Crop Cover: Centre looks for new ways as states opt out of PMFBY

August 17, 2021 4:20 AM

Already, Gujarat, Andhra Pradesh, Telangana, Jharkhand, West Bengal and Bihar exited the PMFBY scheme, citing the cost of the premium subsidy to be bore by them. Madhya Pradesh joined late in the current kharif season while Tamil Nadu opted out.

The balance premium is split equally between the Centre and states. Many states have demanded their share of the premium subsidy be capped at 30%.The balance premium is split equally between the Centre and states. Many states have demanded their share of the premium subsidy be capped at 30%.

Since several states have opted out of the Centre’s flagship crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY), the Union agriculture ministry has asked National Rainfed Area Authority (NRAA) to suggest alternative risk mitigation measures for high-risk areas/crops. The idea is that low risk crops could still be covered under PMFBY with reduced burden of premium on the states.

Already, Gujarat, Andhra Pradesh, Telangana, Jharkhand, West Bengal and Bihar exited the PMFBY scheme, citing the cost of the premium subsidy to be bore by them. Madhya Pradesh joined late in the current kharif season while Tamil Nadu opted out.

“Each of the 15 agro-climatic zones in the country is spread over a vast geographical area where many crops are recommended by the Indian Council of Agriculture Research. However, there is a need to identify low-risk crops in a particular cluster, comprising one or more districts, within a climatic zone,” a senior government official said.

Under PMFBY, premium to be paid by farmers is fixed at 1.5% of the sum insured for rabi crops and 2% for kharif crops, while it is 5% for cash crops. The balance premium is split equally between the Centre and states. Many states have demanded their share of the premium subsidy be capped at 30%.

Currently, there is no pan-India fixed actuarial premium rate under PMFBY and it varies from area to area and crop to crop. Actuarial premium rates charged by the insurance companies are determined through bidding conducted by the states. Most insurance companies adopt “experience method’ in which base premium is calculated based on the loss cost/burning cost — premium required to meet the claims based on the experience of past premium and claims. States also provide yield data of past 10 years and indemnity level to insurance companies to help them arrive at premium calculation before submission of bids.

So farmers are tempted to select crops based on monetary returns without assessing the associated risk factors as there is no such information available. The task before NRAA is also to recommend alternate crops for water-guzzling crops like paddy and sugarcane in view of depleting ground water resources, the sources said. For instance, the premium for paddy and sugarcane can be much higher in a water-scarce cluster, compared to their alternatives.

The NRAA has hired some professional agencies to conduct the nationwide survey and may submit its report in six months, the sources added.

The country has been divided into 15 agro-climatic regions, identified on basis of soil type, temperature, rainfall and water resources availability.

According to a report of the parliamentary standing committee on agriculture, submitted this week, the agriculture ministry has said that most of these states have opted out of the PMFBY due to their financial constraints and not because the scheme is unpopular among the farming community. The committee has also asked the ministry to change the guidelines that stipulated to disallow states in implementing PMFBY in next season if they fail to release of subsidy premium within deadline. The parliamentary panel has expressed apprehension that this provision “may lead to withdrawal of states from the scheme.”

“Withdrawal/non-implementation of PMFBY by more states in subsequent years will defeat the very purpose for which the scheme was launched. The Committee, therefore, recommend the Department to properly look into the reasons/factors leading to withdrawal/non- implementation of the PMFBY by Punjab, Bihar, West Bengal, Andhra Pradesh, Gujarat, Telangana and Jharkhand and to initiate suitable steps so that States continue to implement the Scheme and farmers reap the benefit of the Scheme,” the report said.

Last month, the Centre wrote to the state governments seeking their views on including the so-called ‘Beed formula’ as an option under PMFBY amid several states developing cold feet on the scheme. The Centre in February last year had changed the guidelines and allowed states option of three-year contract with insurers on the premium charged in crop insurance. States also can continue with the existing system of inviting bids for premium every year, as per the guidelines.
Under the ‘Beed formula’, also known as the 80-110 plan, the insurer’s potential losses are circumscribed – the firm won’t have to entertain claims above 110% of the gross premium. The insurer will refund the premium surplus (gross premium minus claims) exceeding 20% of gross premium to the state government. Of course, the state government has to bear the cost of any claims above 110% of the premium collected to insulate the insurer from losses, but such higher level of claims rarely occur, so the states reckon the formula in effect reduces their cost to run the scheme.

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