India's erratic monsoon is putting crop insurance back under the spotlight—but the weather risk may not translate into a surge in farmer enrolment. That puts the Pradhan Mantri Fasal Bima Yojana (PMFBY), the government's main crop insurance scheme covering risks including drought and floods, at the centre of the debate.
While a developing El Niño and a rainfall deficit have raised concerns over kharif production, Agriculture Insurance Co. of India Ltd. (AIC) chairman and managing director Lavanya R. Mundayur said it is too early to predict whether more farmers will buy cover. Sowing decisions and rainfall patterns are still evolving across states, making the impact on PMFBY uneven.
"It is difficult to predict at this stage," Mundayur told Mint in an interview. “India is extremely diverse. If rainfall remains uneven, its impact will differ across regions. In some places, farmers may not sow at all, while in others they may switch to alternative crops such as soybean or jowar or cotton.”
The uncertainty comes as India's southwest monsoon faces a difficult season. The country is running a rainfall deficit so far, while the India Meteorological Department's monthly outlook forecasts below-normal rainfall in July, at less than 94% of the long-period average (LPA).
June was India's driest in more than a decade and the fifth-driest since records began in 1901. Monsoon rainfall was 39.8% below normal last month.
"With rainfall remaining below normal in several parts of the country, more farmers are expected to enrol under the Pradhan Mantri Fasal Bima Yojana to safeguard themselves against potential crop losses. Weather uncertainty has heightened production risks, particularly for rain-fed crops, making crop insurance an important risk management tool," said Brajesh Singh, director, ICAR-CPRI (Central Potato Research Institute).
Rainfall is the risk
The problem for farmers is not simply too little rain. It is the volatility of its timing and distribution.
"The variability of rainfall has emerged as one of the biggest challenges for agriculture, leading to lower crop yields and poorer crop quality. Both the quantity and distribution of rainfall affect kharif and rabi crops, influencing production, prices, inflation, and consumption. Erratic rainfall often results in either drought or waterlogging at critical stages of crop growth, when fields require adequate soil moisture. This adversely affects crop development and reduces overall agricultural productivity." said Amritpreet Kaur Minhas, an agriculture scientist and fellow, Teri (The Energy and Resources Institute).
The risks also expose a structural weakness in PMFBY: its voluntary nature for state governments.
Allowing states to opt out creates adverse selection, Mundayur argues, leaving the programme with a higher concentration of risky regions. “The lower the adverse selection, the better the premium rates can be for everyone,” she said.
India's diverse agro-climatic conditions should, in theory, spread insurance risk across crops and geographies. But that advantage is diluted when states stay out.
Both deficient and excessive rainfall can cause severe damage. Last year, excessive rainfall led to substantial crop losses in states including Punjab and Maharashtra, highlighting that flood-related damage can be as severe as drought.
Farmers in non-participating states also lose access to subsidized crop insurance even if they want protection.
"I believe participation should remain voluntary for farmers, but it may not be ideal for it to be voluntary for states. Every farmer should have the option to avail crop insurance," she said.
PMFBY covers losses from natural disasters such as droughts and floods, as well as pests and diseases. It also covers post-harvest losses from local risks such as hailstorms and landslides. Farmers pay 2% of the total premium for kharif crops, 1.5% for rabi crops and 5% for commercial or cash crops. The central and state governments jointly bear the remaining 95% to 98.5% of the actuarial premium on a 50:50 basis, except in the northeastern states.
In the 2025 kharif season, PMFBY provided insurance coverage to 20.2 million farmers, received 83.7 million applications and insured 25.0 million hectares across 517 districts in 24 states and Union territories. In FY26, ₹6,040 crore was disbursed in claims under the scheme.
Reform slips to next year
The programme's planned overhaul has also been pushed back.
"This year (FY27) was initially expected to mark the beginning of a fresh three-year tender cycle after the previous round started in 2023. Instead, most participating states have opted to extend existing contracts or issue one-year tenders under the current framework," Mundayur said.
"As a result, the next full three-year tender cycle is now likely to begin next year," she added further.
The delay has pushed back proposed changes aimed at making PMFBY more attractive to farmers and states.
One proposal under discussion is a 100% indemnity option. States currently choose from indemnity levels of 70%, 80% or 90%.
Mundayur said higher indemnity could improve farmer confidence and encourage participation, particularly in states with better irrigation infrastructure that currently perceive production risk as lower.
She also advocated a universal basic crop insurance model funded by the Centre. Every farmer would receive a standard level of yield-based protection, while states could buy additional coverage based on local needs.
She compared the model with health insurance, where basic cover is available universally and additional protection can be purchased separately.
"I am not suggesting comprehensive insurance for every risk. There should be a basic need-based yield cover available to every farmer, funded by the Centre, with states free to build on it," she said.
Technology is meanwhile expected to play a larger role in implementation.
According to Mundayur, insurers are nearing full integration with digital land records and crop-cutting experiment databases. The integration is expected to reduce duplicate policies, eliminate fraudulent claims and improve transparency by automating verification of land ownership and insured acreage.
It is also expected to reduce manual processes.
The immediate test is whether worsening weather risk pushes more farmers towards insurance, or instead disrupts sowing itself. With the kharif season still unfolding and broader PMFBY reforms delayed until next year, the answer may vary sharply from one state to the next.