Hyderabad: Pradhan Mantri Fasal Bima Yojana (PMFBY) which was launched in February 2016 is one of the world's largest crop insurance programmes aimed at providing risk cover to farmers in India from production vulnerabilities.
This Programme is a highly subsidised one and it involves payment of low premium by the farmers. Under this Programme, farmers pay a very low premium of a maximum of 2% during Kharif sowing, and only 1.5% during Rabi sowing for food and oilseed crops. For annual commercial crops, they need to pay a maximum of 5% premium.
The difference between actuarial premium rates and the farmer rates is shared equally between the Central and the State governments. All farmers who avail of seasonal crop loans would be included in the PMFBY scheme; other farmers can purchase the insurance voluntarily at a similar net premium rate.
Different types of risks including yield losses due to climatic factors, damages from pests and post-harvest losses are covered in this scheme. It is implemented on an 'area approach' where the insured unit is normally the village panchayat level for major crops.
States are Doubtful over Effective Implementation
Over five crore farmers were enrolled in the FY 2017-18 for both the Kharif and Rabi seasons under the scheme. This is a hike of almost 40% from the year 2015 when earlier insurance schemes were available. However, the recent reports raised doubts about the effective implementation of PMFBY across the States as some of them started making an exit from the scheme.
Bihar and Gujarat already have exited the scheme. The Gujarat Chief Minister Vijay Rupani said the State government was forced to scrap the tenders after insurance companies asked for exorbitantly high premiums (Rs. 4,500 crores), and in the place of the Central scheme, the Gujarat government launched alternative State-funded scheme - Mukhya Mantri Kisan Sahay Yojana - covering all farmers under crop insurance without any premium for Kharif 2020 season with an outlay of only Rs. 1700-1800 crore. Bangla and Bihar States have their own crop insurance schemes, and the farmers need not pay any premium.
Punjab never implemented the PMFBY.
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There were news reports that some more States wrote early this year (2020) to the Central government, informing their decisions to exit the scheme. Most States have delayed the payment of their share of premium leading farmers not able to claim anything.
There were news reports that insurance companies had not cleared as much as one-third of the amounts claimed by farmers as crop insurance for the Kharif 2019 season. This led to a perception that some insurance companies were benefitted more than the farming community under this flagship programme of the Central government.
Further, the recent issues such as the discussion about non-payment of insurance premium by Andhra Pradesh government for risk coverage under the scheme against the backdrop of 'Nivar' cyclone; and growing support to the agitation launched by the farmers' unions in the national capital against new farm laws led to the debate on the need to provide all-round support, including developing a viable business model of providing effective crop insurance, to the agricultural sector which is the largest source of livelihood for 70% of households in rural India.
Overcoming the Challenges
A study conducted by IIM Ahmedabad, sponsored by the Ministry of Agriculture and Farmers Welfare, Government of India on performance evaluation of PMFBY in select nine States in the country reveals low awareness among the farmers about the scheme even among the loanee-farmers who paid insurance premium out of loan amount as part of terms of the loan.
In spreading awareness about the scheme, the panchayat played a significant role in Bangla whereas in Assam it is the banks which played a more important role. A striking feature is that the role of insurance agents has not been very prominent in most of the States. This deserves attention as the take-up of insurance especially on a voluntary basis among non-loanee farmers very much depends on the insurance firms and their agents.
Farmers in the study suggested reducing the time taken for paperwork completion, higher compensation, transparency in the scheme, more awareness programmes, inclusion of loss of animals and the increasing role of the panchayat.
As per the study, the farmers are willing to pay nearly a 10% premium for a policy similar to PMFBY, much higher than the present rates, provided the claims would be settled within six weeks of loss assessment. This implies a large untapped potential demand for crop insurance in the farming community.
On the other hand, the insurance companies are not considering crop insurance a profitable segment as it involves many 'bad risks' rather than 'good risks.' Such a negative perception made the industry to think that their business model unsustainable.
Furthermore, the State governments perceive that the 50% premium subsidy that they transfer to insurance firms is a pure dole out, and the farmers get some claims only when there are crop losses, though that is an inherent characteristic of the insurance business. Moreover, delayed payments of claims reinforced negative perceptions among farmers. Accurate assessment of crop loss is a practical challenge in insurance.
In technical terms, it is called Crop Cutting Experiments (CCEs). The insurance firms need to build local infrastructure with an office staff of required expertise as a long-term investment to seize this potential business opportunity.
Technology involving smartphones and remote sensing could be used to capture and upload data relating to loss assessment to reduce delays in claim payment to farmers.
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Overall, there is greater scope for making PMFBY a more inclusive and a better-accepted scheme for the States, farmers, and insurers.
In line with cooperative federalism, the Centre and States should work together by seeking better involvement of district and village level agencies to expand the efficiency and effectiveness of the scheme.
As the farmers of two Telugu States are subject to the high degree of vulnerability due to extreme weather uncertainties as a result of climate change in the form of frequent cyclones, uneven distribution of rainfall, rising temperatures and prolonged drought conditions, there is an urgent need to have a comprehensive, inclusive, and affordable crop insurance policy, in case the PMFBY in the present form is not fully acceptable.
Though PMFBY is a well-intentioned scheme, it needs to be implemented more effectively and efficiently thereby preventing the farmers face the risk of getting poorer in the years to come. This is not a mean challenge in India which is grossly underinsured.
