Insurance flaws

PMFBY fails to live up to the hype

The government’s much-hyped crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), has remained an underperformer since its inception in 2016. Some critical structural flaws and inept implementation have proved its nemesis, though the scheme is better than all the risk-mitigation systems tried out since the early 1970s. Complaints have been mounting about the delayed clearance of claims and, more importantly, meagre reimbursements of losses. Farmers’ organisations and even some political parties, notably the Shiv Sena, have threatened to launch agitations against the insurance companies to press for adequate compensation to the farmers for the crop damage because of aberrant weather, pests, diseases, and other calamities. The Estimates Committee of Parliament, headed by Murli Manohar Joshi, acknowledged in its 30th report (December 2018) that the PMFBY suffered from several problems that have shaken the farmers’ faith in it. Inordinate delay in loss assessment, belated or non-payment of claims, and lack of transparency are among the faults pinpointed by this panel.  

The waning interest of the farmers in the PMFBY is borne out by the downtick in the insured area from 57.2 million hectares in 2016-17 to 47.5 million hectares, or just 24 per cent of the gross cropped area, in 2017-18. The area coverage is estimated to have shrunk further in 2018-19, though the final figures are not yet out. The claims for the last year’s kharif and rabi seasons have not yet been fully paid. The government intends to expand the PMFBY coverage to 50 per cent of the cropland. This may not be possible unless the scheme is suitably revamped to make it attractive for farmers. Since 85 per cent farmers are small and marginal landholders have hardly any loss-bearing capacity, the need for a sound risk-hedging system is paramount.

Viewed from this angle, the PMFBY can be rated high because it covers almost all major crops, requires farmers to pay only a nominal premium, and takes care of a wide range of perils, from prevented sowing to post-harvest damage to the produce from localised calamities. However, making the states a 50 per cent partner in expenditure sharing and involving banks in its operation for the loanee farmers have been among the key mistakes. The blame for delay in claims clearance is often put on the states for their failure to pay their share of funds to the insurance companies and belated communication of crop-cutting experiment data to enable the assessment of losses and computation of compensation. The involvement of banks, on the other hand, blocks direct contact between farmers and the insurers. The farmers often do not get to see the policy documents or receipts of the premium paid on their behalf.

The government is now making crop insurance voluntary, rather than mandatory, for the indebted farmers; removing high-premium crops from its ambit; and allowing flexibility to states to devise their own models for offsetting farmers’ losses. If that happens, it would rid the scheme of many of its ills. But greater use of technology, including drones and satellite imagery, is vital to expedite damage assessment and ensure prompt and realistic claims settlement.