Recent floods in Gujarat, Rajasthan and Assam show that even in an otherwise normal monsoon year, farmers in certain pockets could still suffer due to natural calamities. The droughts of 2014-15 and 2015-16 exposed that the existing crop insurance schemes were not enough to alleviate farmers’ woes. The sums insured under National Agriculture Insurance Scheme (NAIS), modified NAIS, and Weather Based Crop Insurance Scheme (WBCIS) were too low, as premiums were kept low. Further, the compensation was too meagre, and the long wait which the farmers had to go through meant that the relief wasn’t meaningful. So, governments often used the National Disaster Relief Funds to address the situation. Unfortunately, it was not based on any robust scientific system and had its own loopholes.
The prime minister realised that and in kharif 2016, he announced a revamped Pradhan Mantri Fasal Bima Yojna (PMFBY), hoping it to be a game changer. The PMFBY raised the sums insured to realistic levels, basically to cover the cost of cultivation of farmers. The premiums were heavily subsidised by the Centre and the states in equal proportions, with farmers paying only 2 per cent of the premium for kharif and 1.5 percent for rabi (for horticulture crops it was 5 per cent). Farmers found the PMFBY attractive. Consequently, in the very first kharif season (2016), area (in ha) and number of farmers covered under PMFBY, both increased to 37.5 million.
It was 47 per cent higher in terms of number of farmers, and 38 per cent higher in terms of area, over NAIS and MNAIS schemes of kharif of 2015, a drought year. However, if compared to a normal kharif year, say 2013, the number of farmers opting for the scheme increased by 210 per cent in kharif 2016, and the area covered increased by 126 per cent. The sum insured on per hectare basis under the PMFBY increased by 51 per cent over kharif 2015. The number of non-loanee farmers opting PMFBY, as per the ministry’s communication, also increased by about 23 per cent, driven primarily by Maharashtra. All these indicators show that the PMFBY is moving at a good pace and in the right direction.
But despite the increasing coverage, the premiums, as percentage of sums insured, increased. With greater competition, there is surely scope for negotiating lower premiums. But the litmus test of any crop insurance scheme is how fast it can settle the claims of farmers. It is here that the governance of the state is tested. There are three critical steps in this process: First, the state has to notify the crops, make clusters of districts, determine the sums to be insured based on district level committees, and invite tenders from insurance companies; second, the state and the Centre have to pay premium to the companies providing insurance; and third, in case of crop damages, quickly assess the damages and ask companies to pay the claims of farmers. Unfortunately, in this entire process, farmers have almost no role. That’s the reason why its implementation and effectiveness has fallen between the cracks. If states delay notifications, or payment of premiums, or crop cutting data, there is no way companies can pay compensation to the farmers in time. It is exactly this slow pace and casual attitude of several state agencies that delayed compensations to farmers for losses in kharif 2016, and it may happen again in kharif 2017.
There is talk in certain quarters that the government is throwing away money to private insurance companies as claims are much lower than premiums paid. It may be noted that in any crop insurance business, companies make profits during normal times and incur losses during droughts and floods. So any meaningful comment on premiums and claims should look at at least a three to five year cycle. In any case, just for FY2017, the total premium paid by the government and farmers is Rs 22,345 crore both for kharif and rabi, while the estimated claims of kharif 2016 alone will exceed Rs 10,000 crore, of which Rs 4,203 crore has been paid. In Tamil Nadu, which was affected by the worst drought of the century, Rs 976 crore was paid as premium in rabi and claims of Rs 1,213 crore have been paid.
It may be noted that most states did not claim any amount under on-account claim for mid-season adversity, which allows 25 per cent payment for quick relief to farmers. Similarly, most states failed to provide smartphones to revenue staff to capture and upload data of crop cutting, which continues to come with enormous delay. There is hardly any use of modern technology in assessing crop damages. With the picking up of the PMFBY, area under the WBCIS reduced from 12 lakh ha in 2015-16 to 1.8 lakh ha in 2016-17. Both Rajasthan and Maharashtra, leaders of WBCIS, delayed finalisation of their tenders and received high actuarial rates. The pilot scheme of unified package insurance (UPIS) in 50 districts has not taken off.
So what is the future of crop insurance in addressing farmers’ woes from natural calamities? The PMFBY has moved in the right direction and made substantial progress in terms of coverage, but failed in quick dispensation of claims to farmers. The primary reason behind this failure is the lethargy and casual attitude of state agencies. If the PMFBY has to succeed, farmers must have a bigger stake in its functioning. There is an urgent need to link the insurance database with Core Banking Solution (CBS) so that when premium is deducted from a farmer’s bank account, the bank sends him a message informing about the premium, sum insured and name of insurance company.
IRCTC has a similar system is place for railway tickets and there is no reason why our technology-savvy banks and insurance companies cannot do it quickly. Currently, several loanee farmers may not even be aware that they are insured. If the system remains locked between state agencies and insurance companies, chances are that farmers will get short changed. It is time that the PM makes this flagship program farmer-centric with effective implementation. It can pay rich dividends.
Gulati is Infosys Chair Professor for Agriculture and Hussain is former Secretary of Agriculture (GoI) and currently Visiting Senior Fellow at ICRIER