The Centre has recently revamped the Pradhan Mantri Fasal Bima Yojana (PMFBY) that will have far-reaching impact on the implementation of this flagship crop insurance scheme. Launched in the 2016 kharif season, PMFBY makes the insurance companies liable for full risk coverage. Farmers pay a nominal 2% premium rate on the sum insured (the maximum amount that insurance would give in the event of damage) for all kharif crops, with these at 1.5% for rabi and 5% for annual and horticultural crops. The balance premium, vis-à-vis the actuarial rate based on statistical risk assessment, is paid as subsidy to the companies and shared between the Centre and the states on a 50:50 basis.
The revised guidelines, approved by the Union Cabinet last week, provide for allocation of business to insurance companies for a period of three years. This should incentivise them to implement the scheme in an earnest manner, including by setting up local offices. The absence of certainty of business — due to selection through open tenders now called annually for every cluster of 6-7 districts — has resulted in insurance firms having little functional presence at block or even district level. This has been a general complaint voiced by public representatives and district authorities as well. An additional provision, which grants extra points for outstanding performance by any company and awards tenders even beyond three years, could further incentivise quality service delivery to farmers.
Another significant modification made to the current PMFBY guidelines is that a state government will henceforth not be allowed to operate the scheme for a new kharif season (beginning May-June), if its share of premium subsidy is not released before March 31, with the cut-off date similarly at September 30 for rabi (starting October-November). This should help enforce implementation discipline and timely disposal of claims. The Cabinet has also endorsed use of “smart sampling techniques” and optimisation of the number of crop cutting experiments to be conducted in order to generate relevant yield data for submission to insurance companies. However, only the actual implementation of such technological solutions from the ensuing 2020 kharif season will tell us about the efficacy of this step!
PMFBY has until now been a voluntary scheme only for non-loanee farmers, while mandatory for those availing crop loans from banks. In the case of loanee farmers, banks have been deducting their share of premium (2-5%) against loan accounts on a compulsory basis and remitting the same to the insurance companies. Farmers haven’t taken kindly to this, not the least as the said companies are neither in direct contact with them and nor do they issue any policy certificates, unlike in car or health insurance. Having no policy documents makes them in no position to even take the firms to court in cases of default or delays in claim settlement. The scheme, it would seem, has served to insure the loans of banks more than the crops of farmers. In some cases, farmers have been found to take loans against Kisan Credit Cards for a particular crop that has higher value and is different from the one actually grown by them. This is, in turn, a consequence of credit limits being linked to the “scale of finance” per acre, which is crop-specific, and farmers wanting to have the maximum possible loans sanctioned. In the event, the bank would manage to have its loan insured, but the farmer cannot get his claim from the insurance company against yield losses for a different crop in his field.
By deciding to make enrolment 100% voluntary for all farmers from 2020 kharif, the Centre has made PMFBY a true insurance scheme. From now on, insurance companies will have to make efforts to create real awareness among farmers about the benefits of crop risk coverage. Crop insurance would, thus, become an informed choice for loanee farmers, just as it already is for their non-loanee counterparts. Maharashtra and Tamil Nadu, for instance, have a large number of non-loanee farmers voluntarily opting for PMFBY. On the other hand, non-loanee coverage forms hardly 2-3% of the total insured farmers in states such as Uttar Pradesh and Haryana, with the scheme not even being implemented in Punjab. The reason for it is access to assured irrigation in these states, which reduces the probability of yield loss and, hence, the need for taking insurance cover. In UP alone, during the 2018-19 rabi season, as against a gross premium of around Rs 700 crore paid to the insurance companies, the compensation to farmers amounted to a paltry Rs 20 crore!
If the number of insured farmers were to fall drastically due to the revamped scheme being made voluntary, there are chances of the actuarial premiums going northwards. At the same time, the Centre has decided to limit the PMFBY premium rates — against which it would bear 50% of the subsidy — to a maximum of 30% in un-irrigated and 25% in irrigated areas. The ball will, then, shift to the insurance companies’ court, as they would have to actively seek out farmers and convince them of the importance of crop insurance. Nor can they bid based on actuarial premium calculations that take into account no cap on government subsidy.
The Centre intends to introduce a separate risk cover scheme for water stressed areas, which is a right step. It would be good if the proposed scheme incentivises sowing of crops requiring less water, rather than those that are potentially lucrative but highly risky. It is practically not feasible to implement any crop insurance scheme in areas where the premium rates are naturally bound to cross 30% and more. PMFBY would work best for “normal” agriculture, which is risky enough!
The author is an IAS officer. Views expressed are personal
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