From Plate to Plough: Premium delayed, farmer denied

Pradhan Mantri Fasal Bima Yojana does not inspire confidence of farmers. They have to wait for months, sometimes years to get compensation.

Written by Ashok Gulati , Siraj Hussain | Updated: May 14, 2018 5:38:26 am

PMFBY involves farmers, banks, state and central governments, the insurance company and re-insurer.

This article is the second in the series assessing the performance of the BJP-led NDA government at the Centre in the agri-food space over the last four years. The first one appeared in this newspaper on May 2 (IE, ‘Four years of neglecting farmers’). Here we look at the BJP’s promise in its manifesto, namely, “a farm insurance scheme to take care of crop loss”.

Prime Minister Narendra Modi took a bold decision to revamp the existing crop insurance scheme after two years of successive droughts in 2014-15 and 2015-16. The Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in April 2016. It fixed a low premium for farmers — 1.5 per cent for rabi crops, 2 per cent for kharif crops, and 5 per cent for horticulture and other commercial crops — and enhanced the sum insured to cover basically the cost of cultivation. It targeted bringing 100 million hectares (50 per cent of gross cropped area) under PMFBY by 2018-19. One had hoped that this new PMFBY will undertake the assessment of damages and settlement of claims expeditiously in the event of any natural calamity, and farmers will get enhanced compensation on time. Has that happened?

The answer is no. One does not see PMFBY achieving its target of covering 50 per cent of gross cropped area (GCA) by 2018-19. Except a few states (see graph), India’s current insurance cover is about 30 per cent of GCA. As against this, China insures about 70 per cent of its GCA and the US extends insurance cover to about 90 per cent of GCA. The primary reason behind PMFBY’s lacklustre performance is that it suffers from several administrative glitches and the typical red-tape that does not inspire confidence with farmers as they have to wait for months, and even years, to be compensated for their losses.

The most important role, however, is played by state government, which finalises the insurance company for every cluster through open tenders, pays half of the premium subsidy, conducts crop cutting experiments and submits data of crop yield to the insurance company. In order to get reasonable rates of premium, timely finalisation of bids to discover premium is critical. This should be done well before the first forecast of the monsoon by the IMD so that there is no adverse selection. However, the experience of the first two years shows that most states do not finalise the selection of the insurance company in time. This year, for example, Gujarat and Rajasthan have still not finalised the insurance company for their clusters. We fear that in a year of a poor forecast of the monsoon, the companies will quote a very high premium.

In an appreciable decision, the government launched an insurance portal in kharif 2017 and the banks were directed to enter the complete information of farmers in the portal. However, due to teething problems, even data for kharif 2017 is not up to date. As a result, one does not know for sure whether area under the scheme has increased or fallen in 2017-18. From kharif 2018, one hopes that every farmer will receive an SMS from the insurance company displaying the premium deducted and sum insured.

The scheme has been implemented in four seasons, starting from kharif 2016 to rabi 2017. In 2016-17, the gross premium paid to insurance companies was Rs 22,189.62 crore out of which farmers paid Rs 4,327.40 crore. Both 2016-17 and 2017-18 were years of normal monsoon in most parts of the country, yet the claims paid in 2016-17 reached Rs 12,948.98 crore. Some states like Tamil Nadu (TN) ensured the efficient settlement of claims by promptly conducting crop cutting experiments (CCE) and submitting the data to companies. As a result, in TN, the gross premium in 2016-17 was Rs 1,252.42 crore while claims of Rs 2,724.82 crore were paid to farmers. This shows that the scheme can be effective in mitigating farmers’ distress provided banks submit data to companies in time and state governments pay the premium subsidy and conduct CCE promptly and accurately. But such states are more the exception than the norm. The norm that prevails in most states is of red-tape manifested in delays in finalising tenders, in payment of the premium subsidy, in conducting CCE, etc. All these delays finally end up making farmers suffer for months without getting any compensation whatsoever. It may be amusing to know that there are states like Bihar, Chhattisgarh, Haryana, Karnataka, Kerala and West Bengal that have not paid the premium subsidy for even 2016-17 crops, while companies are now insuring farmers for kharif 2018. Obviously, in such a situation, one cannot hope to run any insurance scheme meaningfully.

What’s the way out now? Can PMFBY be made to deliver to the satisfaction of farmers?

The answer lies in strengthening the scheme at least on three fronts: One, induct a team of 10-15 insurance experts at the Centre to continuously track, evaluate its progress, negotiate lower premium rates with re-insurers, and also guide states in efficiently implementing the scheme; two, ensure that the states and Centre give the premium subsidy in time and tenders are finalised for three years to get lower premium rates; three, use technology, like satellites, LEOs (Low Earth Orbits), drones, smartphones, etc., for a faster and more accurate assessment of losses.

It may be noted that due to the extreme paucity of expertise both at the Centre as well as in states, many states feel bewildered when they get premiums as high as 40 per cent for some crops. We strongly feel that premiums can be brought down through negotiations with re-insurers, giving significant savings to the Centre and states, provided the scheme is run efficiently and in a transparent manner. But it would require professional expertise, and a dedicated team, to deliver. In its current state of play, alas, a lot of public money is being spent without timely benefits for farmers.

Gulati is Infosys Chair Professor for Agriculture and Hussain is visiting senior fellow at ICRIER

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