Money & Banking

In high premium policies, Centre’s share in crop insurance scheme to be capped

Our Bureau New Delhi | Updated on February 28, 2020

States may have to shell out more for crop insurance scheme, says Ashish Bhutani

The Centre wants the States to shoulder higher burden of PM Fasal Bima Yojana (PMFBY) if the premium rates exceed a reasonable level, said a senior Agriculture Ministry official on Friday.

If the premium rates go beyond 30 per cent for unirrigated and 25 per cent for irrigated farms, the States may have to cough up more to pay for the crop insurance scheme, said Ashish Bhutani, PMFBY CEO and Joint Secretary (who looks after agricultural credits at the Ministry), at the BusinessLine Agri Summit here.

Earlier, farmer’s contribution to crop insurance premium was capped at 2 per cent for kharif crops, 1.5 per cent for rabi crops and 5 per cent horticultural crops. But now, the Centre has decided to restrict the premium subsidy that it would pay. “For instance, if the premium rate is 30 per cent, farmer would pay 2 per cent for kharif crops, the rest 28 per cent will be shared equally between the Centre and the State. Even if it goes beyond 30 per cent, the Centre’s contribution will be capped at 14 per cent and the State has to pay the rest,” Bhutani said.

These were some of the modifications made to the PMFBY by the Union Cabinet last week, which also decided to make the scheme voluntary and mandatory for all Indian farmers who were availing themselves of crop loans.

From the coming kharif season, the States may have to shell out more for providing PMFBY cover. “If the premium rate goes beyond 30 per cent (for unirrigated farms), the amount to be paid by farmers (2 per cent of the premium rate) and by the Centre are fixed. So, up to a premium rate of 30 per cent, farmer pays 2 per cent and both the Centre and the State would pay 14 per cent each at 50:50 basis. If the premium goes beyond 30 per cent, the State has to bear the additional amount, as both the farmer’s contribution and the Central share in premium subsidy are capped,” said Bhutani.

Burden on States

Bhutani also said that higher burden on the States may prompt them to take steps to bring down the premium rates. Delays in providing crop cutting experiment data, gaps in data availability and other shortcomings for which the States are mainly responsible are among the reasons why premium rates generally go up, he added.

During the first three years of the PMFBY, weather had been more or less fine. But the claim ratio for these three years combined was around 85 per cent. Considering the insurance firms would have paid 10-12 per cent for re-insurance, their profits would have been less than 5 per cent. And this was the case for normal years, he said.

Bhutani said around eight States have had claim ratios which were far beyond 100 per cent in these years. “Tamil Nadu, for instance, had an average claim ratio of 189 per cent; Chhattisgarh 163 per cent, and Jharkhand too had a claim ratio above 100 per cent, said PMFBY CEO.

He said the government is coming up with a new crop insurance scheme for 151 water-starved districts in the country. It is currently being worked on and may take a little while before it is announced, Bhutani added.

Crop insurance claims

The total crop insurance claims under the PM Fasal Bima Yojana are between ₹7,000 crore and ₹9,000 crore because of post-harvest losses that farmers incurred during the heavy monsoon rains and the ensuing floods, Bhutani said.

Maharashtra was the worst-affected during the floods last October, which destroyed a number of kharif crops in the State. The floods also affected kharif onion production in the State, which led to a national production shortfall of 26 per cent.

Published on February 28, 2020

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