States owned about Rs 4,750 cr as PMFBY premium subsidy dues till Rabi 2021

Delay on the part of states in releasing their share of premium subsidy under PMFBY has been a key reason for the delay in claim settlement over the years, the Centre informed Parliament

State governments were entitled to about Rs 4,750 crore as their share of pending subsidy under the Pradhan Mantri Fasal Bima Yojana between Kharif 2018 and Rabi 2020-21.

Sharing this information in Parliament recently, the Central government said that some states which have not released their share of premium subsidies for certain seasons, have not communicated specific reasons for the delay.

In fact, the delay on the part of states in releasing their share of premium subsidy under PMFBY has been one of main reasons for the delay in claim settlement over the years, along with other problems in the scheme’s design and implementation.

Under PMFBY, the premium is determined through bidding. However, farmers have to pay maximum 2 per cent of sum insured for Kharif crops, 1.5 per cent for Rabi and oilseed crops and 5 per cent for commercial or horticultural produce.

The remainder of actuarial or bid premium is shared by the Central and State Government equally and 90:10 basis in the case of North Eastern States from the Kharif 2020 season as per the scheme's provisions.

The premium rate of crops depends on the risk associated with them and the total liability of the state depends on actuarial or bid premium rate, sum insured of crops, area insured and number of crops notified by the states, the Centre said in its reply.

PMFBY has been a flagship scheme of the Central government for a long time. However, the scheme has undergone multiple changes and alterations over the years, the biggest being the move to make the scheme voluntary for all participants.

Voluntary scheme

In February 2020, more than three years after it was launched by Prime Minister Narendra Modi, the Union cabinet decided to make the Pradhan Mantri Fasal Bima Yojana (PMFBY) optional for loanee farmers as well, and incorporated a host of other changes in the scheme to make it more farmer-friendly.

The scheme was made voluntary for loanee farmers, Kharif 2020 onwards. Till then, the Central had spent almost Rs 50,000 crore as its share of premium subsidy under the scheme.

The proposal to make PMFBY voluntary for all was, in fact, part of the Bharatiya Janata Party’s 2019 election manifesto. The earlier models of crop insurance, including the National Agriculture Insurance Scheme (NAIS) run by the previous UPA government, were mandatory for loanee farmers.

The cabinet, in its February 2020 decision, also brought in some other key changes in the scheme, including capping Central Subsidy under the scheme for premium rates up to 30 per cent in unirrigated areas and 25 per cent in irrigated areas, putting a cut-off on states for their failure to release their share of premium subsidy.

If states don’t release their share of premium subsidy before March 31 for the Kharif season and by September 30 in successive years, then they won’t be allowed to implement the scheme.

That apart, the cabinet also decided that when states engage any insurance company for PMFBY, they will have to keep it enrolled for three years minimum as against the current provision of 1-3 years.

Performance since scheme became voluntary

Ever since the scheme was made voluntary last February, data available publicly till December 14, 2021 shows that the area insured, the number of states participating, the sum insured and the number of farmers who have opted for the scheme have all declined.

In Rabi 2021, some 15 states participated in the scheme, while the number was 18 in Rabi 2020. The farmers covered also declined to 3.4 million in Rabi 2021, from 9.98 million in Rabi 2020.

The area covered has dropped from 15.71 million hectares in Rabi 2020 to 4.39 million hectares in Rabi 2021. The sum insured has also fallen during this period by almost 70 per cent, from Rs 84,470 crore to about Rs 25,378 crore.

In the kharif seasons also, there has been decline in the number of farmers covered, area insured and sum insured.

Around 15.10 million farmers were covered in kharif 2021, as against 16.79 million in kharif 2020. The area insured also fell during the two seasons from 26.97 million hectares to 23.93 million hectares and the sum insured dropped from Rs 1,09,530 crore in kharif 2020 to Rs 96,369 crore in kharif 2021, as per the data available till December 14, 2021.

One big reason for the drop in enrollments and coverage is that several states and insurance companies have both opted out of the scheme as after the change in guidelines it has become costly for states to run PMFBY while insurance companies are not seeing much value in the same.