Ashok Gulati and Siraj Hussain
Recent floods in Gujarat, Rajasthan and Assam show that even in an otherwise normal monsoon year, farmers in certain pockets could still suffer due to natural calamities. Earlier, the droughts of 2014-15 and 2015-16 exposed that the existing crop insurance schemes were not enough to alleviate farmers’ woes. The sums insured under National Agriculture Insurance Scheme (NAIS), modified NAIS (MAIS), and Weather Based Crop Insurance Scheme (WBCIS) were too low, as premiums were kept low. Further, the compensation of claims was too meagre, and took too long to materialise to be really meaningful to farmers. So, governments often used National Disaster Relief Funds to rescue the situation. Unfortunately, it was not based on any robust scientific system and had its own loopholes.
The prime minister realised this, and in kharif 2016, he announced the Pradhan Mantri Fasal Bima Yojana (PMFBY), hoping it to be a game-changer. The PMFBY raised the sums insured to realistic levels, basically to cover cost of cultivation of farmers. The premiums were heavily subsidised by the Centre and the states in equal proportions, with farmers paying only 2% of the premium for kharif and 1.5% for rabi (for horticulture crops, it was 5%). Farmers found PMFBY attractive. Consequently, in the very first kharif season (2016), area (in ha) and number of farmers covered under PMFBY, both increased to 37.5 million. It was 47% higher in terms of number of farmers, and 38% higher in terms of area, over the NAIS and MNAIS schemes of kharif 2015, a drought year.
However, if compared to a normal kharif year, say, 2013, the number of farmers opting for it increased by 210% in kharif 2016, and area covered increased by 126%. The sum insured on per hectare basis under PMFBY increased by 51% over kharif 2015. The number of non-loanee farmers opting for PMFBY, as per the ministry’s communication, also increased by about 23%, driven primarily by Maharashtra. All these indicators show that PMFBY is moving at a good pace, and in the right direction.
But where one has to pay attention is that, despite increasing coverage, the premiums as percentage of sums insured increased. With greater competition, there is surely scope for negotiating lower premiums. But the litmus test of any crop insurance scheme is how fast it can settle claims of farmers. And it is here that the governance of the state is tested.
There are three critical steps in this process: first, the state has to notify the crops, make clusters of districts, determine the sums to be insured based on district level committees, and invite tenders from insurance companies; second, the state and the Centre have to pay premiums to the companies providing insurance; and third, in case of crop damages, they must quickly assess the damages and ask companies to pay the claims of farmers. Unfortunately, in this entire process, farmers have almost no role. That’s the reason that its implementation and effectiveness has fallen between cracks. If states delay notifications, or payment of premiums, or gathering crop cutting data, there is no way companies can pay compensation to farmers in time. And it is exactly this slow pace and casual attitude of several state agencies that had delayed compensations to farmers for losses in
Unfortunately, in this entire process, farmers have almost no role. That’s the reason that its implementation and effectiveness has fallen between cracks. If states delay notifications, or payment of premiums, or gathering crop cutting data, there is no way companies can pay compensation to farmers in time. And it is exactly this slow pace and casual attitude of several state agencies that had delayed compensations to farmers for losses in kharif 2016, and it may happen again in kharif 2017. There is talk in certain quarters that the government is giving away money to private insurance companies as the claims are much lower than premiums paid. It may be noted that in any crop insurance business, companies make profits during normal times and incur losses during droughts and floods. So, any meaningful commentary on premiums and claims should look at at least a 3-5 year cycle.
In any case, just for FY17, the total premium paid by the government and farmers is Rs 22,345 crore both for kharif and rabi, while the estimated claims for kharif 2016 alone will exceed Rs 10,000 crore, of which Rs 4,203 crore has already been paid. In Tamil Nadu, which was affected by the worst drought of the century, `976 crore was paid as premium in rabi and claims of Rs 1,213 crore have been paid. It may be noted that most states did not claim any amount under on-account claim for mid-season adversity, which allows 25% payment for quick relief to farmers. Similarly, most states failed to provide smartphones to revenue staff to capture and upload data of crop-cutting, which continues to come in with inordinate delay. There is hardly any use of modern technology in assessing crop damage.
With picking up of PMFBY, area under WBCIS reduced from 12 lakh ha in 2015-16 to 1.8 lakh ha in 2016-17. Both Rajasthan and Maharashtra, leaders of WBCIS, delayed finalisation of their tenders and received high actuarial rates. The pilot scheme of unified package insurance (UPIS) in 50 districts has not taken off. So, what is the future of crop insurance in addressing farmers’ woes from natural calamities? The PMFBY has moved in the right direction and made substantial progress in terms of coverage, but failed in quick dispensation of claims to farmers. The primary reason behind this failure is lethargy and casual attitude of state agencies. If the PMFBY has to succeed, farmers must have a bigger stake in its functioning. There is an urgent need to link insurance database with Core Banking Solution (CBS) so that when the premium is deducted from a farmer’s bank account, the bank sends him a message informing about the premium, sum insured and
There is an urgent need to link insurance database with Core Banking Solution (CBS) so that when the premium is deducted from a farmer’s bank account, the bank sends him a message informing about the premium, sum insured and name of insurance company. IRCTC has already done it for railway tickets, and there is no reason why our technology-savvy banks and insurance companies cannot do it quickly. Currently, several loanee farmers may not even be aware that they are insured! If the system remains locked between state agencies and insurance companies, chances are that the farmers will get shortchanged. It is time that the PM makes this flagship programme farmer-centric for effective implementation. It can pay rich dividends.