10 years on, time to reassess PM Fasal Bima Yojana: AIC of India's Mundayur

Single national scheme predominantly funded by the Centre is best option, says Lavanya R. Mundayur

With the Narendra Modi government’s flagship crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), nearing a decade since launch, Lavanya R Mundayur, chairman and managing director of the Agriculture Insurance Company (AIC) of India, spoke with Harsh Kumar and Sanjeeb Mukherjee in New Delhi a few days ago. She shared her views on the scheme’s performance, the lessons learnt, and where course correction is needed. She also discussed AIC’s road map and its plans for business expansion. Edited excerpts:

 

PMFBY is a major part of your business. Where do you see it heading now? 

PMFBY continues to make up a considerable portion of our portfolio. The number of farmers covered is steadily increasing, and participation by non-loanee farmers is also growing. However, the overall business remains somewhat flat.

 

What is the subscription cost, and how are premiums trending? 

Premium rates are decreasing, thanks to the caps introduced in most states. Today, you’ll see models like 81:10 or 61:30 in most places. The fully open premium model is almost non-existent now. States are experimenting with structures like burn-cost models, but the pricing framework remains dynamic.

 

If the product is so good, why isn’t coverage expanding beyond this? 

That’s the core issue. We’re now almost a decade into the scheme, but coverage — in terms of both farmers and area — has plateaued. While the active crop cultivation base is about 80 million farmers, the number covered under PMFBY should be much higher.

 

Where is the resistance or challenge coming from? 

I wouldn’t call it resistance; it’s more about the complexities of the ecosystem. We are dependent on banks and other intermediaries. Crop insurance is a sensitive business, with moving parts.

 

Do you think making the scheme voluntary was a mistake? 

No, I don’t think so. Voluntariness is essential in an ecosystem like ours. Globally, too, crop insurance is mostly voluntary. We can’t compare India directly with other markets, but in principle, universal participation is challenging when the farming population is predominantly small and marginal. 

 

Would it have been better if states designed their schemes instead of having a national scheme? 

I believe a single national scheme for basic risk coverage is the best approach. Then, states can build add-ons according to their needs. PMFBY isn’t entirely a central scheme anyway — the Centre provides about 50 per cent of the subsidy. I think we should evaluate whether a predominantly central-funded model would work better.

 

Are you suggesting a 100 per cent Centre-funded scheme? 

Maybe not 100 per cent, but predominantly funded by the Centre. That would bring economies of scale, risk diversity, and broader coverage. Right now, there’s some degree of anti-selection — only those farmers who feel they’ll claim the insurance are buying it. But if the pricing is low enough and universally applied, you spread the risk pool and make premiums affordable for all.

 

Should PMFBY’s performance be evaluated further? 

Definitely. I think a third-party entity should conduct an analysis, similar to how it’s done in the US. There, an independent body sets crop insurance rates nationally. We could do the same — calculate burn costs and risk pricing for the country as a whole.

 

So, are you suggesting we revert to the older National Agricultural Insurance Scheme model? 

I wouldn’t call it ‘going back’. I’d say we should look at where we stand today and build what’s best for the current scenario. I support universalisation. Insurance exists to protect against the unexpected — whether that’s in Punjab or anywhere else.

 

What about the concern that states don’t release their share of the premium subsidy? 

If the Centre funds 70–80 per cent, I don’t see why any state would not participate. States can still innovate in areas like assessment models and add-on covers.

 

With the Goods and Services Tax (GST) Council meeting soon, do you see any scope for changes in GST rates on these insurance products? 

That’s an important area. The insurance regulator itself mandates that companies meet rural penetration targets. At the same time, these rural insurance products are still taxed. If we genuinely want to push rural development, there should be some tax rationalisation.

 

Crop insurance under PMFBY is tax-exempt because it’s government-subsidised, but other rural insurance products are taxed at 18 per cent. And to be honest, the non-PMFBY crop insurance market is very small, barely ₹10 crore in premium annually. So, the tax on that isn’t sizeable in absolute terms, but it impacts affordability at the farmer level.

 

The bulk of our non-PMFBY business today is livestock, but even there, the penetration is extremely low. Less than 1 per cent of India’s cattle population is insured. So, if subsidies and tax incentives increase, the coverage could rise substantially, creating a meaningful safety net for rural livelihoods.

 

Coming to your overall business, you said the industry premium is around ₹30,000 crore, right? What’s your share? 

Yes, the total premium for crop insurance in India is about ₹30,000 crore. AIC holds about 32 per cent of that — roughly ₹9,600 crore. Our total gross premium last year was ₹9,844 crore, of which PMFBY accounts for ₹9,600 crore. So, the rest — about ₹244 crore — is from non-PMFBY businesses.

 

So, how do you see this non-PMFBY share growing? 

This non-PMFBY business is growing rapidly because the base is still small. We’re currently growing this segment at over 20–30 per cent annually. Over the next five years, we expect this to stabilise at a growth rate of around 15 per cent annually. The key driver will be whether we can unlock subsidies for livestock and other non-crop insurance lines.

 

The finance minister recently met with public sector insurers, emphasising more digitisation in claims. How are you placed in that regard? 

We are 100 per cent digital. PMFBY is entirely through the National Crop Insurance Portal. Every claim — from registration to approval to payment — happens online, Aadhaar-linked, through the government’s Public Financial Management System. No manual payments are allowed anymore.

 

The Union Budget also opened up 100 per cent foreign direct investment in insurance. And the India-US Trade Policy Forum raised concerns about board appointments. Do you see increasing foreign competition? 

I’ve spent 35 years in insurance, competing with private players for 25 of those years. Competition — whether healthy or aggressive — forces you to innovate and get stronger. That’s how companies survive and thrive.

 

On dividend repatriation, currently, foreign companies have to keep a portion of their profits in India. Do you think that will change? 

Those decisions are taken by people with a much broader perspective, balancing investor interest, rural penetration, and service delivery. I wouldn’t like to speculate on that.

 

Lastly, three public sector insurance companies are listed — Life Insurance Corporation of India, General Insurance Corporation of India, and The New India Assurance Co. What about AIC? You’re performing well. Any plans? 

That’s a decision for the government. As a company, we’re strong. Our return on equity is over 60 per cent. But listing should be driven by the need for growth capital, not just as a governance tool.

 

I believe good governance and professionalism should exist anyway, whether listed or not. A strong company should have these values intrinsically. Listing makes you more transparent to the public market, but first, you need to be fundamentally sound.