PM Fasal Bima Yojana needs a relook, as many States are opting out of it

Five years after its inception in 2016-17, the Pradhan Mantri Fasal Bima Yojana (PMFBY) has run into rough weather. If farmers are dissatisfied with both the level of compensation and delays in settlement, insurance companies have shown no interest in bidding for clusters that are prone to crop loss. States (Bihar, West Bengal and Andhra Pradesh, Telangana, Jharkhand and now Gujarat) are opting out of the scheme and launching their own versions. They are unable to deal with a situation where insurance companies compensate farmers less than the premium they have collected from them and the Centre. The sums can be serious (about ₹2,700 crore in Gujarat’s case, according to the Chief Minister) for the States, given the current levels of fiscal stress. If this amount is not to benefit farmers directly, States run the risk of being accused of aiding insurance companies rather than farmers. In Maharashtra’s Beed cluster, farmers are up against the State government and insurance companies for not settling earlier claims, while the latter have decided to stay out of bids for this region for the current season. That said, it is in the nature of the insurance business for entities to make money when crop failures are low and vice-versa. Over the last three years, insurance companies have collectively paid claims amounting to about 85 per cent of the premium collected. The task ahead is to sweeten the deal for farmers and insurance companies. Madhya Pradesh is struggling to find insurers for its 11 clusters, having reportedly finalised just five so far ( BusinessLine , August 14).

Insurance companies should bid for a cluster for about three years, so that they get a better chance to handle both good and bad years. The bids should be closed before the onset of the kharif/rabi season. At present, bids remain open even as the monsoon is in progress. As a result, farmers may feel persuaded to buy an insurance policy (the February 2020 guidelines have made the scheme optional) when the weather is adverse, even as the insurer feels persuaded to exit the cluster. There is also the troublesome issue of 50 per cent of farmers’ insurance dues being funnelled into less than 50 districts, raising questions on whether the scheme is being gamed by a few.

If the farmer is not enthused by crop insurance despite the 95-98 per cent subsidy on premium, it means that the product per se needs improvement. Farmers deserve a better choice of insurance products to meet the specifics of each crop or region. For this, insurance companies should be offered more freedom to operate. For now, the Beed ‘model’, where a company assumes liability only up to 110 per cent of the premium collected or shares gains in a good year with the State government, can emerge as a way out of the current mess.

COMMENT NOW