In the aftermath of the move to demonetise the economy, the midpoint of the Narendra Modi government, November 26, went almost unnoticed. Normally, the mid-point of a government’s tenure is an occasion to pause and reflect. We do that here with reference to agriculture, which engages half of the county’s workforce. As is well-known, there were droughts in the first two years of this government, and the agri-GDP growth collapsed to just 0.5 per cent. Some regions like Marathwada experienced acute distress. But on occasion, bad times lead to good policies. The Modi government launched a new crop insurance scheme, PM’s Fasal Bima Yojana (PMFBY), in February 2016, with a view to de-risk agriculture from the vagaries of nature. Kharif 2016 was the first season of this scheme. It would be good to evaluate its performance with a view to improve it.
Before the launch of this initiative, the National Agriculture Insurance Scheme (NAIS) and Modified NAIS (MNAIS) were not serving the farmers’ interests well. The sum insured under MNAIS, particularly for risky crops and districts, was meagre. It was based either on the quantum of crop loans or on the capping of the sum insured; the crop damage assessment based on crop cutting experiments was time-consuming, and compensation to farmers often took several months —very often, more than a year.
The Modi government decided to revamp all this, and as per the new PMFBY, a technical committee in each district decides the “scale of finance” for the sum insured taking into account all the costs incurred by the farmers. The premiums are decided on an actuarial basis, without any capping. Bids are invited from public and private insurance companies to decide the premiums. The premiums so discovered are then subsidised for farmers, who pay only two per cent for kharif crops, 1.5 per cent for rabi crops and five per cent for annual commercial crops including horticulture crops. The rest is paid by the government, divided equally between the Centre and state governments. High technology including smartphones, GPS, drones and satellites will be used for accuracy, transparency, and faster assessment of damages and settling claims.
An appropriate evaluation of this scheme demands comparing it with NAIS plus MNAIS, over the last three years, especially with kharif 2013, which experienced a normal rainfall. It also demands comparison with kharif 2015, which experienced a severe drought — a second year in a row drought. The weather-based crop insurance scheme is a different one, and is continuing in its earlier avatar.
PMFBY insured 35.5 million farmers compared to just 12.1 million in kharif 2013, and 25.4 million in kharif 2015 under NAIS and MNAIS combined. This is a whopping increase: By almost 193 per cent over kharif 2013 and 40 per cent over kharif 2015. Within this, as per the Press Information Bureau, the number of non-loanee farmers increased by more than six times. But these figures need to be probed further before we celebrate the scheme’s success.
The area insured also increased from 16.5 million hectares (mha) in kharif 2013 and 27.2 mha in kharif 2015 to 37.5 mha under PMFBY. But the most spectacular increase has been in the sum insured, which went up from Rs 34,749 crores in kharif 2013 to Rs 60,773 crores in kharif 2015, and now to Rs 1,08,055 crores under PMFBY. All these indicators point that the programme is going in the right direction and at the correct pace. At this rate, India may soon have half of its cropped area insured within three to five years.
But one needs to straighten out some of the implementation glitches to make it serve farmers well, and at a lower cost to the treasury. The first problem encountered with this scheme is that the actuarial premium, instead of coming down with the increasing scale of coverage, has gone up, sharply, from 9.8 per cent in kharif 2015 to 14.9 per cent in kharif 2016. This defies the very logic of insurance, that premiums should drop when scale increases. On digging deeper, we found that the states which completed the tendering process early got premium rates ranging from four to eight per cent, but the states which were late got much higher premium rates, touching as high as 20 per cent.
Our discussions with some insurance companies revealed that this happened because companies and their re-insurers had stretched their capacity to the brim, and then started quoting abnormally high premiums to make moolah. Hopefully, with competition in the subsequent seasons, these rates will drop significantly even to three per cent once 100 m ha are covered. This would bring huge savings to the treasury, and the PMO or finance ministry needs to appoint a committee to look into this issue and realise this potential cost savings.
But the litmus test of any insurance scheme lies in how quickly it can assess crop-damages of farmers and how fast it can settle their claims. Luckily, in kharif 2016, rainfall was normal at the all-India level. However, there were pockets (for example, eastern Uttar Pradesh, Bihar and Assam) which faced floods, and farmers lost their crops. The assessment of the damages had to be done by eye-inspection. Drones could have been easily employed, but they were not. Under the guidelines, smart phones had to be issued to field officials , but they were not. States had to pay premiums to companies in advance, but in many cases they were not. As a result, only a miniscule of affected farmers got compensation till now. All this is not inspiring.
Lesson: Unless a bold policy is matched by effective implementation, it may not deliver fully. The government is spending more than Rs 16,000 crores on the PMFBY, but a “chalta hai” attitude of some states may spoil the show. One needs a champion fully committed to the idea of PMFBY to ensure its effective implementation. Only then will it truly serve the cause of peasantry.
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