Though the rising claims-to-premium ratio under the NDA government's flagship crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) is raising doubts about its sustainability, policymakers argue that it is too early to make conclusions either way.
Though the rising claims-to-premium ratio under the NDA government’s flagship crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) is raising doubts about its sustainability, policymakers argue that it is too early to make conclusions either way. PMFBY was launched during the 2016 kharif season. “A scheme cannot be perfected in one to two years. We should watch it for at least four years (to have a mix of good and bad years),” NITI Aayog member Ramesh Chand told FE in an interview.
Responding to the criticism that farmers in some places are not receiving compensation from insurance firms due to delayed contributions by state governments and consequent claim rejections by insurers, he said that crop insurance should not be seen as “some kind of investment scheme” with guaranteed annual returns. He admitted that some states have indeed faltered on paying their share of premiums on time. He said PMFBY’s claims ratio had risen from a healthy 63% in the 2016 kharif season to 82% for the summer crop in 2017.
Under the scheme, farmers contribute about a fifth of the premium while the Centre and state governments are to contribute the balance amount on a 50:50 basis. FE recently reported that PMFBY’s claims-to-payout ratio plunged after a good start but has again started looking up of late. While states like Maharashtra, Karnataka, Odisha, Uttar Pradesh and Haryana have paid close to 100% of premiums for kharif 2017, Andhra Pradesh and Telangana have contributed little.
According to Chand, admissible claims that can “be treated as almost settled” stood at Rs 10,411 crore in kharif 2016 as against gross premium collected of Rs 16,601 crore. In kharif 2017, such claims were Rs 15,948 crore as against premiums of Rs 19,381 crore.
After the crop insurance scheme was launched in 2016, India has experienced near-normal monsoons. A bad monsoon could have inflated the claims drastically, Chand said.
“Crop insurance is a complex problem everywhere in the world. The US Department of Agriculture (USDA) representatives were recently here to discuss India model,” Chand said. According to USDA data, the claims ratio for US Federal crop insurance scheme ranged from 40% in 2016 to 157% in 2012, depending on weather and drought conditions.
On the new minimum support price (MSP) policy where there prices are 1.5 times cost of production (A2+FL), Chand said the modalities were being worked out to ensure that the farmers indeed received the MSPs. In terms of cost effectiveness and minimum distortion in the market, options being discussed include the Bhavantar model (price deficiency support) and a scheme akin to Telangana’s ‘crop investment support’ scheme (Rythu Bandu), which involves payouts based on acreage, he said. “An appropriate decision would be taken by the government soon in this regard,” he said.