The Hindu Business Line : Weather insurance: Taking on the Rain God

RECENTLY, a photo in a business daily featured Mr Suparas Bhandari, Chairman and Managing Director of the Agricultural Insurance Company (AIC), alongside the Finance Minister, Mr P. Chidambaram. The Finance Minister, the accompanying report said, had launched the Weather Insurance Scheme 2005, Varsha Bima, for the benefit of two lakh farmers, and 13 crops in 10 States at a premium of just 4-8 per cent or of the crop value.

Ironically, a second report on the page, spoke of the 34 per cent deficit in the monsoons in June. The Bangalore-based CSIR Centre for Mathematical Modelling and Computer Simulation (C-MMACS) had revised its earlier estimate of 22 per cent excess rainfall for June.

From 22 per cent excess to 34 per cent deficit! And that too, for the crucial month of June when sowing for the kharif season is in full swing.

C-MMACS is categorical about its predictions of 12 per cent deficit for July and 13 per cent excess for August. This prediction for August has to be understood separately for each region.

North (+1 per cent), West (+30 per cent), East (+15 per cent), South (+ 22 per cent), North East (+ 3 per cent) and Central (+ 28 per cent), South Central (+10 per cent), the Andamans (0) and Lakshadweep (+17 per cent).

It is on erratic predictions such as these that 50 per cent of the agricultural sector depends, a sector that continues to be the primary determinant of the rate of growth of GDP. Further, the success of the monsoons is to be assessed not by the total quantum of rainfall but by the effect it has on the overall agricultural produce. If the rains are abundant and cause water-logging and loss of crops, it will be a calamity.

All the sophistication of mathematical models is, as far as the farmer is concerned, pointless unless it can produce district- and month-wise predictions.

Now, what does the AIC mean by Varsha Bima? If the purpose is to provide insurance cover against deficit or excess rainfall, a number of questions arise. First, rainfall is of interest not only to farmers, but also to people at large. Why is it the AIC's domain to provide insurance against the vicissitudes of weather?

Second, why is it that the AIC proposes to collect insurance premium from farmers alone for something every person in the country has an insurable interest in? Further, when a business enterprise such as the AIC offers insurance coverage, should it not be on the basis of some recorded statistical experience of the contingent event? Are there dependable mortality tables for rainfall?

It is evident that even experts and institutes are unable to make informed forecasts about the onset or the overall quantum of rainfall as late as one week before the onset of monsoons.

It is a basic principle of insurance that risks caused by acts of God and enemy action cannot be insured.It may be said that rains are an act of God and, therefore, insurance against weather is an a priori non-starter.

Insurance on weather can, at best, provide a measure of the efficiency of the Meteorological Department and other research institutions working in the field of weather forecasting.

Why does the AIC presume that the premium on weather insurance should be based on the value of the crops rather than on the quantum of physical production on the farm?

The value of the product is not even remotely related to the total quantum of rainfall. It depends more on the distribution of the rainfall over time.

Further, abundant production does not necessarily mean good income. The income will depend on market-determined prices and the policies of the government.

Varsha Bima as agricultural insurance makes no sense whatsoever. It is an insurance against an act of God, so to speak.

Even then, it is offering insurance without any statistical recorded experience, such as mortality tables. The quantum of rainfall does not determine that of production.

Linking the premium to the value of crops makes no sense because the income derived from crops dependson a number of factors, some of which are man-made and highly unpredictable.

Lastly, the institutions are predicting a plus or minus rainfall of 12-34 per cent this year. This is nowhere near the 4-8 per cent premium that the AIC is proposing.

One can understand Mr Bhandari's enthusiasm about expanding activities of AIC.

But it is difficult to understand why Mr Chidambaram is supporting this kind of a misadventure.

(The author is founder, Shetkari Sanghatana, and Member of Parliament, Rajya Sabha. He can be reached at sharad.mah@nic.in)

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