Policymakers and farmers heaved a sigh of relief as the rains in June were 16 per cent above normal. But the IMD is still cautioning that July and August could be deficient, and India could still face a drought. Whichever way it unfolds, the real challenge is: How can we insure our farmers from extreme weather risks?
In the long run, India will have to invest more in irrigation and better water management. But for the short term, our crop insurance system needs an overhaul. Two issues have to be sorted out: One, the appropriate level of coverage in terms of area, insurance per hectare (ha), and subsidy on premiums; and two, how new technologies like drones, doves and low earth orbiters (LEOs) can be used to monitor crops and assess damage.
Currently, there are basically three schemes in this field: the National Agriculture Insurance Scheme (NAIS), the Weather Based Crop Insurance Scheme (WBCIS) and the Modified National Agricultural Insurance Scheme (MNAIS). These schemes have low penetration — based on a three-year average, 2011-12 to 2013-14, the area insured under them was 14 million ha (mha) in the rabi season and 28 mha in the kharif. The premium rates in the NAIS are administered — between 1.5 and 3.5 per cent — and have no actuarial basis. However, the MNAIS and WBCIS are based on actuarial premium rates, varying between 8 and 10 per cent. But the sum insured in these schemes covers only the cost of cultivation, not the farmer’s prospective income. Further, claim settlements take as long as six to 12 months. The challenge is to increase the area insured to, say, 100 mha, raise the sum insured, reduce actuarially sound premiums and quicken the process of damage-assessment and settlement of claims. By the basic principles of insurance, premiums reduce drastically with an increase in acreage and geographical spread. Hence, it is a myth that the government’s subsidy burden would increase 15-20 fold if the sum insured and area under coverage is increased.
The US and China are the biggest crop insurers in the world — they insured about 120 and 73 mha in 2013, respectively. Both subsidise crop insurance — the US by 70 per cent (including administrative charges), and China by 80 per cent (up from 50-65 per cent till 2013). With this increase in subsidy in China, the area covered rose from 10 to 73 mha between 2007 and 2013.
Another interesting case is Kenya, where Kilimo Salama, a weather-based insurance product, is being sold by input companies, which share the premium with farmers. Claims are settled in four days.
The lessons for India are clear: without significant subsidy from the government, crop insurance is a non-starter. India already bears more than Rs 4,000 crore per year as premium subsidy (average of the triennium ending 2013-14), in addition to the various compensation packages. With some additional resources, India could enlarge the area covered to 100 mha, build an insurance system that is science-based, transparent, as well as free from the patwari system and ad hoc political interference.
Drone technology is experiencing explosive growth. Drones are low-cost, can fly at low heights and capture images in all resolutions needed to assess crop damage. They are even better than satellites and remote sensing when it comes to avoiding cloud cover and have higher frequency images. According to some projections, 80 per cent of the commercial market for drones will eventually be for agriculture. The law will have to be tweaked to let them fly.
Planet Labs, a private US venture, has designed low-cost satellites called doves, which could be useful in crop monitoring. They have resolution of about three-five metres, fly on low orbit and are able to collect data from anywhere on earth. With these technologies, it has become much easier, faster and more cost effective to monitor and assess crop damage. If India can be proud of the Mars Orbiter Mission, which cost Rs 450 crore, it would feel doubly proud of insuring its farmers through drones and doves supplemented by all-weather stations (AWS, five in each block) that would cost less than Rs 500 crore.
Handheld devices that cost just Rs 8,000 could be used to verify the GPS coordinates of a farmer’s field to digitise land records. Digitised records would need to be linked to farmers’ bank accounts and Aadhaar numbers to electronically transfer the claims in two-three weeks, if not in four days. Thus, a three-layer system for assessing crop damage, including AWS, satellite/ drone images and mobile-based technology, can ground the system in science and control corruption.
The absence of rural agents to distribute agricultural insurance has been a major hindrance to penetration in India. This has resulted in only loanee-farmers being forced to take insurance. This “forcible method” is bound to fail. Agricultural insurance must be spread on mission mode. For this, we need entrepreneurs — rural agents to digitise land records and sell insurance, crop-loss surveyors, weather-station providers — in order to cover every farmer in the country.
The real cost to the government depends on the subsidy on premiums it is ready to bear. A 75 per cent subsidy (50 per cent borne by the Centre and 25 per cent by the states) can revolutionise crop insurance, making it demand-based like the various social security schemes announced recently. According to a back-of-the-envelope calculation, insuring a sum of Rs 40,000 per ha is feasible. With coverage of 100 mha, premiums could come down to about 3 per cent, or Rs 1,200 per ha. This implies that the cost to the farmer, Centre and state would be around Rs 300, 600 and 300 per ha, respectively. The total expenditure would be Rs 6,000 crore for the Centre (an addition of Rs 2,000 crore). With this, India could leapfrog in risk coverage for farmers. Public- and private-sector insurance companies, along with banks, could be roped in to put the infrastructure in place quickly — it could probably be done in six to 12 months. Competition among companies can keep premiums low. If the Narendra Modi government can rise to this challenge, it would be giving a bigger gift to millions of farmers than the Mars Orbiter Mission gave this nation.
Co-written by Prerna Terway. Gulati is Infosys Chair Professor for Agriculture and Terway is a research assistant at Icrier
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