Insurance sop

The new crop insurance scheme introduced by the NDA government in an election year does not provide for a comprehensive coverage of all crops, against all forms of damage and at all stages of the crop cycle.

Published : Feb 17, 2016 12:30 IST

Harvesting  paddy in Tiruchi, Tamil Nadu, on January 22. Like the previous crop insurance schemes, the new scheme excludes tenant farmers and sharecroppers.

Harvesting paddy in Tiruchi, Tamil Nadu, on January 22. Like the previous crop insurance schemes, the new scheme excludes tenant farmers and sharecroppers.

IN AN election year, it is but natural that incumbent governments will introduce welfare policies and schemes. But the problem is that distribution of such largesse in a neoliberal dispensation can only be an opaque and superficial exercise, limited by the constraints of the overall economic trajectory. The new crop insurance scheme, called the Pradhan Mantri Fasal Bima Yojana (Prime Minister Crop Insurance Scheme), which was cleared by the Union Cabinet on January 13, is one such election-year sop that has come in for criticism not only from farmers’ organisations but also by the allies of the National Democratic Alliance (NDA). The announcement of the scheme was timed to coincide with the harvest festivals of Lohri, Pongal and Bihu. The scheme will be rolled out from the kharif season in June.

Prime Minister Narendra Modi tweeted: “Farmer brothers and sisters, at a time when you are celebrating festivals like Lohri, Pongal and Bihu, the government has given you a gift in the form of the PM’s Crop Insurance Scheme.” The other innocuous coincidence is that Punjab, Tamil Nadu and Assam, the three States that celebrate Lohri, Pongal and Bihu respectively, will be going to the polls this year. Even so, politically the Bharatiya Janata Party (BJP)-led NDA government was compelled to respond given the spate of farmer suicides in 2014-15, widespread drought and reports of the looming failure of the rabi crop.

Hailed as a game changer with the potential of transforming rural lives and more so in the context of thousands of farmer suicides, a phenomenon that is continuing, the Rs.8,800-crore scheme does not inspire confidence even among the community whose issues it purports to address. It replaces the existing National Agricultural Insurance Scheme (NAIS) and the Modified National Agricultural Insurance Scheme (MNAIS), which were launched in 1999 and 2013 respectively. The new scheme aims to reduce premium burdens on farmers and provide early settlement of claims for the amount insured. The premium charged is 2 per cent of the sum insured (1.5 per cent for rabi and 2 per cent for kharif crops) for food crops and oilseeds and up to 5 per cent for horticultural and cotton crops. The remaining premium will be paid by the Central and State governments. The scheme plans to cover 50 per cent of farmers as against the existing 23 per cent, remove the cap on premium, lower the sum insured, and allow for direct settlement of 25 per cent of the claim on farmers’ accounts. Further, it provides for one insurance company for one State- and farm-level assessment of losses for localised risks and post-harvest losses. It also allows private insurance companies to implement the scheme along with the Agricultural Insurance Company of India (AIC).

The problem with the scheme, farmers organisations have pointed out, is that it does not provide for a universal comprehensive coverage of all crops, against all forms of damage and at all stages of the crop cycle. Besides, like the previous crop insurance schemes, it does not provide anything for tenant farmers and sharecroppers, who also bear the risks but do not get any compensation or claims on insurance payments. Neither was the claim that the scheme had the lowest premium for farmers in the history of independent India correct.

Under the NAIS, which was in operation in 14 States, the premium rates ranged from 1.5 per cent to 3.5 per cent for foodgrains and oilseeds and for horticultural and cash crops. Under the new scheme, farmers have to pay a uniform premium of 2 per cent for all kharif crops, 1.5 per cent for all rabi crops and 5 per cent for annual commercial and horticultural crops.

