The launch of a weather-linked insurance scheme for coffee plantations, by the Agriculture Insurance Corporation of India (AIC), marks yet another experiment in covering the risks inherent to agriculture. Beginning with the losses-based insurance scheme for individual farmers in 1972, at least half a dozen insurance approaches have been tried, without success. The fate of the currently operative National Agricultural Insurance Scheme (NAIS), by far the most comprehensive as also the world's largest in terms of coverage of farmers, has been no different. If there were any doubts about its success or failure, these have been put to rest by the finance minister, who said in his Budget speech a month ago that it would be continued in its present form for just one more year, till a new weather-based crop insurance is tried out on a pilot basis in two or three states, as an alternative. | |
| The failure of all these schemes over 35 years was inevitable, as none of them was operated on an actuarial basis and with the intention of making them financially viable without large subsidies. And since the subsidies have had to be shared by the Centre and the states, it made them all the more vulnerable to fiscal instability. Besides, they suffered from administrative lapses, political interference, high transaction costs, want of a reliable database and flawed modelling of insurance instruments. As such, their utility to farmers, too, was limited. |
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| What is difficult to understand is why lessons have not been learnt from this substantial experience with failed schemes. After all, failures are supposed to teach you more than successes. Yet, some of the mistakes of the past seem set to be repeated in the proposed weather-based insurance scheme, which, in theory, is more practical to implement and has low administrative and transaction costs. It is important to bear in mind, for instance, that the weather is just one of the factors that determine crop yield. The very real hazards stemming from a host of other factors would, thus, remain uncovered, thus limiting the utility of weather-linked insurance for farmers. Secondly, though the AIC asserts that it has the relevant historical rainfall data for the past 30 years, across 43 different coffee zones, that is unlikely to be true for other plantations and even less so for field and horticultural crops which are equally, if not more, vulnerable to weather-related hazards. Moreover, the weather has a much broader meaning than just rainfall and encompasses many phenomena, including some highly localised ones for which historical data may be insufficient. |
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| This aside, the stipulation of a hefty premium subsidy of 50 per cent, although only for small plantations, is bound to strain the exchequer and may make it financially unsustainable as the number of policy holders grows. If a similar subsidy is retained for the other plantation and field crops, as may well turn out to be the case, the fiscal burden is bound to become unbearable. It may be recalled that even in the case of the NAIS, the unsustainable financial burden caused by a heavy subsidy has led to its doom. The government would do well to conceive an agriculture insurance model that is financially viable and is practical to implement, rather than continuing its hit-and-trial approach. |
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