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·         CSE welcomes the new crop insurance scheme but recommends further reforms to make it universal, inclusive and more effective
·         Says insurance unit is still not at individual farmer level but at the administrative level such as tehsil, village, etc. which is a major problem in compensating losses of the individual farmers
·         There is still no direct interface between insurance companies and farmers. This is a big lacuna in making the existing schemes less effective
·         Use of technology is a good step but it is important to formalise a model which is viable
·         Tenant farmers have not been covered under the new scheme which leaves out a large segment of farmers without insurance cover
·         Frequency of extreme weather events and slow onset events such as droughts are likely to increase in the future due to climate change. India needs an effective, inclusive and universal insurance scheme to act as a safety net for farmers 
New Delhi, January 14: The Union cabinet, chaired by Prime Minister Narendra Modi, approved the new crop insurance scheme — Pradhan Mantri Fasal Bima Yojna (PMFBY). The new scheme will replace two schemes – National Agricultural Insurance Scheme (NAIS) and the modified NAIS (MNAIS). In the case of Weather-Based Crop Insurance Scheme (WBCIS), the government said premium rates would be rationalized on par with PMFBY. The PMFBY will be effective from the April 1, 2016.
In December 2015, CSE released a major report titled “Lived Anomaly: How to enable farmers in India to cope with extreme weather events”. The report highlighted the increasing vulnerability of farmers due to increased frequency of extreme weather events. The report recommended major reforms in agriculture insurance to strengthen the coping capacity of farmers.
“Frequency of extreme weather events and slow onset events such as droughts are likely to increase in the future due to climate change. India needs an effective, inclusive and universal insurance scheme to act as a safety net for farmers. PMFBY is a step in the right direction, but it requires some key changes to improve its effectiveness,” said Chandra Bhushan, Deputy Director General, CSE.
Salient features
CSE analysis shows that compared with the previous schemes, PMFBY has many positive feature and is a step in the right direction towards increasing coverage and improving effectiveness of crop insurance scheme.
  • The farmer’s share of the premium has been reduced to 2 per cent and 1.5 percent for all kharif andrabi crops, respectively, while for horticultural, commercial and annual crops it will be at 5 per cent. This will make the insurance affordable to a large number of farmers.
  • By keeping a uniform premium for the farmers and the balance premium amount being shouldered by the state and central governments (on a 50:50 basis), the target of insurance coverage for 50 percent farmers in 3 years seems relatively realistic. However, a lot will depend on the state governments and the union government to make their part of the payments on time. Delays in payments on the part of the governments will delay payouts to the farmers making the scheme ineffective.
  • The provision for capping actuarial premium rates, which resulted in a reduction in the amount of sum insured, has been removed.  In the previous schemes, due to capping of the premium rates, a farmer who faced a high risk could not insure the crop at a greater premium rate due to the capping. He would therefore have to absorb a majority of the financial risk on his own. The removal of capping would enable the farmer to claim against the full sum insured without reduction.
  • Earlier, the sum insured was the credit loan amount for a loanee farmer and maximum liability borne by the insurance company in the case of a non- loanee farmer. Under PMFBY, the sum insured under the new scheme will be based on the scale of finance for a particular region and for a particular crop, which will be based on the cost of cultivation. This will ensure that unlike the past schemes where the actual payouts to farmers were minimal, farmers will get more money to compensate their losses.
A few misses
The new scheme does retain some key limitations of the previous schemes.
  • Insurance Unit still is based on the administrative unit such as block, mandal, nyay panchayat, etc. With such a large Insurance Unit (IU), loss estimation at the individual farm levels is never accurate. This means that some farmers will continue to get less money compared to their losses and some more. This has been a major concern voiced by farmer representatives and activists for a long time. As use of technology improves, changes should be made to make one farm as one insurance unit to make the scheme realistic in terms of gauging the losses and subsequent payouts.
  • PMFBY remains silent about the direct linkage between insurance companies and farmers. This leads to poor service delivery from the insurance companies. CSE analysis says there should be direct linkage between farmers and insurance companies. For loanee farmers, there should be a clear linkage and interface with the bank and the insurance company. For non-loanee farmers, there can be direct linkage with the insurance companies.
  • The monopolistic hold of one insurance company in an area will continue and farmers will still not have a choice to pick one insurance company over another. It is important that competition is encouraged among insurance companies so as to provide better services.
  • A majority of farmers who are tenants/cultivators or have taken land on lease cannot avail insurance, as they do not have documented proof of cultivating on a particular land. This is a flaw which needs to be considered and provision should be made for the cultivator to avail insurance and receive payout at the time of crop loss.
Use of technology for loss estimation
  • PMFBY talks about using technology to a great extent, which is a welcome step. Smart phones and remote-sensing technology will be used to reduce the delay in processing payment claims. However, it is important that we formalise the use of technology through a model in which farmers will have confidence.
  • Even with more and more use of technology, dependence on the existing manual crop-cutting experiments or subjective method of visual examination of crop loss would play a major role in estimating losses. Currently, the existing crop loss assessment system, where the patwari plays the key role, is not transparent and is full of loopholes and corruption. The success of the new insurance scheme will strongly depend on strengthening and improving the institutions at the local level.
  • In the new scheme, there is no mention about developing an agriculture intelligence information system which is a platform to collect farm-level data on all parameters. This system will help estimate crop loss smoothly, accurately, quickly and in a more transparent manner.
  • CSE Director General Sunita Narain said, “Farmers in general do not have confidence in crop insurance schemes. Their wariness is, to a great extent, rooted in past experiences when they did not receive the insurance payout because of administrative issues, including incomplete or absent paperwork or identification, ineligibility due to changed circumstances or guidelines not followed. Operational guidelines of this new scheme need to be improved and implemented well to make it farmer-friendly in the real sense.”
  • To view CSE’s report, ‘Lived Anomaly: How to enable farmers in India to cope with extreme weather events’, click here:
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