Multiple gaps in implementing flagship crop insurance scheme

Instead of appreciation, the Modi government’s flagship schemes for crop insurance, the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme have attracted criticism even though the PMFBY is substantially superior to crop insurance schemes under previous governments.

There are five major stakeholders in crop insurance. They are farmers, banks, central and state governments, and insurance and reinsurance companies.

Farmers would like prompt payment of claims if their crops are hit by a calamity. They would also like to know the name of the insurance company and the premium paid by them.

At the ground level, the scheme is implemented by banks that have to deduct the premium and remit it to insurance companies. Banks also have to provide detailed data of insured farmers to insurance companies.

The central government makes the rules for the scheme while the state governments do all the important work of tenders and crop-cutting experiments (CCE), etc. They would like the actuarial premium to be low as they have to pay premium subsidy in excess of the farmers’ share, which is just 2% for kharif crops, 1.5% for rabi crops and 5% for annual commercial and horticulture crops.

The insurance companies would like to receive the insurance premium in time and the insurance claims to be low. They would also like CCEs to be transparent.

The reinsurance companies provide underwriting and financial support beyond the capacity of the insurance companies. They decide the financial terms and conditions which the insurance companies have to follow. In 2017-18, about 33% of the total premium went to reinsurance companies. They would like the governments to follow the guidelines issued by the government itself.

In 2017-18, the central government launched an insurance portal which sought to capture information of each farmer. The portal captures Aadhaar numbers of the farmers so bogus cases of insurance can be eliminated. However, the farmers are still not being informed about the premium deducted and the insurance cover provided to them.

The objective of getting lower actuarial rates in tenders, however, depends on a number of factors, including policies of the government. In September 2018, the government had issued new operational guidelines which give thrust to enrolling more non-loanee farmers and to settle the claims within 21 days. While they seek to bind the insurance companies, a similar dispensation for state governments is missing and there are no penalties for wrong or delayed CCEs.

In fact, there are several conditions in the new guidelines which are likely to result in higher actuarial rates. For example, the states can now provide add-on coverage for crop loss due to attack by wild animals. This additional risk alone will invite higher premium. The cut-off date for taking insurance in most states is 31 July for the kharif season. By this time, the pattern of monsoon is well known, especially in south Indian states (monsoon hits Kerala on 1 June). In the event of deficient monsoon, the state governments are likely to push for increasing insurance coverage so that the farmers can get the claim. Ideally, the centre should insist that state governments finalize tenders before the onset of monsoon in Kerala so that the companies are not able to factor in the behaviour of monsoon.

In 2017-18, out of the total premium of ₹ 25,173 crore, farmers paid ₹ 4,317 crore. Another freebie in the form of zero premiums from farmers may leave even smaller amount in state budgets for investments in agriculture.

At the end of the day, more investment is needed in agriculture and food processing to make farming viable.

Siraj Hussain is former secretary, agriculture to government of India. He is currently Visiting Senior Fellow at ICRIER