Relevance: GS Paper III (Agriculture)
Why has this issue cropped up?
Excess rains and floods in Kerala, deficit rainfall in eastern and north-eastern India, and associated large-scale crop losses have again highlighted the need for providing social protection to poor farmers.
- A highly subsidised Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in 2016 to provide insurance to farmers from all risks.
- Aiming to reduce basis risk and premium burden of the farmers, the scheme’s total expenses today are almost ₹30,000 crore.
- In comparison to earlier schemes, the PMFBY is more farmer friendly, with sums insured being closer to the cost of production.
- The scheme’s linkage with parallel programmes like the ‘Jan Dhan Yojana’ and ‘Digital India’ makes it a truly inclusive and welfare-based scheme.
- The scheme therefore led to increased coverage of 5.7 crore farmers in 2016 and the sum insured crossed ₹200,000 crore.
- However, notwithstanding its ambition and intent, the scheme since its operation has been scrutinised more for its misses than its hits.
- Some handicaps of the scheme are:
- outmoded method of crop loss assessment;
- inadequate and delayed claim payment;
- high premium rates; and
- poor execution.
- Consequently, in 2017, the expansive coverage of the scheme suffered some setback as seen in a drop of nearly one crore farmers in enrolment (about 17%).
- Such shortcomings have inspired recent announcements such as that of Bihar to start its own scheme, the “Bihar Rajya Fasal Sahayata Yojna”.
Giving PMFBY teeth
In order to make the PMFBY a sustained developmental action for a comprehensive climate risk protection for every Indian farmer, the following action points are suggested.
- Faster and appropriate claim settlement:
- Timely estimate of loss assessment is the biggest challenge before the PMFBY.
- The Achilles heel of the PMFBY is the methodology deployed for crop loss assessment: the crop cutting experiments (CCEs).
- They have large errors. To improve the efficacy of the PMFBY, technology use such as detailed weather data, remote sensing, modelling and big data analytics must be intensified.
- Universal and free coverage for all smallholders:
- Farmers’ awareness about the scheme and crop insurance literacy remain low in most States, especially among smallholders in climatically challenged areas in most need of insurance.
- The complicated enrolment process further discourages farmers.
- To increase insurance coverage we should think of a system whereby farmers do not need to enrol themselves and every farmer automatically gets insured by the state.
- Improved and transparent insurance scheme design:
- Insurance companies are supposed to calculate actuarial rates, and based on tenders, the company quoting the lowest rate is awarded the contract.
- We have seen rates quoted by companies for the same region and for the same crop varying from 3% to more than 50%. Such large variations are irrational.
- One reason for such inflated premiums is lack of historical time series of crop yields at the insured unit level. To minimise their risks caused by missing data and to account for other unforeseen hazards, insurance companies build several additional charges on pure premium.
- Science has the capacity today to characterise risks and reconstruct reasonably long-time series of yields. The premium rates, and hence subsidy load on the government, can come down significantly if we make greater use of such proxies and appropriate sum insured levels.
The government today spends more than ₹50,000 crore annually on various climate risk management schemes in agriculture, including insurance. This includes drought relief, disaster response funds, and various other subsidies. Climate-risk triggered farm-loan waivers are an additional expense. All these resources can be better utilised to propel farm growth.