Pradhan Mantri Fasal Bima Yojana

• The Pradhan Mantri Fasal Bima Yojana (PMFBY), announced on the eve of harvest festivals across the country, is to be rolled out during the kharif crop season this year.
• This crop insurance scheme will cover half of India’s cropped area in the next three years, up from the present level of 23%. In the first year, the target is to insure 30% of the agriculture land, 40% in the second year and 50% in the third year.
• Towards this, the centre has substantially increased the budget for crop insurance from 2,823 crore in 2015-16 to 7,750 crore in 2018-19.
• Under this scheme, farmers have to pay just 2% of the premium for kharif crop and 1.5% for rabi while the same for horticulture will be fixed at 5%
• Under the previous crop insurance scheme, risks were only partially covered. The existing premium rates vary between 2.5% and 3.5% for kharif crops and 1.5% for rabi crops—but the coverage was capped, meaning farmers could, at best, recover a fraction of their losses. Also, the premium for commercial and horticulture crops was calculated on actuarial basis, meaning premiums could be as high as 25% depending on the risk factor involved.
• There is no cap on subsidy on premium, meaning the government will bear the cost even if the balance premium is as high as 90%. In previous schemes, due to a cap on premiums, farmers did not get the full sum during claim settlement.
• The government liability on premium subsidy will be shared equally by the centre and states.
• The new scheme will cover local-level calamities such as hail storms and landslides and even cover farmers if they cannot sow crops due to inclement weather. Also, the scheme will cover post-harvest losses due to cyclonic and unseasonal rains.
• While smartphones will be used to capture and upload data on crop cutting (to estimate loss in yield) to reduce delays in settling claims, remote sensing will be used to reduce the number of crop-cutting experiments.
• The agriculture ministry will divide all districts of India into clusters and give it to insurance companies in order to make the Prime Minister ’s Crop Insurance Scheme a success.
• Between 15-20 districts will be clubbed together and given to one insurance company for providing crop insurance to farmers.
• Selection of insurance companies would be done through an open bidding system and insurance companies may be allowed to serve a cluster for more than one crop season or one year.

Analysis:

Benefits

• Mitigation of risk against inclement weather and faster payout to farmers will be two key characteristics of the Prime Minister Crop insurance Scheme. This will take into account farmers’ worries from sowing of seeds to post harvest.
• This scheme reduce delays and leakages in payment of compensation through direct transfers into the bank accounts of farmers.
• The farmer-friendly move comes at a time when the country is experiencing a protracted period of rural distress after below-average monsoon rainfall in 2014 and 2015.
• The decision implicitly acknowledges the structural makeover of Indian farming, which has entailed farmers taking on more risks by diversifying into horticulture and commercial crops without adequate safety nets.
• Low premium will drive penetration and enrolment and make the insurance scheme viable for insurers
• The move can be beneficial from three key points of view—similar geographies will lead to similar weather and thus an identical claim pattern, second, it will be easier to track and pay the sum assured to farmers of a cluster, and third, there may be fewer chances of fraud— either by the insurance company or a farmer.
• There will be economies of scale for companies as insured farmers will be in a concentrated area. This will help an insurance company focus all its resources in one particular area. Instances of discrepancy between crops insured and the crop sown area can also be addressed easily. Claims assessment will also be easier as weather conditions will be similar. One will have to wait and watch for more details to understand what kind of premiums will be available under the scheme.

Challenges:

• Smaller farmers have to be targeted as this is particularly the vulnerable class. Presently the scheme does not distinguish between the large and small farmer as that does raise the issue of identification.
• This scheme has to work in the sense that the process has to be seamless so that all the claims are settled seamlessly. Further, given the volumes that may be involved, insurance companies have to be geared up to handle such transactions.
• As part of housekeeping, land records need to be in place for making assessment of the premium.
• There is a need to have access to weather data in various regions that is not captured by the IMD. Efforts by private players to create such weather stations like those by NCMSL (National Collateral Management Services Limited) have to increase as all decisions on premium as well as payouts would be contingent on this data.
• Crop loan practices are weak which has to change as often banks do not insist on this when giving a loan.
• There has been considerable volatility in farm output due to the unexpected  weather, which has often resulted in lower production or excess unseasonal rainfall that has destroyed crops. This has in turn led to financial distress of farmers who have not been able to service their debt leading to a build-up of NPAs thus pressuring the banking system

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By: Vishal

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