The Narendra Modi-led government needs to be complimented for taking the first major step in revamping the crop insurance system to address increasing distress in Indian farming. With back-to-back droughts and unseasonal rains and hail in certain pockets, it was clear that the risks in farming are on the rise, and the existing system of crop insurance was nowhere near the needs of peasantry.
The sums insured were low (based on the cost of inputs rather than prospective income), the premiums high (generally ranged between 8-12% in case of the Modified scheme), and the assessment of crop damages lacked transparency and was devoid of the use of the latest technologies available (it was more a political exercise than scientific assessment), and finally the compensation took unduly long time, even going beyond a year in many cases, and was reported to be ridden with corrupt practices.
Given this backdrop, the new scheme is surely a major step in the right direction, and very timely—both in terms of saving Indian agriculture from the increasing risks from nature, and protecting the political goodwill of the NDA government, which has been fast dissipating in rural areas. Although more details are needed on the new scheme, especially on how it will be implemented, as a concept, it surely deserves kudos.
While the actuarial-based premiums generally hover around 10-12% for most kharif crops, the share of farmers is capped at 2% in the new scheme, and for rabi crops it is at 1.5% (against the actuarial-based premiums of 8-10%). For year-long cash crops and horticulture crops, it is capped at 5%. What it means is that farmers will get almost an 80% subsidy in insurance premiums. It will be borne by the government—presumably by the central and state governments—although the PIB notification does not clarify yet in what proportion it will be distributed between the two governments.
This rate of subsidy in crop premiums is not out of line with international practices. The US insures its farmers (about 123 million hectares) and gives subsidy to the tune of around 70%. China insures its farmers for a sown area of around 75 million hectares with a subsidy of about 80% on premiums. India plans to reach around 50% of its cropped area, which hovers around 195 million hectares, over the next five years, if the scheme really takes off.
The cost of the new scheme is estimated at roughly R8,000-9,000 crore to the government annually. Given that government is already shelling out around R5,000 crore annually (average of last five years) through its clumsy disaster relief mechanism, the additional costs of the scheme are mere peanuts. Nevertheless, it can be a harbinger of change, provided two conditions are satisfied.
First, the crop assessment is done in a transparent manner and within a specified time frame, through use of high technology such as Automatic Weather Stations (AWS), drones, low earth orbits (LEOs) and satellites. Is this infrastructure in place? How much will it cost and how much time will it take to get it in place? The notification is silent on this. Can we fix the time that crop damage assessment must be done within two weeks of the extreme event? These issues need to be clarified for the successful implementation of the scheme.
Second, the compensation must be paid to the farmers accounts directly, say within a week of the assessment of crop damages. (In Kenya, compensation to farmers is given in 2-4 days!) In order to do this, the financial infrastructure has to be in place. Plot-wise information has to be digitised—who is the tiller who has paid the premium, his/her plot has to be synchronised with the bank account number, Aadhaar number, and mobile number. This is critical, as the crop damage assessment exercise has to match with plots and accounts of the tillers. Is all this infrastructure in place? I doubt.
To ensure that this good idea doesn’t get buried under the bureaucratic wrangling of various stakeholders, the PMO must focus and persevere on the creation of this basic infrastructure, according it almost the same priority as was given to opening Jan Dhan accounts. It will involve the ministry of rural development to clean up land records, ministry of agriculture and farmers’ welfare to digitise plot-wise information, banks to lock in accounts of tillers with their Aadhaar numbers, and mobiles. And who will set up the AWS, the drones, the LEOs, and the satellites? Who will be responsible for the functioning of this high tech equipments? What would be the role of private sector insurance companies? The role of NABARD and RBI? All these questions need systematic answers, with accountability of each of the stakeholder clarified and fixed. Lot of work still needs to be done.
The bottom line is that the crop damage assessment must be done maximum within two weeks of the extreme event and compensation to farmers deposited directly to their accounts within a week after the assessment, even without their asking or even realising it. That would be the litmus test for true success of this scheme and the perfect Lohri/Bihu/Pongal gift to farmers. Only then risks of farming can be reduced, and incentives for private investments in agriculture increased, and agriculture growth and farmers’ prosperity revived.
Will the government rise to this challenge? Only time will tell. Nevertheless, at this stage, the government surely deserves compliments from farmers and farm analysts to at least focus on the problems of rising risk in agriculture.
The author is Infosys Chair, professor of agriculture, ICRIER