PMFBY: Modi govt's crop insurance scheme sees decline in farmers' enrolment

The Pradhan Mantri Fasal Bima Yojana (PMFBY), the flagship crop insurance scheme of the Narendra Modi government, has entered its third year of operation, albeit with a substantial decline in farmers' enrolment in its second year, the data reveals.

Between FY16 and FY17, the number of farmers enrolled in the scheme declined from about 57.3 million to about 48.5 million, a fall of around 15 per cent.

Despite the fall in the number of enrolments, both premium and claims increased substantially over the last financial year. As a result, the premium rates quoted by insurance firms to the government this year are likely to remain high, raising questions about the increasing cost of the scheme.

In the 2017 kharif season, the admissible claims of the PMFBY stood at Rs 136.55 billion, against Rs 100.63 billion in Kharif 2016, a rise of about 36 per cent. The gross premium collection by insurance companies increased from Rs 221.90 billion to about Rs 243.58 billion between FY16 and FY17, a rise of about 10 per cent.

The key reasons cited for this sharp fall in farmers’ enrolments include missing data while linking Aadhaar with bank accounts, the low growth of agriculture credit offtake, and technical glitches while shifting the PMFBY data to a new portal. Banks are required to collect farmers' premium and upload it on the PMFBY website. A senior official of an insurance firm has claimed owing to poor network connectivity, many farmers reportedly failed to enrol in the scheme. In the case of farmers who have taken loans, banks auto-deduct the premium for the scheme. For the rest, the enrolment scheme is optional.

Farmers with loans constitute 80 per cent of the enrolment under the PMFBY. This year, the credit offtake in the agriculture sector has been muted. At the end of March 2018, year-on-year growth in credit for agriculture and allied activities was around 3.8 per cent, one of the lowest figures in the past few years. In FY17 the sector's year-on-year growth was more than 12 per cent, says the Reserve Bank of India data.

Last year, insurers had raised premium quotations by 5-10 per cent in some states such as Tamil Nadu, Karnataka, Gujarat and Rajasthan, where claims were particularly high.  

Data discrepancy, which led to particularly high claim ratios in certain states, has been one of biggest concerns for insurers. According to insurers, crop cutting experiments (CCE) were not properly conducted in several states. The CCE data at harvest helps assess yield loss. But collecting the data requires substantial manpower. At present, state governments have the responsibility to conduct these experiments. In some cases, the test was not conducted on the date mentioned to insurers. In other states, the data provided by respective state governments did not match ground realities.

For example, in the first year of operation, in Gujarat, despite a bumper production of groundnut, the claim ratio determined by the state government was as high as 200 per cent. In Rajasthan, crop-cutting experiments were affected due to a strike by government-appointed accountants.  

The PMFBY is based on actuarial calculations, and rates are based on risk perception. Thus, premiums differ, based on crops and regions. However, a farmer pays only a flat 2 per cent premium, the rest is provided by the central and state governments. On average, the premium comes to 12-15 per cent, with the state and central governments bearing 5 per cent each.