New Delhi: Faced with a sharp decline in the number of farmers signing up for its flagship crop insurance scheme, the centre on Tuesday imposed a 12% penalty on insurance companies for delayed settlement of claims.

Under the new guidelines that will take effect from the winter or Rabi crop season beginning October, state governments will also have to pay a 12% penalty for delays in releasing their share of subsidies to insurance companies.

While farmers will receive a 12% penal interest payment for delays in settling claims beyond two months of the prescribed cut-off date, state governments will have to pay the penalty if they delay depositing their share of subsidies by three months or more.

Under the scheme, farmers pay between 1.5-2% of the insurance premium while the rest is paid equally by the centre and state governments.

Further, the new operational guidelines for the Pradhan Mantri Fasal Bima Yojana (PMFBY) has set a new target for insurance companies to enrol 10% more non-loanee farmers year-on-year. Non-loanee farmers are those who do not avail of subsidized crop loans. For loanee farmers, enrolling under crop insurance is mandatory.

In addition, each insurance company will have to mandatorily spend 0.5% of gross premium per season for publicity and awareness of the scheme.

An official statement from the agriculture ministry said that insurance companies can be removed from the scheme if they are found to be ineffective in providing services to farmers.

The flagship PMFBY scheme, launched by Prime Minister Narendra Modi in 2016 following consecutive years of deficit rains, witnessed a sharp 15.5% decline in enrolments, which fell from 57.3 million in 2016-17 to 48.4 million in 2017-18.

However, despite lower enrolments, premium collected by insurance companies—shared by farmers, centre and state governments—shot up by 11.5%, from 22,589 crore in 2016-17 to 25,178 crore in 2017-18.

To encourage more farmers to sign up, the revamped scheme will now cover a wider variety of risks, such as hailstorms, cloudbursts and cases of fire destroying crops. According to the new guidelines, farmers will also get more time to inform the government about individual losses—from 48 hours earlier to 72 hours after crop damage.

“These steps are welcome as farmers can expect better delivery and results from the scheme now... however, it would be better to ensure that states complete their tendering process from the first official forecast of monsoon is issued; currently, farmers are waiting for the monsoon forecast to enrol for the scheme which leads to adverse selection and higher actuarial rates," said Siraj Hussain, a former agriculture secretary and currently a visiting fellow at the Delhi-based Indian Council for Research in International Economic Relations.

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