States opt out, farmers' enrolment drops as PMFBY enters a new phase

From imposing penalties on insurance companies and states that delay claim payment to farmers, to making the scheme voluntary for farmers, PMFBY has seen many twists and turns since inception

Millions of farmers in Madhya Pradesh are in a big spot of bother this kharif.

The reason according to local reports is their crop insurance premium for kharif 2020 has been deducted but the state government hasn’t yet finalized the names of those companies which will provide the insurance.

The premium, according to the reports, has even been deducted for those farmers who have decided to opt-out of the scheme before the cutoff date.

Though the state government has claimed that the companies’ names will be finalized soon, it is incidents like this that have sullied the muck-talked about Pradhan Mantri Fasal Bima Yojana (PMFBY) even before its completion of five-years.

To make the scheme robust, farmer-friendly, and also effective, the Central government has introduced several alterations to it since its inception in 2016.

Starting from imposing penalties on insurance companies and states those delay claim payment to farmers, to make the scheme voluntary for farmers, PMFBY is among the few schemes launched by the government which has seen so many twists and turns.

It has achieved some success, but has never been devoid of controversies and complaints of delayed claim payment along with allegations of how private companies have conned gullible farmers to deny them their rightful claim.

Kharif 2020 is perhaps seeing some major transformation in the scheme with farmers’ enrollment dropping sharply along with area covered.

That apart, not only insurance companies, big states including those governed by the ruling BJP are opting out of the scheme, citing high financial burden.

Several states feel the claims paid by insurance companies in comparison to the premium collected are quite low while their financial burden has increased manifold as they have to bear 50 per cent of the premium subsidy.

The latest Central government guidelines which further capped the premium subsidy at 30 per cent in un-irrigated areas and 25 per cent in irrigated, also pushed the burden of running the scheme towards the states particularly in crops and areas that are risky.

Bihar was the first state to opt-out of PMFBY, followed by West Bengal. Thereafter, Andhra Pradesh, Telangana and Jharkhand also moved out of the scheme. Punjab has never been part of PMFBY, while Gujarat has become the latest not to join the scheme.

Madhya Pradesh, which is again a major state governed by the ruling party is also reportedly having second thoughts about the scheme.

Drop in enrollments

Data sourced from the PMFBY website shows that farmer enrollments have fallen in kharif 2020 from the kharif 2019 level. The area covered has also declined.

Till August 18, some 12.9 million farmers had enrolled for the scheme, which is about 31 per cent lower than the number last kharif season, while the area covered has also fallen to 18.9 million hectares, or 52% lower than kharif 2019 (see table).

Clearly, farmers’ participation in the scheme has seen a fall.

Gujarat scheme 

The latest state to leave the PMFBY is Prime Minister Narendra Modi’s home-state of Gujarat.

Though state officials did not say this in as many words, insiders said the state was compelled to leave the scheme as its subsidy burden was rising manifold while farmers weren’t getting adequate benefit, and claim settlement took years.

A new scheme called the new scheme, Mukhya Mantri Kisan Sahay Yojana, will replace the Pradhan Mantri Fasal Bima Yojana (PMFBY) for this year only, Gujarat Chief Minister Vijay Rupani announced a few days back.

Unlike the Centre's crop insurance scheme, farmers are not required to pay any premium under this new state government scheme to get protection against natural risks like drought, excess or unseasonal rain this kharif season.

It is fully free.

"Only for this year, we are replacing PMFBY with the Mukhya Mantri Kisan Sahay Yojana because insurance firms have sought a very high premium from us this time. If we approve their tender, the state government will have to pay Rs 4,500 crore towards its share," Chief Minister Rupani said.

The amount sought by insurance firms this year is much higher than the average yearly premium of around Rs 1,800 crore, he said, adding that farmers who have sown crops in this kharif (monsoon) season will be benefited under this scheme.

The compensation will be given only if crop loss is more than 33 per cent either due to drought, or excess rain, or due to unseasonal rainfall, Rupani said.

A farmer is eligible to get compensation for maximum four hectares of land, he said.

