Crop insurance is too returns-oriented

The farm crisis in India continues unabated, proving all the governmental nostrums ineffective. Unfortunately, the new crop insurance scheme — the Pradhan Mantri Fasal Bima Yojana (PMFBY) — recently cleared by the Union Cabinet, to be implemented from the kharif crop cycle beginning this June, too, is unlikely to bring in any significant relief to farmers, even as it increases the government’s spend multifold.

Prima facie , the PMFBY, which replaces the existing two schemes, the National Agricultural Insurance Scheme (NAIS) and the Modified National Agricultural Insurance Scheme (MNAIS), is very attractive. Farmers in India will get full insurance benefit whenever they sustain crop loss on account of natural calamities and against a uniform and heavily subsidised premium such as 2 per cent for kharif, 1.5 per cent for all rabi crops, and 5 per cent in the case of annual commercial and horticultural crops.

Attractive business The balance between the actual premium charged by the insurance companies and that paid by farmers is met by the government, no matter how big the gap; it could be even 90 per cent, as asserted by the government. Insurance companies can fix their own rates without a ceiling to avoid any loss. That means the new crop insurance is going to be an attractive business. No more will there be a capping on the insurable sum. The scheme also envisages using technology, including smartphones, to capture and upload data of crop cutting to reduce delays in claim payment to farmers, and remote sensing to reduce the number of crop cutting experiments. Besides the Agricultural Insurance Company of India, 10 private companies have been empanelled to participate in the scheme.

A closer scrutiny of the details shows that the benefit to the farmer isn’t commensurate with the cost to the exchequer. The Central and State governments are going to give premium subsidy in equal proportion upfront — the estimated combined expenditure is ₹17,500 crore a year — whereas the insurance companies are allowed to fix their own rates of premium taking into account costs, risks and margins.

The framers of the scheme don’t seem to have understood that the insurance protection by itself is not going to address the biggest problem — farmers’ poor incomes.

Surveys and studies have affirmed that the incomes of farmers are unsustainably low. The NSSO 70th round, for instance, shows that those operating on less than a hectare — that’s 70 per cent of farmers — are earning much less than their minimum consumption expenditure. In fact, the Socio-Economic and Caste Census 2011 has stated that the per capita earning of the main members of 75 per cent of all rural households is less than ₹5,000 per month. So, making the insurance business sustainable with actuarial premium rates is not going to help raise farmers’ incomes. Another anomaly of the scheme is that the unit of insurance is going to continue to be ‘area-based’ — village/village panchayat for major crops and the area above that level for other crops. Individual farmers suffering losses are not going to benefit unless the entire area gets affected.

Insufficient reach There is also the issue of penetration. According to reports and the government’s own claims, only 25 per cent of the cropped area of 194.40 million ha has been covered under the insurance scheme so far; the goal now is to extend it to 50 per cent in three years. The NSS report of its 70th round survey says, “a very small segment of agricultural households insured their crops against possible crop loss”; for instance, 95.2 per cent paddy farmers in 2012 and 96.1 per cent of them in 2013 did not insure. So also in the case of wheat farmers: 95.3 per cent of them in 2012 and 95.9 per cent in 2013 did not insure their crops.

The PMFBY appeared shortly after the RBI-appointed committee on medium-term path on financial inclusion had a suggestion for phasing out the agricultural interest subvention scheme and ploughing the subsidy amount into a universal crop insurance scheme, which means a likely increase in the cost of farming.

The Centre should, therefore, re-examine this insurance scheme and all other farm policies and revise them in such a way as to cut the costs of farmers’ inputs, raise their revenue and thereby increase their income. It cannot afford to allow the agriculture sector — the principal source of food and employment in the country — to be controlled by so-called ‘market forces’.

The writer is an independent researcher

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