Two successive years of monsoon failure and crop loss have increased the woes of Indian farmers. In 2015, farmer suicides averaged an alarming nine a day in Maharashtra — the State which was worst hit by the drought. In January this year, the dry weather and drop in farm incomes again saw as many as 89 farmer deaths in the State.
The inability to pay back loans due to crop failures is a major reason for farmer suicides. Data from the Commission for Agriculture Costs and Prices show that in the last 54 years, there has been a significant loss in foodgrain production once in every three years.
A good crop insurance scheme that will address the risk of loss in income for farmers is thus vital. The Centre recently launched the Pradhan Mantri Fasal Bima Yojana to address the flaws in the existing crop insurance schemes. Earlier schemes were the National Agriculture Insurance scheme (NAIS) and MNAIS (modified NAIS). Out of the total farm land of 195.26 million hectares in the country, only 42.82 million hectares or 22 per cent is insured. Crop insurance schemes have not been a hit with Indian farmers in the past because of high premium and limited coverage. But, this time, the Centre aims to address these issues.
Sufficient cover and lower premium
The main drawback with the existing crop insurance schemes is that the sum insured (SI) is too small to make any difference to the farmer. In 2013-14, for instance, while the average per hectare output value was ₹41,442, the sum insured under the various crop insurance schemes was just ₹19,141 for kharif crops and ₹16,927 for rabi crops. So, clearly, the insurance cover was way lower than a farmer’s likely income (in a normal season).
In MNAIS, there is a cap on the maximum premium insurers can charge. So, in crops where actuarial rates were higher, insurers reduced the sum insured proportionately.
For instance, in Uttar Pradesh’s Lalitpur district, the actuarial premium (based on the assessment of risk by the insurer) was fixed at 22 per cent of total crop cover for paddy, but the Centre had a cap on the premium at 11 per cent. If a famer wanted a cover for ₹30,000/ha, at 11 per cent the premium would be ₹3,300, the maximum amount that can be collected as premium. Since the maximum amount is ₹3,300, but the insurer can go only with its actuarial rate at 22 per cent,he will reduce the SI to ₹15,000 (₹15,000 at 22 per cent = ₹3,300). The insurer fixes the sum insured by calculating backwards the premium he is allowed to collect. This, however, will change with the new scheme.
Under the Pradhan Mantri Fasal Bima Yojana , there is no cap on the premium. So the farmer will be covered for the full ₹30,000. The SI will be the average of the past seven years ‘threshold’ yield for the specific crop (excluding calamity years) in the village where it is grown, multiplied by the minimum support price (MSP).
Currently, opting for this scheme is compulsory for farmers who have crop loans and optional for others.
In the existing crop insurance schemes, farmers cough up substantial costs for insurance. Under the new scheme, however, the premium outgo will drop substantially for farmers. They will have to pay just 2 per cent of the SI for all kharif crops, 1.5 per cent for rabi and 5 per cent for commercial or horticulture crops.
Taking the above example again, for SI of ₹30,000, the premium will be totally ₹6,600 (₹30,000*22 per cent) — of which ₹600 will be paid by the farmer and ₹6,000 by the State and the Centre (earlier, the farmer paid ₹900 and the Centre ₹2,400).
Wider cover, faster settlement
In NAIS, there was no cover for risks specific to a region (for example, landslide, inundation). In MNAIS, risk of loss due to cyclonic rains was given only to coastal regions. But, under the new crop insurance scheme, all risks to crop loss will be covered. Post-harvest losses due to cyclonic rain or thunder are covered for farmers across India.
The new policy will also cover losses due to adverse weather conditions that prevent sowing of crops after expenditure has been incurred. Also, currently, as estimation of yield is done through manual crop cutting experiments, the claim settlement process takes a lot of time. But, under the new scheme, the Centre has mandated States to use drones and other satellite-based technology when assessing crop damage and estimating acreage.
It has also asked authorities to use smartphones to capture images of crops to improve the quality of data. As the images come with GPS time-stamping, the process will be more reliable. Also, the fact that this time the Centre has clearly laid down deadlines within which each party — the insurer/the Centre/State — has to process the claim, the settlement is likely to happen faster.
Some pitfalls
Despite the new scheme addressing many lacunae in the existing crop insurance schemes, some States, including Punjab, have said that in the current form the scheme may not help their farmers. Punjab is asking for compensation to cover the increased cost of cultivation due to drought-like conditions. It is also asking the Centre to cover loss to farmers on damage to crops kept in mandis due to natural calamities. The other major request put across is plot-wise, rather than district-wise, loss assessment.
If the new scheme is implemented with specific changes required by States, it may go a long way in de-risking agriculture and reducing the misery of farmers.