Amra Ram, president of the All India Kisan Sabha (AIKS), a leading farmers’ organisation, told Frontline that the existing insurance schemes had not worked well. He said that in Nagaur district of Rajasthan, farmers had insured their crops but at the time of assessment of crop damage, the correct estimate of losses was not done. “Insurance should be delinked from credit. At present farmers who avail themselves of credit with the Kisan Credit Card [KCC] have to get insured compulsorily. Non-loanee farmers, who are the moneyed class, are exempt from getting their crops insured. Insurance should be optional. For the rabi crop, banks have already been told to deduct the premium from farmers’ accounts. If the government was pro-farmer, why would it exempt big landlords from crop insurance? The KCC is a good scheme but it should not be conditional,” he said. Farmers were forced to insure their crops if they wanted a loan under the KCC.

Vijoo Krishnan, joint secretary of the AIKS, said: “Ironically, on the day the government announced the scheme, it was reported that 3,228 farmers had committed suicide in 2015, all of them in Maharashtra, a State ruled by the BJP and the Shiv Sena.”

To be fair, the government did hold consultations with farmers’ groups and organisations on the new scheme. However, the scheme did not reflect the consensus reached among these groups that any new insurance scheme should be a universal and comprehensive one covering both income and yield risks for all farmers, all crops, food, horticultural and plantation.

The new scheme, despite its novelty, covers only loanee farmers (those who have taken crop loans from banks) on a mandatory basis and excludes non-loanee farmers, tenants and sharecroppers and other socially and economically backward sections, including Dalits and Adivasis.

Krishnan told Frontline that the Centre and the State governments should subsidise the entire premium for poor, marginal and small farmers. He said the government should provide compulsory insurance for non-loanee farmers and fully bear the expenses. The Centre and the States could share these expenses in a 70:30 ratio as most of the States were unable to bear the burden. It was also suggested that the Centre should fully subsidise the premium for Jharkhand, Odisha, Chhattisgarh, Bihar and the north-eastern States. The other aspect that the scheme ignored was the eventuality of a fall in incomes owing to market volatilities. One of the demands of the farmers’ groups, including the AIKS, was the establishment of a price stabilisation fund to cushion and address fluctuations in the prices of agricultural commodities.

Krishnan said: “The unit for insurance should be provided on the basis of data on yield and weather collected at the level of the village with the losses on individual farms taken into account. Only then the calculation of the threshold yield and indemnity levels can be sensitive to local conditions and losses suffered by individual farmers can be addressed.” The BJP, at the time of the parliamentary elections in 2014, promised to make the panchayat the unit for assessing crop damage and the subsequent compensation payment. But even this was not adequate as farmers felt that the single acre/hectare ought to be made the unit of assessment. The logic was simple: like life insurance, which is made in the name of the individual, individual farmland owners should be considered as the unit for assessment.

At present, assessment is done at the block, taluk and mandal levels. He said the government should establish systems of village-level collection of data on crop yields, weather conditions and the price situation. Losses were undervalued and delays occurred in settlement of claims, and it was observed that insurance coverage and indemnity payments were biased towards a few regions and crops. According to the Situation Assessment Survey and National Sample Survey Office, the share of households not insuring their crop was up to 100 per cent for some crops and 95 per cent for most others. The major reason cited for this was that farmers were not aware of such a facility despite its existence for several decades.

Risk period The other important area that should have been considered in the scheme was the extension of the risk period, which at present covered only crop cutting while ignoring the risks taken between the harvest and the transport of crops to storage facilities. Krishnan said that in the case of post-harvest losses, the scheme did not cover the harvested crop bundled and heaped at a place before threshing. Also, coverage was available only for a maximum period of 14 days from the harvesting of crops, which were kept in a “cut and spread” condition for drying in the field after harvesting, against specific perils of cyclone/cyclonic rains and unseasonal rains, he said.

There was a proposal by a Reserve Bank of India (RBI) committee to scrap the interest subsidy on loans taken by farmers on the grounds that it distorted the agricultural credit system.

