The Hindu Business Line : `New farm insurance norms needed'

The policy should enable establishing an objective assessment of impact of adverse monsoon conditions and appropriate relief to farmers. It should facilitate farmers to assure themselves of a price for all their products through a well-regulated network of forward, futures and options markets.

Hyderabad , Nov. 16

THE Reserve Bank of India Governor, Dr Y. V. Reddy, is not happy with the existing crop and credit insurance frameworks for rural credit and agriculture. Favouring a comprehensive public policy on risk management in agriculture, he said such a move would not only work as a means of relief for distressed farmers but also be an ingredient for more efficient commercialised agriculture.

He was addressing a two-day International seminar at ASCI here.

On the critical issue of risk-mitigation, the RBI Governor said: "It is held that experiments with crop or credit insurance in India have not been very satisfactory so far."

In fact, favouring the argument of farmers, Dr Reddy said, where compulsory insurance was resorted, it increased the burden of borrowing from institutional sources and once transaction costs were added, the overall costs exceed the prime lending rates (PLR) significantly.

"There are several risks that a farmer faces, and of these future price and monsoon conditions are the most severe and almost entirely beyond the control of the farmer. While minimum support price is a mechanism that has served us well, its cost-effectiveness is subject to debate and in any case, the coverage is limited to cereals such as rice and wheat and in some areas, cotton."

Stressing on the merit to consider a comprehensive public policy on risk management in agriculture, Dr Reddy said the components of such a policy should be worked out in detail. The policy should enable establishing a well articulated, objective and independent assessment of impact of adverse monsoon conditions and appropriate relief to farmers on an assured basis. It should facilitate farmers to assure themselves of a price for all their products before harvesting, or even sowing the seed, through a well-regulated network of forward, futures and options markets.

The policy should establish and implement liability of suppliers for any shortfall in quality or assured supply in vital inputs such as seeds, pesticides, power and water. Further, the policy should also consider gradually eliminating and replacing the price subsidies with outlays on risk mitigation for farmers in the broadest sense, the RBI Governor said.

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