A well-conceived pro-farmer agricultural crop insurance scheme — the Pradhan Mantri Fasal Bima Yojana (PMFBY) — is faced with the prospect of coming a cropper. The reason: The failure of most states to make timely payments of their premium subsidy share and also conduct the requisite number of crop cutting experiments (CCE) for assessment of yield losses.
Under the PMFBY’s operational guidelines, state governments are supposed to call bids for the selection of insurance companies in early February, well ahead of the new crop year. This is followed by the issuance of notifications incorporating all relevant details — the crops covered and companies operating in different areas, indemnity levels and average yields against which compensation is calculated, sum insured, actuarial premium rates and subsidy on this, etc — by March in respect of the kharif season and by September for rabi. The cut-off dates for receipt of premium from farmers, making them eligible for insurance, are July 31 (for kharif) and December 31 (rabi).
The states are also expected to release the first instalment of their premium subsidy contribution for kharif in August-September and the balance 50 per cent by November-December, with the corresponding rabi season cut-offs being January-February and April-May respectively. Besides, they are required to carrying out CCEs — a minimum of four in every village/gram panchayat, 16 in every taluka/tehsil/block and 24 in every district — for estimation of yields. The CCE-based yield data is to be submitted to insurance companies within a month after harvesting, which happens during October-December for the kharif and April-June for the rabi crop. The companies, in turn, are to process, approve and make payments of the final claims in three weeks from the receipt of the yield data.
“If the states provide their full share of premium subsidy along with yield data not later than January for kharif and July for rabi, farmers can receive their claim payments within reasonable time. Insurance companies will obviously not process claims unless they get their full premium payment and also the crop yield data for loss assessment,” a top Union Agriculture Ministry official pointed out.
Unfortunately, the above “seasonality discipline” is not being maintained by most states. Rajasthan, for instance, issued the notification of the PMFBY scheme for kharif 2017 only on July 22, when the bulk of sowing was already completed. Even for the rabi season, the notification came on November 3, when farmers would have finished planting their main mustard crop. This would automatically have deprived them from seeking protection against losses due to failed/prevented sowing.
“We are pushing the states to at least notify the scheme before April 15, to allow adequate time for the implementation agencies (insurance companies) and also for banks to debit the premiums and upload the details of the individual insured farmers,” the official said. Even for the coming kharif 2018 season, the states — barring a few such as Maharashtra, Karnataka and Odisha — are yet to issue the necessary notifications.
The ultimate sufferer from this is the farmer. In 2016-17, gross premium collections of insurance companies — both charged to farmers as well as subsidy received from the Centre and states — amounted to Rs 22,180 crore. As against this, payment of claims totalled just Rs 12,959 crore. While that can probably be attributed to 2016 being a normal monsoon year and no reports of widespread crop damage or losses, it is striking, nevertheless, that the claims paid out are lower than what has been estimated by state governments or even approved by insurance companies. And these, for crops that were harvested or suffered yield losses at least a year ago.
The same story has been repeated in 2017-18, where insurance companies have collected over Rs 24,450 crore worth of premium receipts even after the delays by states in forking out their subsidy contribution. But the fact that payouts to farmers have so far totalled just Rs 402 crore — when more than four months have passed since the kharif crop was harvested — points to undue delays in the furnishing of yield data by states. Further, the CCE-based yields are themselves prone to questioning by insurance companies, which is reflected in the gap between the claims approved by them and the losses estimated by the states (see accompanying table).
“The weakest link in PMFBY is the CCE. Crop loss assessment has to not only be timely, but also reasonably accurate in order to inspire confidence among insurance companies,” admitted the earlier-quoted official.
The result: A scheme that looks good on paper is now virtually flattering to deceive. For farmers, a uniform 2 per cent premium rate on the sum insured for all kharif season foodgrains and oilseeds, while 1.5 per cent for rabi crops and 5 per cent for annual and horticultural crops, is the lowest they can hope for. The sum insured being equal to the “scale of finance” (the loan limit fixed by banks, covering the underlying crop’s estimated production costs) and coverage extending to losses at every stage (from sowing to post-harvest) makes PMFBY all the more attractive to the farmer.
In 2016-17, a total payout of Rs 12,959.10 crore to 1.12 crore farmers was made under PMFBY. That works out to Rs 11,571 per farmer. But more than the amount, it is the timeliness of payment that matters. If the farmer has less or no crop to sell because of rainfall failure, and there is inordinate delay in insurance claim settlement, he is invariably forced to go to the moneylender.
This situation can, perhaps, be significantly addressed if PMFBY is made a fully Centrally-funded scheme. Currently, states have to pay 50 per cent of the premium subsidy and also do all the CCE and other groundwork — for a scheme bearing the prime minister’s name. Once the Centre starts bearing the entire subsidy cost, the insurance companies can no longer complain about not getting their premium monies upfront and in time. The states, too, would be forced to fall in line, if the release of premium subsidy is linked to their adhering to “seasonality discipline” that is lacking now.
Complete central funding might, of course, go against the grain of competitive cooperative federalism advocated by the Modi government. But if the Centre can pay 100 per cent subsidy on fertilisers, what stops it from taking complete ownership of a scheme more deserving of support than even interest subvention on crop loans?