Revamping farm insurance

New proposals may do more harm than good

The package of measures announced by the government to revamp its flagship crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), may do more harm than good to this vital risk-hedging mechanism for farmers. No doubt, the package is not bereft of elements that may benefit the farmers, but many other mooted modifications in the format of the scheme are unlikely to go down well with insurance companies or the state governments.
 
On the upside, crop insurance has been made voluntary for all farmers. At present, it is mandatory for those who take bank loans and optional for others. This meets the long-pending demand of the farmers. The other welcome feature is the rationalisation of the procedure for damage assessment in a fixed period. The insurance companies would be allowed to settle the claims on the basis of the preliminary estimates if the state governments fail to provide yield data based on crop-cutting experiments within the deadline. This would help avert undue delays in claim settlement, which is one of the main complaints against this scheme.
 
However, the downside of the PMFBY is more formidable and worrisome. The new design blunts the scheme’s unique feature that sets it apart from other agricultural insurance schemes, namely the coverage of all conceivable risks, ranging from prevented sowing to post-harvest losses. The states are proposed to be given the freedom to select the hazards to be covered under this programme. They would, therefore, be allowed to omit any relief to the farmers who are unable to plant the crops due to drought or other factors or suffer damage to the harvested produce lying in the fields. This curtails the utility of the scheme for the farmers.

 

This apart, the new norms cap the Central subsidy on crop insurance premium at 30 per cent in unirrigated areas and 25 per cent in irrigated tracts. For northeastern states, it would be 90 per cent. The difference between the Central subsidy and the actual premium quoted by the insurance companies has to be paid by the state governments. Earlier, the subsidy used to be shared equally by the Centre and the states. Thus, it would reduce the financial burden of the Centre but raise that of the states, which may not be acceptable to them. The insurance companies, too, would not be able to seek the kind of high premiums these have been charging till now — as high as 75 per cent in the hazard-prone arid areas where droughts are fairly frequent. Since the state governments may not be willing to shell out more for this purpose, the insurers would have to either settle for low premiums or opt out of the scheme. The latter option seems more likely, considering that four private insurance companies have exited the PMFBY, maintaining that farm insurance is an unprofitable business. Similarly, three states have also stopped implementing the PMFBY and three more have given notice to the Centre to do it. Fortunately, the Union agriculture ministry does not seem to be unaware of this. It has already announced plans to come up with state-specific alternative risk mitigation programmes. Given the dismal track record of all farm insurance models tried out so far, non-insurance based risk-protection instruments are needed.