NDA moves to derisk farming

The revamped crop insurance scheme comes at a time when India is experiencing a protracted period of rural distress

Sayantan Bera, Prashant K. Nanda
Updated14 Jan 2016, 01:19 AM IST
The Pradhan Mantri Fasal Bima Yojana (PMFBY), announced on the eve of harvest festivals across the country, is to be rolled out during the kharif crop season this year. Photo: HT<br />
The Pradhan Mantri Fasal Bima Yojana (PMFBY), announced on the eve of harvest festivals across the country, is to be rolled out during the kharif crop season this year. Photo: HT

New Delhi: The Union cabinet on Wednesday signed off on a revamped crop insurance scheme designed to mitigate risks associated with contemporary Indian farming.

It will substantially reduce the premium paid by farmers—1.5% on rabi crops, 2% on kharif crops and 5% on commercial/horticultural crops—and reduce delays and leakages in payment of compensation through direct transfers into the bank accounts of farmers. This is expected to drive up enrolment under the scheme.

The farmer-friendly move comes at a time when the country is experiencing a protracted period of rural distress after below-average monsoon rainfall in 2014 and 2015.

While crop insurance is a long-term measure to alleviate rural distress by derisking farming, as a short-term palliative, the National Democratic Alliance (NDA) government has stepped up payouts under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

Between August and December, a period of widespread drought, over 71 crore mandays of work were generated under the MGNREGS, which offers 100 days of employment to at least one member of every rural family. This is substantially higher than 40.5 crore mandays generated in the same period in 2014-15 (also a drought year), 67.4 crore in 2013-14 and 57.3 crore in 2012-13 (both were normal monsoon years).

Under the previous crop insurance scheme, risks were only partially covered. The existing premium rates vary between 2.5% and 3.5% for kharif crops and 1.5% for rabi crops—but the coverage was capped, meaning farmers could, at best, recover a fraction of their losses. Also, the premium for commercial and horticulture crops was calculated on actuarial basis, meaning premiums could be as high as 25% depending on the risk factor involved.

The Pradhan Mantri Fasal Bima Yojana (PMFBY), announced on the eve of harvest festivals across the country, is to be rolled out during the kharif crop season this year.

“This is certainly the best for the farmer till date as it provides for localized events and removes the cap,” said T. Haque, director of the Delhi-based Council for Social Development and former head of the Commission for Agricultural Costs and Prices.

“It’s a historic decision taken by the prime minister,” home minister Rajnath Singh said after the cabinet meeting in New Delhi. “This will safeguard farmers against inclement weather. It will also reduce the financial instability in the families of farmers.”

The crop insurance scheme will cover half of India’s cropped area in the next three years, up from the present level of 23%. Towards this, the centre has substantially increased the budget for crop insurance from 2,823 crore in 2015-16 to 7,750 crore in 2018-19.

“Farmers have not adopted insurance for various reasons and we have discussed them in detail. We hope farmers will take benefit of this insurance scheme. It will be provided with the lowest premium ever in independent India,” the home minister added.

The decision implicitly acknowledges the structural makeover of Indian farming, which has entailed farmers taking on more risks by diversifying into horticulture and commercial crops without adequate safety nets.

For the third straight year, production of fruits and vegetables surpassed foodgrains in 2014-15 (by over 30 million tonnes) even as farmers are exposed to a new class of risks such as pest attacks and price volatility, in addition to conventional weather risks.

The agriculture ministry said in a statement that the premium rates are very low, with the government contributing five times the premium paid by a farmer. The balance premium will be paid by the government so that farmers are fully insured.

There is no cap on subsidy on premium, meaning the government will bear the cost even if the balance premium is as high as 90%. In previous schemes, due to a cap on premiums, farmers did not get the full sum during claim settlement.

The government liability on premium subsidy will be shared equally by the centre and states.

The new scheme will cover local-level calamities such as hail storms and landslides and even cover farmers if they cannot sow crops due to inclement weather. Also, the scheme will cover post-harvest losses due to cyclonic and unseasonal rains.

While smartphones will be used to capture and upload data on crop cutting (to estimate loss in yield) to reduce delays in settling claims, remote sensing will be used to reduce the number of crop-cutting experiments.

Shortly after the scheme was unveiled, Prime Minister Narendra Modi posted a message on Twitter addressing farmers across the country celebrating harvest festivals like Bihu, Lohri and Pongal.

Modi said that the new scheme was a gift to them from the government. The new scheme, which encompasses all the positives and rectifies the shortcomings of existing schemes, will bring a huge change to the lives of farmers, he said.

According to Haque, while the low premium will drive penetration and enrolment and make the insurance scheme viable for insurers, it remains to be seen if the unit for assessing crop loss has been reduced to the village level (in earlier schemes block and panchayats were taken as units, making it difficult for a farmer to claim compensation for events like hailstorms).

In 2014-15, under the existing yield-based (National Agriculture Insurance Scheme and Modified National Agriculture Insurance Scheme) and weather-based crop insurance schemes, about 37 million, or 27% of farming households, were covered, the government informed Parliament last month.

Saurabh Kumar contributed to this story.

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First Published:14 Jan 2016, 01:19 AM IST
HomeIndustryNDA moves to derisk farming

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