“Agriculture is a highly risky venture,” says Nagi Reddy, a farmer in Anantapur. Reddy is a small farmer affected by uncertainty in crop production stemming from unpredictable weather events and pest attacks, especially in his cotton crop. He works on his 2.5-acre farm and the rest of the time, he clocks in as a tenant farmer at an adjacent farm. He scoffs when told about the Centre’s agricultural insurance in 2014.

The government has implemented various crop insurance schemes over the years in order to provide economic support to farmers in the event of a crop failure. The two crop insurance schemes that have been operational in the country even before this agricultural insurance are National Agricultural Insurance Scheme (NAIS) from 1999 and the more recent Weather Based Crop Insurance Scheme (WBCIS). The former covered all food and commercial crops and provided compensation for yield losses due to natural causes. It was modified in 2013 to Modified National Agricultural Insurance Scheme (MNAIS). The WBCIS provided coverage for paddy crop yield losses due to rainfall only. Both the schemes fell short in financial performance and operational efficiency.

Why is the subscription base so low?

Farmers were in need of a safety net when faced with crop losses. Yet, there was practically no participation of non-loanee farmers in the crop insurance scheme till recently. The saving grace of the scheme were the loanee farmers for whom it was mandatory; credit was provided to farmers by institutional sources like banks only if secured through insurance. Even then, just over 25 percent of the credit taken by farmers is insured indicating a huge implementation gap. Bankers object that crop insurance is not their priority. It prevents them from meeting their priority sector commitments and this explains the low coverage. 

Reddy explains why farmers do not consider crop insurance as a lucrative option. “The sum insured is so low and the premium very high. Usually, farmers have to pay three percent, apart from the interest charged, on the crop loan which could be around three to four percent. Most people find it hard to shell even this amount to cover the associated risks. It is very difficult to prevent sowing and post-harvest losses this way. Also, some farmers who have irrigation are not keen on covering their risks as they feel that irrigation assures their crops,” says Reddy adding that because the yields are assessed at the area level, farmers feel that the local differences at individual farm level are not covered. This leads to poor subscription.

How is the new crop insurance scheme different?

In January this year, the government came up with Pradhan Mantri Fasal Bima Yojana (PMFBY) to deal with the mismatch between the risk associated and the profit margins in farming. The farmers can now benefit with both lower premiums and higher sums insured. Until mid-2016, barely a fifth of farmers and 23 percent of the total cropped area in India had been covered under the crop insurance scheme.

For the farmers, the premium has been kept very low at two percent for kharif crops, one and a half percent for rabi crops and five percent for horticultural crops. The sum insured varies from anything between Rs 35,000 and Rs 75,000 depending on the districts. Each state will have one insurance company to do the farm-level assessment of loss for localised risks and post-harvest loss. The Agriculture Insurance Company of India Ltd and private insurance companies will implement the scheme.

The government aims to increase the subscription base of crop insurance from the present level of 20 percent to 50 percent. This happens to be a major high point. There is a cap on the premium payable by farmers while there is no cap on total premium, the difference being compensated by the government. This has been made possible through subsidy inputs to the farmers all the way through the governmental mechanism.

The scheme replaced NAIS and MNAIS from 2016, just as the country got out of an excruciating drought that affected 90 lakh hectares of land. The government continued with the Weather Based Crop Insurance Scheme but its premium rates have been reduced to bring it on a par with the new crop insurance scheme. The scheme covers a targeted 50 million farmers for damages due to unseasonal rainfall, hailstorm, drought, and other natural calamities.

Challenges faced

Launched in January this year, the plan’s success lay in its implementation. The challenge the government faced was of bringing the non-loanee farmers under the scheme. The government had hoped to widen the net of crop insurance but reports from September 2016 suggest that only 2.53 crore farmers have insured their crops so far as against 3.69 crore farmers in 2014-15 under NAIS and MNAIS last year.

If early indicators are to be believed, the states are reluctant to implement the Centre’s ambitious crop insurance scheme. This is because of the excess financial burden the states are expected to bear by way of sharing the premium jointly with the Centre. For some states like Madhya Pradesh, the share of the premium is so high as to account for up to 60 percent of the state’s agriculture budget. This may derail the scheme in its first season itself. Bihar chief minister Nitish Kumar dubs the crop insurance scheme "anti-farmer" by saying that it will benefit the coffers of insurance companies. States are being forced to pay money from their exchequer in advance and that too at a higher premium, he says. Bihar agreed to implement the scheme on a pilot basis in few districts.

The total annual budgetary allocation by the Centre has been pegged at Rs 5,500 crore for crop insurance, nearly double that of last year. There are some who make a case for private crop insurance as against government-sponsored crop insurance, even though the former is not highly developed. The government outgo on the premium subsidy is very high at present. The scheme promises calculation of loss at the village level, a far cry from the demand of farmers that assessment is done at the level of the individual cultivator.

Reddy is still sceptical of the new insurance scheme. He is among the 80 percent of farmers in India who are not insured. The insurance penetration is abysmal among the farming community in his village Reddygaripalli. “It does not provide succour to farmers in case of crop loss. That is because many of us are tenant farmers, who along with sharecroppers, are not covered under the insurance scheme,” he says.