From UPSC perspective, the following things are important :
Prelims level : Crop insurrance schemes in India
Mains level : Impacts of the said changes
The Centre has decided to restrict its premium subsidy in its flagship crop insurance schemes to 30% for unirrigated areas and 25% for irrigated areas (from the existing unlimited), and to make enrolment of farmers in the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme (RWBCIS) voluntary from the 2020 Kharif season.
Other changes in crop insurance schemes
- The government has given flexibility to states/UTs to implement PMFBY and RWBCIS, and given them the option to select any number of additional risk covers/features like prevented sowing, localised calamity, mid-season adversity, and post-harvest losses.
- Earlier, these risk covers were mandatory.
Why such a move?
By capping the subsidy for premium rates up to 30%, the Centre wants to dis-incentivize certain crops in such areas where growing these crops involve high risks in terms of crop insurance premiums.
What were the schemes?
- At present, under PMFBY and RWBCIS, farmers pay a premium of 2% of the sum insured for all foodgrains and oilseeds crops of Kharif; 1.5% for all foodgrains and oilseeds crops of Rabi; and 5% for all horticultural crops.
- The difference between actual premium rate and the rate of insurance premium payable by farmers, which is called the Rate of Normal Premium Subsidy, is shared equally between the Centre and the states.
- However, states and UTs are free to extend additional subsidy over and above the normal subsidy from their budgets.
- Until now, there was no upper limit for the central subsidy.
- The Cabinet decided to cap the Centre’s premium subsidy under these schemes for premium rates up to 30% for unirrigated areas/crops and 25% for irrigated areas/crops.
How many farmers are covered under these two schemes?
- During 2018-19, about 5.64 crore farmers are enrolled with PMFBY for an insured sum of Rs 2,35,277 crore, and 30% of the gross cropped is insured.
- When the government approved PMFBY four years ago, it was described as a path-breaking scheme for farmers’ welfare” under which there was no upper limit on government subsidy.
- Even if balance premium was 90%, it was to be borne by the Government
- While PMFBY is based on yield, RWBCIS is based on proxies and farmers are provided insurance protection against adverse weather conditions such as excess rainfall, wind and temperature.
- The number of insured farmers under RWBCIS is relatively low.
Impact of the move
This change will have two main implications.
- First, it may bring down the rates of overall premium as the state governments now will not be required to invite bids factoring these risks.
- Second, it will make these schemes less attractive for farmers.
- However, states/UTs can offer specific single peril risk/insurance covers like hailstorm etc under PMFBY.
Burden of premium
- One interpretation of this decision is that the burden of premium subsidy will go up for the states.
- Example: In the old regime, if a farmer’s Kharif crop was insured for Rs 1,00,000 and the rate of actuarial premium was 40%, then the premium paid by the farmer was 2% (Rs 2,000), and the remaining premium was shared by the Centre and the state equally (19% or Rs 19,000).
- In the new regime, for the same sum insured (Rs 1,00,000) and the same rate of premium (40%), the Centre will give subsidy for premium rates up to 30%.
- This means that from the Kharif 2020 season , the Centre will have to pay premium at the rate of 14% (out of 30%, the farmer’s share is 2%, and the Centre’s and state’s 14% each).
- The state has to bear the entire burden of the premium subsidy in cases where the rate of premium goes beyond the threshold of 30%.
No insurance of certain crops
- Another interpretation is that the Centre may stop supporting insurance of certain crops in certain areas where the rate of premium is more than 30%.
- The Department of Agriculture, Cooperation and Farmers Welfare in consultation with other stakeholders/agencies will have to prepare State specific, alternative risk mitigation programme for crops/areas having high rate of premium.
- While the average premium rate under PMFBY and RWBCIS at the national level was 12.32% for 2018-19, for some crops in certain districts, the rate of premium has been higher than 30% in recent years.
- For instance, the rate of premium for Kharif groundnut has reached 49% in Rajkot of Gujarat, and the rate for Rabi paddy crop Ramnathapuram (Tamil Nadu) has reached 42%.
Impact on states
- The states are already defaulting on their share, and the Centre’s new cap will put an additional financial burden on them.
- Madhya Pradesh has not paid its share of premium even for Kharif 2018, which comes to Rs 1,500 crore. As a result, farmers have not got their claims.
- In fact, most states have delayed the payment of their share of premium.
- Sources said that in some states, the expenditure on premium of PMFBY is more than 50% of their budget for agriculture.
- That move will lead to a rise in the rates of premium, as the area covered under insurance and the number of enrolled farmers is expected to come down significantly.
- As of now the schemes are compulsory for all loanee farmers and optional for other farmers.
- Non-loanee farmers under the crop insurance schemes are much fewer than loanee farmers.
- If the latter opt out of the schemes, the number of insured farmers will drastically come down.
- In such a scenario the rate of premium of certain crops in some areas may go beyond 30%.