Re-design and deliver

Govt crop insurance scheme needs radical rethink

In a welcome initiative, the government has suo motu offered to make pro-farmer changes in its flagship crop-insurance scheme — the Pradhan Mantri Fasal Bima Yojana (PMFBY) — in view of the climate change-induced escalated hazards in farming. This move is deemed need-based as well, given that this scheme has failed to meet the expectations of the state governments and farmers despite the reforms carried out in 2018 and 2020. Unsurprisingly, therefore, the number of states implementing the PMFBY has declined from 22 in 2018 to 19 now, and the count of cultivators opting for the insurance cover has dropped from 21.6 million to 15.38 million. While most state governments, financially strapped as they are, find it hard to pay their share of subsidy involved in running this scheme, the farmers do not view it rewarding enough to go for it. The compensation paid by insurers is generally too little and comes too late to be of much help to them. Though the critics of the PMFBY, including farmers’ unions, accuse the insurers of usurping the financial gains accruing from the scheme, the insurance companies discount the criticism, maintaining that farm insurance is an innately low-profit business because of the high risk involved in an outdoor activity like agriculture. Some of the companies have, consequently, stopped offering farm insurance cover.

The PMFBY, undoubtedly, is the best and the most comprehensive of all the crop insurance schemes tried since the early 1970s. It covers even the pre-sowing and post-harvest losses and does not have any cap on the sum insured. But it suffers from many structural flaws, which mar its efficacy. Though, on paper, it is a Central-sector scheme bearing the Prime Minister’s label, half its cost is required to be shared by the states, and implementation is in the hands of public-sector and private companies. That allows the blame to be tossed from one to another. The solution, therefore, lies in making it either a wholly Central scheme, with all expenses borne by the Union government, or leaving it entirely to the states, given that agriculture is a state subject under the Constitution. The states can, in that case, either choose to pay compensation to farmers, as is mostly done in the aftermath of natural calamities, or offer situation-specific insurance models acceptable to the farmers. The states are, in any case, in a better position to gauge farm risks and the resultant crop damage, which varies in accordance with local agro-ecological conditions.

The issue of delayed settlement of claims and inadequate reimbursement of the losses also needs to be addressed. Though the time frame and the norms for staking claims by the farmers, as also for the disbursement of compensation by the insurance firms, have been spelt out clearly under the PMFBY, these are often disregarded. With the application of modern technology, such as digital apps for reporting crop damage, satellite imagery for verifying claims, and direct-benefit-transfer mode for paying compensation, this aspect can easily be taken care of. The need, therefore, is to carry out some judicious structural and procedural modifications to the PMFBY to make it viable for insurance firms and financially gainful for farmers. Otherwise, this well-intentioned scheme would remain an underperformer.