Defeated Objective of Crop Insurance


After one and half year of Corp Insurance Scheme inception, data suggests that it’s corporate insurance companies that have been benefited more than our poor farmers

By Asit Manohar

India falls within top 10 ranks in the total production of most crops; however, India’s productivity ranking is very poor and is not even in the top 50 in many crops. Reason for this are so many — uncertainty in farm income and poor health and financial conditions posing impediments into the advanced farming technology adoption by Indian farmers etc., are one of the major issues that Indian government has zeroed on to eradicate from the Indian farming sector. To increase its outreach to the farmers falling under the crop insurance scheme, the central government rolled out new crop insurance scheme in January 2016 and brought down the rate of premium to be paid by farmers to a maximum of 2.5 percent of the sum insured while the rest had to be paid by the government.

Earlier, farmers had to pay 4 percent to 15 percent as premium of the sum insured. Following several rounds of discussion, the government has decided to go ahead with bringing down and fixing the maximum premium amount. At the time of crop insurance scheme launch, I had cautioned in my cover story titled “Crop Insurance for Corporate or Farmers” in the dayafter dated 16-31 January 2016 citing, “It’s not about the reach of the scheme, the success of any crop insurance scheme in India depends whether it is voluntarily opted by the farmers or it is being made mandatory for the farmers going for farm loan.” Holding agricultural and bank officials accountable for process pertaining to crop insurance should also be a part of the legislation. In that article, I had recommended that crop insurance scheme can be a successful programme if both central and state governments agree to share premium (50:50) of the small and marginal farmers having small land holdings for initial four to five years. It would help farmers to sustain their life who are today unable to buy seeds for farming purposes.

As stated, Corporate destroy the existing structure of a farmer which makes it difficult for them to recognize their land in the pool of lands. Apart from this, it makes it difficult for the farmer to take policy decisions related to his farm and makes them bonded farm labour on their own land. It seems that the caution has come true.

An independent evaluation of the NDA government’s much-touted crop insurance scheme has showed that insurers gained nearly Rs 10,000 crore in gross profit during the last kharif season, from June to November 2016. However, it settled less than a third of the crop-loss claims filed till early this year.

The report released last fortnight by the Centre for Science and Environment (CSE) showed state-level “implementation gaps” in the Pradhan Mantri Fasal Bima Yojana (PMFBY), which replaced the previous National Agricultural Insurance Scheme in April 2016. These discrepancies could negate the benefits accorded by the scheme to farmers, the non-profit think tank said. The CSE report cited state-wise data from the ministry of agriculture and farmers welfare to show that insurance companies had only settled 32.45% of the claims made till April 2017. While farmers raised claims for nearly Rs 6,000 crore, they were paid less than Rs 2,000 crore. Citing data from the Insurance Regulatory and Development Authority of India, the CSE pointed out that insurance company grossed more than Rs 15,891 crore in premiums.

The claims amounted to a little over Rs 5,962 crore. Of this, less than a third was paid out. “Data released by the IRDAI indicates that the PMFBY played a significant role in the non-life insurance industry in financial year 2016-17,” the report added.

However, insurance companies contended that the gap between the premium collected and the claims processed will go down as the scheme covers more farmers. “Kharif 2016 was a good period for agriculture. There was undoubtedly a surplus this time, but it’s like a reserve for the future. Claim settlements are still on,” said Ajay Singhal, deputy general manager (crop insurance) at the Agriculture Insurance Company of India.

The premium for crop insurance under the government scheme is heavily subsidised, with the Centre and state governments pitching in to share subsidy costs. However, the think tank’s findings suggested that state governments – in several instances – wanted to keep their outflows low.

While the state government’s share of the premium for the 2016 kharif season was Rs 650 crore in Bihar, about a quarter of its annual agricultural budget, Madhya Pradesh paid nearly Rs 1,500 crore, which is 60% of its annual budget. “The economics of poor states does not allow for a 50-50 sharing formula with the Centre. The government should come up with a graded subsidy-sharing arrangement,” said Chandra Bhushan of the CSE.

Though the report described the PMFBY as “a classic case of poor implementation of a good scheme”, it also mentioned a few positives that arose through the central initiative. Foremost among them was the fact that farmer coverage had crossed four crore, a gain of nearly 25% over the previous year. The PMFBY narrows the gap between the actual cost of production and the sum insured, a major impediment faced by farmers in previous versions of the insurance scheme.

Incidentally, the implementation-related shortcomings listed in this report are strikingly similar to the discrepancies found by the Comptroller and Auditor General (CAG) of India in crop insurance schemes that were in effect between 2011 and 2016. The CAG report was tabled in Parliament on Friday.

The CAG findings say even though the Centre released its share on time, delay on the part of the states “defeated the objective of providing timely financial assistance to the farming community”. It stated that while coverage of farmers under the schemes was “negligible”, two-thirds of the subjects surveyed were not even aware of them.