Pradhan Mantri Fasal Bima Yojana – Min Premium, Max Insurance


The government’s new crop insurance scheme could be a lifesaver for farmers at a time when the pain of rural distress is unimaginable, as they are facing three successive crop failures due to inclement weather conditions.

In 2015-16, the central assistance towards drought relief is several times higher than what it spends to subsidise crop insurance premiums every year.

Before the scheme was announced, a RBI-constituted committee has also emphasized on the same.

What were the recommendations of RBI-constituted committee?

  • The committee called for phasing out interest subsidy on short-term agricultural loans.
  • The money saved should be used for into an universal crop insurance scheme for farmers.

Reasons underlying the recommendation:

  • NSSO data shows that banks and cooperative societies account for 57.7% of outstanding loans of farming households.
  • The dependence on informal credit increases with reduction in the landholding size.
  • Farming is increasingly done by tenant cultivators/ share croppers.
  • Since, farmer has no regular income, so they are forced to go to money lenders to sustain their consumption.
  • Govt. spends nearly Rs.13000 crore annually on interest subvention for crop loans, which can be redirected towards subsidy on insurance premium.

<The govt. rolled out Modified National Agricultural Insurance Scheme for the XII plan period across India, but it failed to solve the agrarian crisis.>

Let’s analyse the short-coming in the earlier crop-insurance scheme

  • Premium rates were as high as 25%.
  • Lack of awareness.
  • Sum insured were way below the gross value of output for most crops.
  • Policy claims can’t even cover half of the value of produce when the crop suffers heavy damage.
  • The money pay back procedure was too complicated.


What are the features of Pradhan Mantri Fasal Bima Yojana?

The scheme will replace the existing two schemes National Agricultural Insurance Scheme as well as the Modified NAIS. The new Crop Insurance Scheme is in line with ‘One Nation – One Scheme’ theme.

Nodal Agency: Department of Agriculture, Cooperation & Farmers Welfare , Ministry of Agriculture & Farmers Welfare. It will implement the scheme in co-ordination with various other agencies such as financial institutions, PRIs, etc.

  • Uniform premium to be paid by farmers. <Rate of premium will be about 1/10th of existing rates>
    • Kharif crops – 2%
    • Rabi crops – 1.5%
    • Horticulture & commercial crops – 5% <of premium amount>
  • No upper limit on govt. subsidy, even if the balance premium is 90%, govt. will bear the burden.
  • Govt. liability on premium subsidy would be shared between Centre and States on a 50:50 basis.
  • Smart phones, remote-sensing drones and GPS technology will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers.
  • The scheme aims to increase insurance coverage to 50% from the existing levels of 25-27% of crop area.
  • The new scheme will also be executed by private insurance companies.
  • There will be exemption from Service Tax liability of all the services involved in the implementation of the scheme.

Risk Covered

A Comprehensive risk insurance is provided to cover yield losses due to:

  • Non-preventable risks, such as Natural Fire and Lightning, Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado.
  • Risks due to Flood, Inundation and Landslide, Drought, Dry spells, Pests/ Diseases.
  • In cases where majority of the insured farmers of a notified area, having intent to sow/plant and incurred expenditure for the purpose, are prevented from sowing/planting the insured crop due to adverse weather conditions, shall be eligible for indemnity claims upto a maximum of 25% of the sum-insured.
  • In post-harvest losses, coverage will be available up to a maximum period of 14 days from harvesting for those crops which are kept in “cut & spread” condition to dry in the field.

International Experience

The mechanism of higher subsidy for crop premiums in Indian scheme is not out of line with international standards.

  • The US covers over 120 million hectares and gives subsidy to the tune of around 70%.
  • China insures its farmers for a sown area of around 75 million hectares with a subsidy on premiums of about 80%.

How the scheme overcomes the shortcomings of previous scheme?

  • Farmers will have to pay the low premium rates and balance premium will be paid by the govt. to provide full insured amount, against the crop loss on account of natural calamities.
  • The sum insured will be calculated by multiplying the MSP of a crop with the average 7-year threshold yield for the particular village panchayat area where it is grown.
  • The improvement over previous scheme is that the premiums will be determined by the sum insured, unlike currently where premium determines sum insured.
  • CACP( Commission for Agricultural Costs and Prices) has argued that premium will drop to 3.5% of sum insured if 50% of India’s gross cropped area is insured.
  • Once the new scheme kicks in, farmers in high-risk areas would stand to benefit the most

One of the best thing is that it will also rid farmers of the web of complex rules of the earlier insurance schemes.

How is current Insurance coverage in the country?

  • Currently, only 45.82 million hectares out of 195 million hectares was covered under crop insurance in 2014.
  • Coverage is higher in states of Rajasthan, Karnataka, Bihar, Odisha and Chattisgarh.
  • UP, West Bengal and Gujarat are worst performers in terms of coverage.

<There are various suggestions pouring from wide spectrum of society to implement scheme in a better manner to mitigate the agrarian distress and suicides>

What steps could be taken to implement scheme in a better manner?

  • Crop insurance should be done in a transparent manner & within a specified period of time.
  • Make use of advanced technology like automatic weather stations, drones and low earth orbit satellites.
  • Compensation must be paid to farmers account directly, within a short duration after assessment of crop damage.
  • Accountability of each stakeholder needs to be clarified and fixed.
  • Crop-damage assessment must be done within 2 weeks of the extreme weather event.
  • Implementing the scheme will require huge premium subsidy outgo, more so in a drought year.

What kinds of financial and technological infrastructure is required?

  • Information has to be digitised plot wise, the plot of the tiller who has paid the premium has to be synchronised/seeded with their bank account, Aadhar and mobile number.
    • Ministry of rural development will be required to clean up land records.
    • Ministry of agriculture and farmer’s welfare to digitise plot-wise information.
    • Banks to seed the account of tillers.

Published with inputs from Pushpendra 
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