ECONOMIC IMPACTS OF DROUGHTS AND DROUGHT RISK MANAGEMENT PRACTICES: A STUDY OF MADHYA PRADESH

Abstract

Disasters have always caused significant economic losses, which are likely to increase in future particularly for developing countries. Droughts and floods are two natural hazards faced most frequently in India. The present thesis considers only drought as flood induced losses have been extensively studied. Droughts are the slow onset, complex, and least understood disaster having multiple definitions and types. Around 50 percent gross cropped area is dependent on the South-West monsoon in absence of adequate irrigation infrastructure in India. As a result, drought affects the aggregate economy and in particular the agricultural sector. It may not cause any direct property damages, but may adversely affect individuals, communities and the overall economic growth of the affected region. Rather than long-term mitigation, response driven approaches such as post-drought financial relief is the primary mechanism to deal with such disasters in India. Droughts may result in diversion of financial resources towards relief and consumption smoothing causing adverse impact on the other sectors of the economy. Moreover, managing droughts are more challenging for governments and policy-makers because they could be avoided either by coping and adaptation strategies at the individual level or mitigated at the institutional level. The risk management strategies and adaptive capacity to deal with droughts also vary according to economic and social factors associated with individuals, communities and nations among others. It is also noticed that individuals often exhibit irrational decision choices driven by behavioural biases, which are the building blocks of decision making to deal with uncertain disaster events. Often, individuals either simply do not know the risk or do not understand the actionable after knowing the probable disaster risk. In literature pertaining to disasters, the three most prevalent behavioural biases are overconfidence, over-optimism and herding.