Crop Insurance: Chinks In Modi Government’s Most Ambitious Farm Scheme

The Union government announced a new fasal bima yojana on Baisakhi two years ago (13 January) to be implemented from 2016-17 crop season starting with kharif sowing. The reasons for covering farm risk couldn’t have been more obvious at the time as the farmers had faced two back to back drought years, a first in decades, multiplying their woes in an occupation notorious for being dominated by vagaries of nature. The existing crop insurance schemes had failed them. It was time for a complete overhaul as the government felt it could no longer rely on doling out relief packages. A new start was needed.

Enter Pradhan Mantri Fasal Bima Yojana. It was attractive than the then ongoing crop insurance schemes like the National Agriculture Insurance Scheme (NAIS) and Modified NAIS (MNAIS). And the achievements in Kharif 2016 and Rabi 2016-16 seasons speak for themselves: Compared to 2015-16, in 2016-17, the area insured increased by 6.5 per cent, the number of farmers insured increased by 20 per cent, the sum insured increased by 74 per cent, and the premium paid increased by 298 per cent.

But despite these obvious statistical achievements, our Swarajya on-ground report last year found some glaring chinks in the implementation of the scheme. They were obvious to anyone who talked to farmers, bank and state-level officials in charge of implementing the insurance scheme.

Recently, in a conference on doubling farmers income in New Delhi (20 February), Prime Minister Narendra Modi was made aware of challenges his fasal bima yojana suffered from which included some of the problems our report had highlighted earlier.

Now, a working paper by Indian Council For Research on International Economic Relations (ICRIER) written by eminent agricultural economist Ashok Gulati, and his colleagues Prerna Terway and Siraj Hussain points out what ails the central government’s ambitious crop insurance scheme. It also looks at international best practices on this front and suggests a slew of reforms that can help make PMFBY more robust in achieving its objectives.

First, the extension of cut-off dates. The government of India guidelines set 31 July as original cut-off date for the scheme for Kharif 2016 crops. But many states asked for extension in tender submission which was extended 10 August. Same thing happened with Rabi 2016-17 crops. Cut-off date was extended to 10 January from 31 December. Why this matters? As Gulati and others write in their paper, the states that floated their tender on time and completed the tender process were able to receive low actuarial premium rates but those who delayed fell victim to problem of adverse selection and got high actuarial premium rates. The difference in premium rates was as high as 15 per cent. The insurance companies, due to delay in process, got aware of damages to farmers’ crops in some areas, and simply quoted high rates.

Our report last year also highlighted basic problem with delays. Farmers had already grown their crops before the insurance amount got deducted from their account.

Second issue outlined by Gulati and others is actuarial premium rates. It was expected that increase in insured area would lead to fall in actuarial rates but they have increased from around 8 to 12.5 per cent. Why? As mentioned above, the delays in cut-off date was one reason. Another reason the paper mentions is expansion of reinsurance market. About 75 per cent of the premium risk is covered by domestic and foreign reinsurance players who simply don’t have trust in state governments’ efficiency in implementing PMFBY. This distrust lead them to quote higher rates. Gulati et al mention that insurance companies have also complained of delay in payments to them by the government. “The gross premium for FY 2016-17 is Rs 21,882 crore (PMFBY and RWBCIS) out of which famers’ share is Rs 4,373 crore. The remaining premium subsidy is shared by the central government and the state government,” they write. If the government doesn’t pay on time, how can there be buildup of trust? This also leads to delay in payment to farmers eligible for payout as we will see later.

Third, the ICRIER paper points out how the insurance coverage in inadequate. The authors write that sum insured should be equal to scale of finance for that crop as fixed by District Level Technical Committee but Kharif 2016 data shows how in many districts, it was way lower than SoF. Gulati and his colleagues believe that state governments indulge in this type of behaviour to restrict its share of premium subsidy.

Fourth problem pointed out by Gulati and others in the paper is insufficient and inefficient cross cutting experiments (CCEs). Ideally, lakhs of CCEs should be conducted to properly identify the average crop yield of a given area for a particular crop. The policy guidelines mandate use of technology to make smart assessment of crop yields. The use of human intervention is neither desirable (integrity issues) nor feasible given huge workforce needed to carry out these experiments. Hence, the logic of deploying technology. The governments haven’t invested in procuring the required devices, so, many cases of overrepoting or underreporting of yield have come to notice. The former hurts the insurance companies, the latter the farmers.

Fifth issue is assessment and payment of claims. Gulati and others mention how the insurance companies delayed payment of claims to farmers for months defeating the whole purpose of crop insurance. Premium payout must be swift and hassle-free to be successful. As mentioned earlier, the insurance firms cite delay in payments from the government as main culprit apart from submitting yield data obtained via CCEs to these firms based on which they decide how much insurance amount is to be given per crop.

Given these challenges in implementation, the authors trio suggest that

1) Operational guidelines are strictly adhered to so that there are no delays which would positively impact actuarial premium rates.

2) The state governments submit yield data on CCEs to insurance companies on time.

3) The state as well as the central government pay their share of premium subsidy to insurance companies on time so that payouts to farmers are not delayed.

4) There be greater transparency in the whole process and all the data right from initiation and finalisation of tender date, sum insured for each crops, actuarial premium rates, payment of premium subsidy by Union government and state governments, submission of yield data by state government, claim accepted and paid by the insurance companies should be released by the government every month.

5) High quality CCEs take place with use of technology: satellites can be used to identify farmland for conducting CCEs, determine area sown to validate area insured, conduct CCE in areas which are prone to higher losses. “Use of handheld devices and mobile phones to capture multiple images in case of heterogeneity of field conditions in a village could be beneficial in assessment of damage,” the authors write. They also suggest deploying drones to assess crop damage. While satellites can take few days to give true picture of damage to crops, drones can be quickly put into field.

6) The paper also recommends the use of high technology and Jan Dhan - Aadhaar - Mobile trinity by linking land records of farmers with their Aadhaar numbers and bank accounts for assessment and faster settlement of claims.

Apart from these, the paper notes that out of total expenditure of Department of Agriculture Cooperation and Farmers’ welfare, of Rs 36,912 crore in 2016-17, the expenditure on crop insurance as premium subsidy was Rs 11,051 crore and increasing every year. However, there are handful of officers in the agriculture department looking after this crucial scheme. Gulati et al suggest that PMFBY deserves ‘a dedicated team of professionals, both at the centre and in the states, which can collate and analyse the data collected from the states and insurance companies.’

Finally, the author trio believes that India can draw important lessons from the international best practices, in particular by countries such as China, United States and Kenya. “The heavy premium subsidy programme started by the government of China in 2007 led to an expansion of insured farm area from 15 million hectares in 2007 to 115 million hectares in 2016 covering 69 per cent of the total sown area,” they point out. The same success was achieved by the United States too due to heavy subsidy premium borne by the government. Kenya experience is exceptional on the settlement of claims front. It takes only two to four days to send money to farmers after their crops are assessed to be damaged. Kenya’s M-pesa payment system is used to transfer money for payouts.

The government would do well to heed suggestions by Gulati and his colleagues. The Fasal Bima Yojana is one of the most ambitious schemes of the government. It cannot afford to take it lightly - both for its own and the farmers’ sake.

Also Read: Fasal Bima Yojana Is Not Working; Modi Should Reform It Before Farmers’ Anger Boils Over