With back-to-back droughts, and unseasonal rain and hail in certain pockets of the country, it is clear that the risks in Indian farming are on the rise, and the existing system of crop insurance is nowhere near meeting the needs of the peasantry. To address the increasing distress in Indian farming and revamp the crop insurance system in the country, the Union government recently came out with a new crop insurance scheme- Pradhan Mantri Fasal Bima Yojana. This scheme is being hailed as a pioneering crop insurance scheme.
- The scheme aims to reduce the premium rates to be paid by the farmers so as to enable more farmers avail insurance cover against crop loss on account of natural calamities.
- Under the Scheme, there will no upper limit on government subsidy and even if balance premium is 90%, it will be borne by the government. Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction.
- This is the biggest ever government contribution to the crop insurance. As a result, farmers will have to pay the lowest-ever premium rate.
- There will be one premium rate for each season for all foodgrains, oilseeds and pulses- Kharif: 2% and Rabi: 1.5%. This removes variations across crops and districts within a season.
- Under the scheme, for the first time, inundation has been included under the localized risk cover andpost-harvest losses arising out of cyclones and unseasonal rainfall have been covered nationally.
- Also, it is for the first that the emphasis is given on the use of technology for accurate assessment and quick settlement of claims.
There have been crop insurance schemes in the country for long. In 1985, the then Congress government had launched a comprehensive Crop Insurance scheme (CCIS) 1985. In 1997-98, the government re-launched the scheme, which lasted only for a year. The government ran this until 1999. In 1999, the government launchedNational Agricultural Insurance Scheme (NAIS).
How is the new scheme different from previous schemes?
- According to the government, under PMFBY farmers will get a higher claim for the full sum insured unlike the existing schemes such as National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS).
- The new scheme will cover yield loss of standing crops, prevented sowing/ planting risk, post harvest losses and localised risks, including inundation.
- At present, loanee farmers are mandated to take crop insurance cover. The new scheme is open to all farmers irrespective of whether they are loanees or not.
- There will be one insurance company for the entire state, farm-level assessment of loss for localised risks and post-harvest loss. And private insurance companies, along with the Agriculture Insurance Company of India Ltd, will implement the scheme.
Why previous crop insurance schemes were not so much successful?
- The sums insured were low.
- The premiums were high (generally ranging between 8-12% in the case of the modified scheme).
- The assessment of crop damage lacked transparency and didn’t use the latest technologies.
- Compensation took unduly long, even going beyond a year in many cases, and was reported to be ridden with corrupt practices.
Significance of the new scheme:
The rate of subsidy proposed under the new scheme is in line with international practices.
- The United States insures its farmers (about 123 million hectares) and gives subsidy to the tune of around 70%.
- China insures its farmers for a sown area of around 75 million hectares with a subsidy on premiums of about 80%.
- With this scheme, India plans to cover around 50% of its cropped area, which hovers around 195 million hectares, over the next five years if the scheme really takes off.
This scheme can be a game-changer if the following conditions are satisfied:
Crop assessment: It should be done in a transparent manner and within a specified period of time, and using high technology such as automatic weather stations (AWSs), drones, low earth orbits (Leos) and satellites. For this, suitable infrastructure should be put in place. Also, the time period within which crop-damage assessment must be done should be clearly spelt out.
Direct payment: Compensation must be paid to farmers’ accounts directly, say, within a week of assessment of crop damage. In order to do this, the financial infrastructure has to be in place. Information has to be digitised plot wise — the plot of the tiller who has paid the premium has to be synchronised/ seeded with his/her bank account number, Aadhaar number and mobile number. This is critical, as the crop-damage assessment exercise has to be matched with data on plots and bank account numbers of the tillers.
Challenges before the new scheme:
- So far, the coverage of crop insurance schemes has been too low due to lack of awareness among the farmers. According to reports, the coverage as of now stands at just 23%. The government is aiming at 50% coverage with the new scheme. This, prima facie, is going to be the biggest challenge for the government.
- Crop insurance sector is bogged down by frauds. Bank officials, insurance officials and farmers are hand in gloves to siphon off insurance money. The new scheme should seriously take care of this.
- It is not yet clear what will be the yardsticks the revamped crop insurance scheme will use to assess crop losses. Although the low premium will drive penetration and enrolment and make the insurance scheme viable for insurers, it remains to be seen if the unit for assessing crop loss has been reduced to the village level.
- With the new scheme, the Centre’s financial liability is estimated to go up to Rs 5,700 crore. As the Centre’s financial liability goes up, the bill of the states where the scheme gets implemented will also go up correspondingly.
The new scheme is significant as the country is facing drought for the second straight year due to poor monsoon rains and the government wants to enhance insurance coverage to more crop area to protect farmers from vagaries of monsoon. However, given the alarming level of agrarian distress and a large number of farmer suicides, agriculture-dependent rural India requires multi-level support from Central and state budgets for a genuine economic lift-off.