Fixing farm insurance

PMFBY has been falling short of expectations

The woes of the government’s flagship crop insurance scheme — the Pradhan Mantri Fasal Bima Yojana (PMFBY) — seem to persist despite a slew of modifications in the format since its launch in 2016. Six states have exited from it and now Maharashtra has also indicated that it might do so because the farmers are, by and large, dissatisfied with it. The leading agricultural state, Punjab, never joined it. Those that tried it and opted to quit include Gujarat and Bihar, both run by the National Democratic Alliance, besides other states like Andhra Pradesh, Telangana, Jharkhand, and West Bengal. The states generally find the financial burden of running the PMFBY hard to sustain even though the Centre shares 50 per cent of it. A sizable part of their agricultural budget goes into paying premium subsidies and meeting other administrative expenses. Insurance companies, on the other hand, find agricultural insurance an inherently unattractive business.

The risks involved are too high, thanks to farming being a wholly outdoor activity, open to all kinds of natural hazards and attacks by diseases, pests, and stray animals. Claims are generally far higher than the premium collected by insurance companies. Besides, the compensation computed by insurers is often disputed by the beneficiaries. The farmers, too, are not keen to take insurance cover for their crops because they do not deem it financially rewarding. The claims sought by them are most often rejected by the insurers and, if accepted, the payment is usually too meagre and inordinately delayed. Even in the recent event where the Madhya Pradesh chief minister chose to hold a public function to disburse PMFBY claims worth over Rs 7,600 crore, sending the money directly to the farmers’ bank accounts, the payment was actually due for over 16 months.

Farm insurance has, indeed, been beset with problems ever since it was first introduced in 1972. None of the dozen-odd schemes and insurance models tried and tested till now has proved successful. The PMFBY is no exception. It underwent a thorough revamp in 2020, when it was made voluntary for the farmers, instead of being mandatory for those taking bank loans. Trust deficit has been the biggest issue affecting the credibility of insurance as a means of hedging production risks in agriculture. This, in turn, is attributable to lack of transparency and a time lag in undertaking crop-cutting experiments to assess crop damage, the inadequacy of site-specific past data on crop yields to serve as a benchmark for computing losses, delays in paying states’ share of premium subsidy to the insurance companies, and procedural complications. Unsurprisingly, therefore, the area covered under the PMFBY has seldom exceeded 30 per cent of the total cropland, against the government’s target of extending it to a 50 per cent area. 

Fortunately, the government is not unaware of all this. The parliamentary standing committee on agriculture, which probed the PMFBY, highlighted many of these issues in its report presented in August last year. The government is now said to have set up a working group to revisit this scheme and suggest the needed changes. But what is really required is to recast the scheme afresh in a manner as to ensure adequate compensation for the losses and timely payment to the farmers. Otherwise, the objective of hedging the farmers’ production-related risks would remain unmet.