Amid Punjab floods, recalling why the state lacks a crop insurance policy

Despite repeated announcements over the past decades, why does Punjab not have a crop insurance policy, and how have farmers coped in its absence?

Issues with Centre’s PMFBY

The Pradhan Mantri Fasal Bima Yojana (PMFBY), introduced by the Centre in 2016, provides comprehensive insurance against natural calamities, pests, and diseases. Farmers pay a nominal premium — 2% for Kharif crops (sown during monsoon months), 1.5% for Rabi crops (winter months), and 5% for horticultural and commercial crops — while the Centre and the state share the remaining cost.

However, Punjab has never implemented this scheme, citing the financial burden on the state exchequer and concerns about transparency in claim settlements.

The government also argued that with 99% irrigation coverage in the state (compared to around 55 per cent at the all-India level), its risk level was far lower than in drought-prone regions, making high premium contributions unjustifiable. The state also objected to PMFBY’s cluster-based model, which clubs irrigated and rain-fed areas together, raising premiums for Punjab farmers as a whole.

Other sticking points included the 40% loss threshold for claims, which farmers called too high, a limited sum being insured rather than the full crop value, and supposedly unaffordable premiums for commercial and horticulture crops. Farmers’ unions further highlighted issues like delayed claim settlements and profiteering by insurance companies in other states, deepening distrust in the scheme.

In 2020, the PMFBY was revamped to make enrollment voluntary, introduce flexibility for states in calculating the sum insured, enforce strict timelines for premium release, and mandate multi-year contracts with insurers. Punjab still chose to stay away from it, maintaining that it needed a state-specific model instead.

Failed attempts at a state policy

PMFBY was launched in early 2016 when the Shiromani Akali Dal (SAD) and BJP alliance was in power in Punjab. Although the SAD was an ally of the NDA, which was then ruling at the Centre, then Chief Minister Parkash Singh Badal rejected the scheme.

In 2017, the Congress government was elected in Punjab, and they tried to draft a crop insurance scheme but failed to implement it due to a lack of funds and clarity on the policy. In November 2022, the Aam Aadmi Party government announced that Punjab would join PMFBY from the next crop cycle (2023-25), but reversed its decision in March 2023, when Punjab CM Bhagwant Mann said a state-specific policy would be introduced.

A draft agriculture policy unveiled in September 2024 mentioned the need for a state crop insurance policy, but it has yet to be formulated. A Rs 200 crore contingency fund was also proposed to cover losses for crops, livestock, and farm labour.

The fund was to be created through a contribution from farmers, based on 0.1% of their procurement, and with the state matching funding. However, the plan did not move beyond the discussion stage.

Current compensation model

Compensation to farmers comes through ad hoc relief payments — Rs 15,000 per acre for 75 to 100% crop loss and Rs 6,750 for 33 to 75% damage. Farmers argue that this barely covers input costs, particularly for paddy cultivation, where expenses often exceed Rs 15,000 per acre.

Punjab has also relied on temporary packages in the past. When around 1.72 lakh acres of fields suffered damage in 2019, then CM Captain Amarinder Singh announced Rs 12,000 per acre as compensation.

In 2021, CM Charanjit Singh Channi, who was in the post for only three months, announced 17,000 per acre compensation for damage to the cotton crop due to pink bollworm insects. In 2023, however, the AAP government paid a much lower Rs 6,800 per acre compensation to flood-affected farmers.

The issue has also gained significance because crop losses in paddy (basmati and non-basmati) and cotton itself have surged more than 15 per cent between 2019-2022 due to floods and pest attacks, increasing the compensation payout to farmers to around Rs 1,500 crores.

Rajinder Singh Deep Singh Wala, general secretary of the Kirti Kisan Union, said, “People have already suffered huge losses, and with heavy rain warnings for another week, the situation could worsen. There exists a flawed compensation policy at present. A new formulation is needed to ensure full recovery of losses based on the principle of compensation equalling the losses. This policy should cover crops, livestock, and houses, with a time-bound process for disbursement.”

Union President Nirbhai Singh Dhudike said, “For crop damage, an acre should be considered as the basic unit and the crop insurance scheme should be implemented in a simple and farmer-friendly manner by the Punjab government.”

With floods and extreme weather events becoming more frequent, the lack of a structured insurance policy leaves farmers highly vulnerable. Experts warn that without an institutional mechanism, agrarian distress will deepen with every climate-related disaster.