There was also talk of scrapping the incentives given to farmers for prompt repayment of loans. This, Krishnan said, was contrary to the pro-farmer image projected by the government. Post-harvest storage loans, he said, were given at commercial and not subsidised rates. The government was silent on the Swaminathan Commission’s recommendation that crop loans should be provided at 4 per cent interest. In fact, it had conveyed to the Supreme Court its inability to fix the minimum support price (MSP) at least 50 per cent above the cost of cultivation as recommended by the commission.

The NDA’s ally in Punjab, the Shiromani Akali Dal (SAD), expressed its reservations about the new scheme. Punjab Chief Minister Parkash Singh Badal told reporters at Nawanshahr that the plot and not the village should be considered the unit to compensate farmers in the eventuality of losses. Under the scheme, the crop was insured only if the entire village paid the premium.

The idea of providing crop insurance schemes is not new. Yet, the effect of the schemes and the number of those benefiting from them have been uneven. There was also considerable ignorance about crop insurance. Anomalies in data relating to insured crops, area and estimated yield often contributed to delay in payment of claims. In the pilot crop insurance scheme launched in 1979-80, participation was voluntary and insurance premium was in the range of 5-10 per cent.

The government then introduced the financially unviable Comprehensive Crop Insurance Scheme, or CCIS (1985-1999), under which Maharashtra, Gujarat and Andhra Pradesh accounted for the major part of the indemnity. Pre-sowing losses, that is, losses incurred in sowing operations and application of fertilizers, were not covered by it. When the NAIS was in operation (1999-2013), nine States accounted for a major part of the coverage in terms of farmers insured but the rate of claims was much lower than those under the CCIS, mainly owing to high premium rates.

Under the NAIS, 11 States accounted for 95 per cent of the premium paid and 96 per cent of the claims made. Farmers’ groups such as ASHA (Alliance for Sustainable and Holistic Agriculture) and the AIKS have urged the government to study the P.K. Mishra Committee report (Committee to Review the Implementation of Crop Insurance Schemes in India) and draw some lessons from it. Low premiums were no guarantee of success, a joint group constituted by the Agriculture Ministry in 2004 concluded.

This group recommended that a package policy covering crops and other assets of farmers be made available through a single window. It also recommended the inclusion of perennial horticultural crops and vegetable crops, coverage of pre-sowing risks and post-harvest losses, restoration of premium subsidy for small and marginal farmers (100 per cent subsidy for small and medium farmers), payment of claims immediately after reporting of losses, ad hoc on-account settlement of claims, and keeping the insurance unit size small so that the losses were closer to reality.

The government accepted the recommendations and introduced the MNAIS. The Weather Based Crop Insurance Scheme implemented by AIC and private companies as an alternative to yield-based crop insurance scheme existed along with the MNAIS.

The Mishra Committee focussed on the use of technology to establish a linkage between data relating to insurance, land records and the area sown. It also suggested that government subsidy for small and marginal farmers may have to be increased. Ignorance about crop insurance was also pretty widespread.

A report by the Agricultural Finance Committee (2013) found that 65.4 per cent of the farmers were not aware that crop insurance was mandatory for loanee farmers who availed themselves of loans for notified crops. Even among those who were insured, only 10 per cent knew the difference between various crop insurance schemes; only 28 per cent were aware that the insurance premium was deducted from crop loans of loanee farmers; and 57 per cent did not know the sum for which they were insured. Agriculture and the Indian farmer definitely need some reasonable response from the government, but not in a sporadic and knee-jerk fashion as exemplified in the latest crop insurance scheme. Insurance and credit have to be delinked. At present, the rate for fodder is more remunerative than the rates for food crops and vegetables.

A government which faced the combined resistance of the farming community over amendments to the Land Acquisition Bill can ill afford to experiment with crop insurance, however radical its features may seem. Instead of luring farmers with seemingly low insurance premiums, what needs to be ensured is that the farmer does not take on any additional financial burden, gets the rates for the crop that has been harvested covering input costs, and is able to survive adverse situations. The attempt should not just be to mitigate the suffering, if that is what the scheme aims at, but to listen with earnestness to what farmer representatives are saying.

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