For crop loss between 33 and 66 per cent, a farmer will get a compensation of Rs 20,000 per hectare for maximum four hectares.

For crop loss above 60 per cent, a farmer will get Rs 25,000 per hectare for maximum four hectares.

What states fear

States fear that after the latest changes in PMFBY, their share of subsidy burden will increase as the Centre has capped its subsidy burden at 25 per cent and 30 per cent, while there is no such limit on them.

Explaining the reason behind sudden increase in state’s burden, a senior government official, who declined to be named explained that suppose the actuarial premium of a crop comes to 40 per cent in unirrigated areas.

In this, the farmers share is capped at 2 per cent, while in the old format the balance 38 per cent subsidy is shared equally between Centre and states in the ratio of 50:50.

However, from this kharif season (2020), while farmers share will remain at 2 per cent, Centre on its part will bear the subsidy only upto 30 per cent, which means 15 per cent in the 50:50 ratio.

The balance, which in this case comes to around 23 per cent, will have to be borne by the concerned states, if it wants to implement the scheme.

As a matter of fact, according to some insurance company officials, once PMFBY has been made voluntary for loanee farmers as well, the actuarial premium for several crops in many areas tend to be on the higher side, which means if states want to participate in the scheme, they will have to fork out more in terms of their share of subsidy.

At present, the actuarial premium in most crops is around 15-20 per cent, which insurance company officials said will easily go up to 25-30 per cent once fewer numbers of farmers participate in the scheme.

Under PMFBY, farmers pay 2 per cent of the sum insured as their share of premium for kharif crops, 1.5 per cent for rabi crops and 5 per cent for horticulture and commercial crops.

If the actuarial premium is lower than this rate, the lower of the two would apply. The difference between the actuarial premium rate and the premium paid by farmers was the subsidy shared equally between the Centre and states.

PMFBY’s performance so far 

It is not as if PMFBY hasn’t achieved anything so far. In fact, the insurance scheme which was billed as one of the world’s biggest such programmes notched up some impressive numbers in the first few years.

According to a recent article by Ashish Bhutani, CEO of PMFBY in the first three years, farmers paid Rs 13,000 crore as premium, while they received Rs 60,000 crore as insurance claim under PMFBY.

The sum insured has almost doubled under this scheme from Rs 22,000 per hectare to Rs 39,000 per hectare.

The combined claim ratio in the first three years of the scheme implementation is 88.3 per cent, which means that for every Rs 100 received as total premium, Rs 88.3 have been paid as claims, Bhutani said. For kharif 2019, as per the latest available data, the claims to premium ratio is over 80 per cent as per preliminary estimates.

The coverage under the scheme has been increased to 30% of Gross Cropped area in the country from 23% in erstwhile crop insurance schemes in 2015-16.

The coverage of non-loanee farmers, for whom the coverage is voluntary, has increased from 5 per cent under erstwhile schemes in 2015-16 to 42 per cent during Kharif 2019, which shows the acceptability and progress of the scheme on a voluntary basis.

But, despite all these, one major problem with PMFBY since the first year of its operation has been delayed and sometimes inadequate claim settlement.

One big reason for this has been the state’s reluctance to part with their share of premium subsidy and the excessive number of mandatory Crop Cutting Experiments (CCEs) required to estimate the loss.

With states having little wherewithal and resources at their disposal to undertake such a large number of CCEs, the yield estimation for loss analysis was always inadequate leading to delayed and insufficient claims.

Though the Central government came out with several guidelines and also introduced penal provisions to force states and insurance companies to settle their claims within the stipulated 60 days of presentation of claims but it was hardly enforced.

“To me the biggest and most significant problem with PMFBY is that it an insurance scheme which is being run as a typical government programme,” another senior official who had been involved in PMFBY said. EoM

Table: PMFBY in kharif 2020 vs kharif 2019

Items	Kharif 2020	Kharif 2019
Total farmers	12.9 million	18.7 million
Sum Insured (Rs cr)	74,769.45	11,7082
Area insured (mn hectares)	18.9	28.8
Total insurance companies	10	13

Source: PMFBY Website