it had projected. Therefore, GoI should be in a comfortable position when it comes to covering the entire ex gratia cost.

This can be done through two ways. Either GoI can increase its share in SDRFs or it can pay directly through the Consolidated Fund of India. Some effective decision should be taken on this soon. Otherwise, there’s a possibility of another needless Centrestate stand-off.

Remember that in the case of mass vaccination, after much deliberations, the Union government finally agreed to procure and distribute vaccines to states free of cost. Much precious time was lost. We should avoid a similar Union versus states debate on Covid ex gratia, and the quickest way to achieve this is for the Centre to take on the fiscal responsibility.

However, we need a sustainable long-term solution. For that both the Centre and states should seriously and urgently look at the recommendations of the 15th Finance Commission, which suggested the insurance route for compensating disaster costs. This is basically the suggestion that governments get insurance to fund disaster-related payouts. Once there’s insurance cover, who pays the compensation becomes a question of procedure, not one of fiscal federalism.

For kin of Covid victims, fiscal federalism debate is a luxury they can’t afford. Neither can they afford more long-drawn court cases. As it is, the process of obtaining proper certification and application for ex gratia will be hurdles for many. For the sake of potential beneficiaries, GoI and states must quickly arrive at a mutually satisfactory solution.

The writer is Vice Chancellor, BASE University, Bengaluru. Views are personal

GoI can take on the entire burden of ex gratia payment in two ways. Either it can increase its contributory share in State Disaster Relief Funds or it can pay directly through the Consolidated Fund of India. Remember that in the case of mass vaccination, after much deliberations, the Union government finally agreed to procure and distribute vaccines to states free of cost