Crop Insurance | Agriculture Optional Notes for UPSC PDF Download

Introduction

General insurance companies in India are reducing their participation in the Pradhan Mantri Fasal Bima Yojana (PMFBY) due to losses from high claims. The Indian government has made the PMFBY scheme optional and reduced its contribution. Both the PMFBY and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) underwent revamps in 2020.

About the Pradhan Mantri Fasal Bima Yojana (PMFBY)

• Launched in 2016, the Pradhan Mantri Fasal Bima Yojana (PMFBY) is under the administration of the Ministry of Agriculture and Farmers Welfare.
• PMFBY replaced the National Agricultural Insurance Scheme (NAIS) and the Modified National Agricultural Insurance Scheme (MNAIS).
• Its primary goal is to offer comprehensive insurance coverage against crop failure, thereby stabilizing farmers' income.
• It covers all food, oilseed crops, and annual commercial/horticultural crops with available past yield data.
• Farmers pay a prescribed premium, which is 2% for Kharif crops, 1.5% for rabi crops, and 5% for annual commercial and horticultural crops.
• The premium cost beyond the farmer's share is subsidized by both the States and the Government of India (GoI). However, GoI subsidizes 90% of the premium for North Eastern States to encourage participation.
• Empanelled general insurance companies implement PMFBY. State Governments select the Implementing Agency (IA) through a bidding process.
• PMFBY 2.0, the revamped version, is now entirely voluntary, with no compulsion for loanee farmers with Crop Loan/Kisan Credit Card (KCC) accounts.
• The GoI limits its subsidy to a maximum of 30% in un-irrigated areas and 25% in irrigated areas, based on premium rates.
• States/Union Territories have more flexibility in implementing PMFBY and can choose additional risk covers and features.
• Insurance companies must allocate 0.5% of the total premium collected for information, education, and communication (IEC) activities.

Restructured Weather Based Crop Insurance Scheme

• Introduced in 2016, the Pradhan Mantri Fasal Bima Yojana (PMFBY) is overseen by the Ministry of Agriculture and Farmers Welfare.
• Its primary objective is to alleviate the financial distress of insured farmers due to expected crop losses caused by unfavorable weather conditions, including factors like rainfall, temperature, wind, humidity, etc.
• The Weather-Based Crop Insurance Scheme (WBCIS) employs weather-related parameters as substitutes for actual crop yields to provide compensation to farmers for presumed crop losses.

Challenges in Implementation

• To make insurance markets effective, they require two conditions: a) Low risk, and b) Low correlation in risk among policyholders.
• However, the Pradhan Mantri Fasal Bima Yojana (PMFBY) focuses on covering the risks associated with droughts and floods, which tends to contradict both of these conditions.
• This is due to the fact that adverse weather conditions, such as droughts or floods, have a high impact on all regional farmers (high correlation), and these events occur relatively frequently (approximately once every 5-7 years, with a probability of 14% - 20% for losses).
• PMFBY sets premium rates at 1.5-2%, with the rest being subsidized by the government. This approach has long-term drawbacks and can encourage risk-taking, especially for crops with low Minimum Support Prices (MSPs).
• Problems with claim settlements have arisen, as insurance companies have significant roles and powers. In many instances, they did not thoroughly investigate losses caused by localized disasters, resulting in unpaid claims.
• Delays in releasing insurance compensation occurred because state governments failed to allocate funds on time. This contradicts the scheme's purpose of providing timely financial assistance to the farming community.
• There is a lack of awareness among farmers regarding crop insurance schemes. Furthermore, there is an inadequate grievance redressal system and monitoring mechanism to facilitate swift resolutions of farmer complaints, both at the central and state government levels.
• The PMFBY scheme does not differentiate between large and small farmers, leading to identification issues. Small farmers, who are the most vulnerable, face challenges in this regard.

Way Forward

• Awareness Generation: Creating awareness among farmers is a significant challenge for the effective implementation of the scheme. The government aims to engage all stakeholders, especially states and insurance companies, in conducting rural awareness programs to educate farmers about crop insurance schemes.
• Behavioral Change: There is a need to change perceptions about insurance costs, emphasizing that it is a necessary input rather than a money-back investment.
• Rationalizing Waivers and Service Delivery: State government loan waiver schemes, along with mandatory Aadhar linkage, should be streamlined to expand the coverage of the Pradhan Mantri Fasal Bima Yojana (PMFBY).
• Role of Technology: Leveraging technology for localized weather forecasting, drought risk assessment, disease risk evaluation, and soil analysis data can empower farmers to preempt risks, plan more effectively, and reduce losses. This data can also facilitate the resolution of local calamity disputes, making the process smoother for all stakeholders, including insurance companies.
• Beed Model: The government may consider adopting the 'Beed model' of the crop insurance scheme, which limits potential losses for insurers.