New Delhi: The government on Wednesday raised the compensation amount for crop damage and made it easier for farmers to claim such compensation after unseasonal rains destroyed standing crops and brought parts of rural India to the brink of crisis.

Speaking at the launch of Pradhan Mantri Mudra Yojana in Delhi, Prime Minister Narendra Modi said his government will pay 50% more as compensation for crop damage. Besides, farmers in areas with at least 33% crop damage will also be eligible for compensation, up from the current criteria of 50% damage.

Modi said he has also ordered insurance companies to play a proactive role to help farmers and asked banks to see what can be done for restructuring crop loans.

“Farmers in the country are struggling due to natural calamities. Last year, rains were deficit and now, farmers are suffering due to widescale unseasonal rains and hailstorms," Modi said, adding that he had received a detailed report on Tuesday from ministers whom he had despatched to the affected areas.

“It is our responsibility to rescue the farmers," the Prime Minister said.

Modi has attempted to project his National Democratic Alliance (NDA) government as pro-farmer amid a challenge mounted by opposition parties to controversial land law amendments that seek to make it easier to acquire farm land.

“Natural calamities have come before but the parameters for compensation are inadequate in the present situation. We have decided to relax norms and raise compensation by 50%. This will put a heavy burden on us, but farmers will benefit," he added.

Currently, farmers in areas that have faced more than 50% crop damage are entitled to a compensation of 4,500 per hectare (ha) for rain-fed crops and 9,000 per ha for irrigated crops. While the increased compensation and easier eligibility norms will benefit farmers, delayed receipt of compensation is a severe problem.

The 50% hike in compensation is for disbursals under the National Disaster Response Fund.

“Assistance for crop damage is supposed to be an immediate relief but often, it reaches farmers with a long delay of more than a year. Moreover, which areas have recorded 33% or 50% crop damage depends on subjective whims of officials," said Sudhir Panwar, a farmer leader and member of the Uttar Pradesh state planning commission.

“The government should step in to rectify these systemic defects. Restructuring loans means pushing the problem to the next crop cycle—the government should instead step in to announce a partial debt waiver to aid farmers who have been battered by consecutive crop failures," Panwar said.

Panwar disputed Modi’s claim that the extra compensation will burden the government. Funds for crop damage relief have a fixed corpus for a period of five years and they are routed through state-level and national disaster response funds. Increasing relief and relaxing norms will increase the financial burden on the centre only if the corpus is expanded, he said.

According to estimates released by the agriculture ministry, the area under crop damage due to unseasonal rains has been consistently shrinking, although more rains and hailstorms followed the initial spate of rainfall at the end of February and during March. On 24 March, the ministry estimated the area under damage to be 18 million ha—nearly a third of the winter crop (Rabi) sowing area. This was reduced to 11 million ha two days later.

According to its latest release, on Wednesday, the damage is limited to 8.5 million ha—less than half its first estimate.

The damage is spread over 14 states across the country, with Rajasthan, Uttar Pradesh, Haryana, Madhya Pradesh, Maharashtra and Punjab the worst hit.

Meanwhile, banks have been instructed to restructure the loans of farmers whose crops have been damaged, Reserve Bank of India (RBI) governor Raghuram Rajan said on Wednesday, soon after Modi’s announcement.

“State governments have to declare which villages have been affected and identify affected parties. With the mechanism for declaring an affected village being relaxed to 33% crop damage, more farmers should be able to get compensation", said Harsh Kumar Bhanwala, chairman, National Bank for Agriculture and Rural Development.

“There is a standing instruction from RBI for banks to restructure loans at the time of a natural calamity and also providing consumption loans to the farmers. Banks can push the repayment schedule by one year and restructure the loan by extending the repayment period," he said.

As per RBI norms, banks can convert short-term crop loans to a term loan and extend the repayment period to 3-5 years with a moratorium period of one year.

In case of a severe calamity, the repayment period can be extended to a maximum of 10 years. Further, banks have been allowed to not treat such loans as non-performing assets.

Banks can also extend loans to existing farmer borrowers for consumption purposes of up to 10,000 without any collateral. The extent of the loans to be restructured will be estimated only once state governments complete the process of identifying affected villages.

An estimated 3.9 million ha of wheat has been damaged due to unseasonal rains, according to the data released on Wednesday, which revised an earlier figure of 6 million ha. On Tuesday, agriculture minister Radha Mohan Singh said wheat production is likely to dip by 4-5% due to the weather.

“The latest announcement comes a little too late. By 15 April, harvesting of the wheat crop will be over. The government won’t even be able to do a full damage assessment," said Himanshu, associate professor of economics at Jawaharlal Nehru University, Delhi, and a columnist with Mint.

“Farming risks have gone up considerably with monetization of agriculture but the government is yet to find a functional crop insurance scheme. Agriculture needs long-term investments in irrigation, marketing and storage in addition to input subsidies and strengthening of minimum support price operations. Instead, the NDA government has gone ahead and made budget cuts in crucial programmes like the Rashtriya Krishi Vikas Yojana," Himanshu added.

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