Sharad Markad, a lanky teenager from a marginal farming family in Maharashtra, spent the first day of 2019 scrounging for funds. Faced with a drought, the third in the past five years, Markad had taken it upon himself to build a community cattle shed in November. Due to an acute shortage of fodder and water, farmers in his village in Ahmednagar district were struggling to tend to their livestock. Now, Markad’s shed is home to 250 cattle and he is desperate for funds to keep it running. When asked if his family had crop insurance that would help cover daily expenses during a drought, Markad said he couldn’t care less. “We did not enrol last season since it is of no use…our crop was damaged in the past but we did not receive any money."
Markad’s loss of interest in the crop insurance scheme, which was launched with much fanfare in 2016 echoes the sentiment of farmers across India. After an initial spurt in enrolment during the kharif crop season beginning June 2016, enrolment under the flagship crop insurance scheme—named Pradhan Mantri Fasal Bima Yojana (PMFBY)—has seen a steep decline, driven by payouts which are either delayed by months or not settled altogether.
In April 2016, Prime Minister Narendra Modi launched PMFBY as a key scheme to help farmers cope with weather uncertainties. In a country where over half of the unirrigated crop area is dependent on the vagaries of the four-month-long south-west monsoon, PMFBY promised increased cover for a variety of risks at a premium of just 2% (of sum assured) for kharif and 1.5% for winter or rabi crops. It was decided that the centre and states will equally share the cost of actuarial premium payable to insurance companies.
Data from the agriculture ministry shows that enrolment (during the rain-fed kharif season) rose from 30.9 million farmers in 2015 to 40.3 million in 2016, an impressive 30% jump. But delayed assessment of crop loss and settlement of claims which took six to nine months to complete led to farmers losing interest; enrolment fell to 34.8 million in 2017 and further plunged to 33.3 million in kharif 2018. Part of the decline was also because fewer farmers accessed fresh credit (due to a spate of farm loan waivers since mid-2017) since enrolment under crop insurance scheme is mandatory for farmers availing crop loans.
However, despite the drop in enrolment, state funding for PMFBY has increased significantly leading to complaints by farmer unions that the crop insurance scheme is benefiting insurance companies more than farmers. Available numbers show that premium collected by insurance companies rose from a meagre ₹ 5,614 crore in 2015-16 to ₹ 22,362 crore in 2016-17 and further to ₹ 25,046 crore in 2017-18 (including rabi and kharif crop seasons).
Several studies and field investigations point to a host of reasons which has led to a trust deficit among farmers. To begin with, insurance companies are selling the product piggy backing on the banking infrastructure. For farmers availing crop loans, banks deduct the premium amount from the loan without even issuing a receipt. Farmers are never asked if they want insurance, and the product has became an easy way for banks to insure their loans.
Further, in the event of any crop damage, farmers are at a loss as to whom to reach out to since most companies have not set up field offices to attend to customer complaints. A major challenge is conducting faster and accurate assessment of crop loss which is the responsibility of state governments. Assessment of crop losses are often delayed due to a paucity of local staff.
There’s more. According to an assessment released by the Delhi-based think tank Indian Council for Research on International Economic Relations in February 2018, a reason why insurance companies charge high actuarial premiums is that cut-off dates for enrolment are frequently extended by states, often beyond the forecast and onset dates of the annual monsoon. “The litmus test of any crop insurance programme is quick assessment of crop damages and payment of claims into farmers’ accounts directly, and from that point of view, the first year of implementation of PMFBY (2016-17) has not been very successful," the study observed.
“Instead of imposing a standard crop insurance scheme on states, it will be wiser if the centre allows states’ the freedom to design their own schemes while contributing half of the costs," said Ajay Vir Jakhar, chairman of Bharat Kishak Samaj, a farm policy advocacy body. “Each state has its unique set of problems due to cropping, climate and access to irrigation. So they may choose a compensation scheme over crop insurance."
Since October 2018, at least five states—Maharashtra, Karnataka, Gujarat, Odisha and Rajasthan—have declared a drought and sought a central assistance of over to ₹ 15,500 crore.
This is testimony to the ground reality that the Prime Minister’s flagship crop insurance scheme has failed to provide farmers with timely and adequate cover against climate risks.