Flaws in farm insurance

The government’s flagship crop insurance scheme — the Pradhan Mantri Fasal Bima Yojana (PMFBY) — launched five years ago to hedge farmers’ crop production-related risks, remains in the doldrums despite its major revamp last year. This scheme has failed to win the confidence of most stakeholders, including the farmers, insurance companies and state governments. The fact that many states have opted out of it and some others are reported to be considering to do so bears this out. While the key agricultural state Punjab did not join it, others like Bihar and West Bengal have evolved their own systems of recompensing the farmers for the crop losses due to natural and other causes. Some insurance companies have also given up farm insurance, finding it a non-profitable, if not actually loss-making, business despite hefty subsidies.

No doubt, many of the notable flaws in the PMFBY were set right in last year’s elaborate exercise to upgrade it. Some welcome alterations included making it voluntary for farmers, instead of being compulsory for those who take bank loans. The banks earlier used to adjust whatever little compensation the farmers received from the insurers against their overdue loan payments. That amounted virtually to protecting the risk of the banks rather than of the farmers. At the same time, however, the Centre had capped its own share of the premium subsidy at 30 per cent for unirrigated crops and 25 per cent for irrigated ones — a move that did not go down well with the states. Though, in its present form, the premium subsidy is supposed to be shared by the Centre and state governments on a 50:50 basis, most states still find their share to be too high. They often err in contributing their share in time, thus resulting in delays in the settlement of farmers’ claims by the insurance agencies. The prime reason for the farmers’ disinterest in crop insurance is that they find the compensation too little and too late. Though the reworked PMFBY provides for penalising the states for any delay in releasing their share of premium subsidy, this provision is seldom enforced.

Another factor that contributes to the delay in clearing the claims is the time taken in compiling crop damage data. Though the revamped PMFBY binds the insurance firms to invest at least 0.5 per cent of the collected premium on promoting the use of modern information and communication tools for data collection and awareness creation among farmers about the benefits of insurance, most firms do not follow this norm.

On paper, the PMFBY, in its modified avatar, seems to be the best of the numerous models of farm insurance that have been tried out, albeit without much success, since the introduction of agricultural insurance in 1972. It covers all conceivable risks, from the pre-sowing (read prevented planting) to post-harvest damage to the produce lying in the fields. Also, it has a nominal premium — just 1.5 per cent of the sum insured for rabi crops, 2 per cent for kharif crops and 5 per cent for cash crops. The need is to first rid it of the remaining flaws that still deter the stakeholders from adopting it and then launching an intensive drive to promote it. That would be a step towards ensuring income security for farmers.