Crop Insurance – PMFBY, etc.

[op-ed snap] Covering the last field


Mains Paper 3: Agriculture | Issues related to direct & indirect farm subsidies & minimum support prices

From UPSC perspective, the following things are important:

Prelims level: Pradhan Mantri Fasal Bima Yojana

Mains level: Role of smallholders in Indian agriculture and what measures can be taken to reduce vagaries faced by them


Need of social support for farmers

  1. Excess rains and floods in Kerala, deficit rainfall in eastern and north-eastern India, and associated large-scale crop losses have again highlighted the need for providing social protection to poor farmers
  2. A highly subsidised Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in 2016 to provide insurance to farmers from all risks
  3. In comparison to earlier schemes, the PMFBY is more farmer-friendly, with sums insured being closer to the cost of production
  4. The scheme’s linkage with parallel programmes like the ‘Jan Dhan Yojana’ and ‘Digital India’ makes it a truly inclusive and welfare-based scheme

Few drawbacks of PMFBY

  • Outmoded method of crop loss assessment
  1. The methodology deployed for crop loss assessment is the crop cutting experiments (CCEs)
  2. CCEs are periodic exercises conducted nationwide every season to determine crop yields of major crops
  3. Sample villages are chosen through scientifically designed surveys, and crops are physically harvested to determine yields
  4. These experiments require huge capital and human resources and have to be done simultaneously all over India in a limited time & thus, they have large errors
  • Inadequate and delayed claim payment
  • High premium rates
  • Poor execution

Improving PMFBY

In order to make the PMFBY a sustained developmental action for a comprehensive climate risk protection for every Indian farmer, the following action points are suggested

  • Faster and appropriate claim settlement
  1. Timely estimate of loss assessment is the biggest challenge before the PMFBY
  2. To improve the efficacy of the PMFBY, technology use must be intensified
  3. With detailed weather data, remote sensing, modelling and big data analytics, the exercise of monitoring crop growth and productivity can be not only more accurate and efficient but also resource saving
  4. Hybrid indices, which integrate all relevant technologies into a single indicator, are good ways to determine crop losses
  5. The whole process of monitoring can be made accessible and transparent to farmers, policy-makers and insuring agencies alike through an online portal
  6. Immediate claims settlements can be made once this is linked to the process of direct benefit transfers
  • Universal and free coverage for all smallholders
  1. To increase insurance coverage we should think of a system whereby farmers do not need to enrol themselves and every farmer automatically gets insured by the state
  2. This will provide social protection to every farmer if the full premium of smallholders is also paid by the state
  3. Currently, farmers pay a capped premium rate of 1.5-2%, while the rest is shared equally between the States and the Centre
  4. At this rate, if today all 14 crore farmers were to be insured under the PMFBY, they would need to pay the premium close to ₹10,000 crore annually
  5. If no premium is charged from marginal and small farmers (who own less than 2 hectares and account for 12 crore out of 14 crore) and only partial subsidy on actuarial premium is given to others, almost the same revenue can be collected, but in the process, coverage can go up almost 100%
  6. Such differential subsidies are already applicable in urban areas for water and electricity
  • Improved and transparent insurance scheme design
  1. Insurance companies are supposed to calculate actuarial rates and the rates quoted by companies for the same region and for the same crop vary from 3% to more than 50%
  2. One reason for such inflated premiums is lack of historical time series of crop yields at the insured unit level
  3. To minimise their risks caused by missing data and to account for other unforeseen hazards, insurance companies build several additional charges on pure premium
  4. The premium rates, and hence subsidy load on the government, can come down significantly if we make greater use of such proxies and appropriate sum insured levels

Way Forward

  1. The government today spends more than ₹50,000 crore annually on various climate risk management schemes in agriculture, including insurance
  2. If the above mentioned comprehensive social protection scheme is implemented, there would be opportunities for further rationalisation of subsidies
  3. By doing this resources can be better utilised to propel farm growth
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