Torn State finances, weather may impact PMFBY

Crop insurance may face a major shake-up this year because of the extreme volatility in two underlying trigger factors – the impact of the Covid-19 pandemic on already fragile State government finances; and anything that snaps the current good tidings in the monsoon.

Indeed, State government finances have gone for a toss due to the Covid-19 impact. “Amounts being bandied about for crop subsidies alone for a season are in the range of ₹4,000-5,000 crore. But what we have is a near-total shutdown of the economy, and not enough money,” said Jatin Singh, founder and MD, Skymet Weather.

Droughts as trigger

The history of crop insurance reveals that it was basically devised to deal with droughts and their impact. The country hasn’t had a drought during the last couple of years. “This is quite an anomaly. The comfort of assured surplus water solves many of our problems. But it should not give us a false sense of complacency,” said Singh.

One other factor is that the PMFBY has gone for a three-year tender, so rates could be normalised. “The problem here is that the State governments are not comfortable with three-year slots when they cannot forecast a fiscal situation even beyond a season. Three years is too long a period for them to figure that out,” he added.

Skymet has been a pioneer in weather forecasting, whether it is long-range monsoon forecasts or medium-range weather forecasts. “We have India’s largest observation network of 7,000 weather stations,” said Singh. “We collaborate with Earth Networks for lightning predictions and have over 200 pollution sensors in India,” he added.

Skymet recently launched two apps, Mumbai Rain and Kerala Rain, over and above the flagship Skymetweather app. “We are also working in energy forecasting with the Rural Electricity Corporation. We have also co-created a weather index with Ncdex. Once it gets a go ahead from SEBI, we expect crop insurers to provide liquidity to this market,” Singh said.

Degenerating into dole

“The problem with all government schemes, especially those of State governments, is that anything they want to do for farm relief tends to degenerate into a no more than a dole. They all just give away so much. One can see that every scheme designed with an aim to make agriculture remunerative has gone on to only make it unviable, while giving so much away,” Singh said.

The government wanted to come up with a scheme that triggers a payoff for farmers whenever there is a calamity. It introduced a slew of crop insurance schemes from 1985 to 2016, which saw limited degrees of success. The PMFBY is the latest in the series, with its share of hits and misses.

AIC, lone shining star

Credit must be given to Agriculture Insurance Corporation (AIC), a government insurer, for being the best partner for crop insurance/agriculture insurance. “It does the most comparative underwriting and has one of the best claim ratios; I guess the fairer distributor of claims in the whole system,” Singh noted.

So much so, that one might see a default nationalisation of the whole system this year. With the deployment of technology and given its underwriting experience, the AIC’s book is well maintained. And one would imagine that State governments would be ready to coalesce around it.

“The AIC has not been capitalised for a long time, but it still manages to do well. It could be the world’s largest agri insurance company and definitely one of the most profitable. The AIC and the PMFBY make a great combination,” Jatin Singh adds.

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