So long as the crop losses were reimbursed by the government to the insurance companies beyond the premium amount, there was no incentive to build an unbiased system for production and loss assessment.
The Pradhan Mantri Fasal BimaYojna (PMFBY) was a bold attempt to provide a social security framework to a wider group of farmers. Agriculture insurance had been tried in a number of avatars but they were never meant to support farmers and instead provided a safety net for bank lending to the farm sector. In all these years, there was no attempt to educate the farmers and explain the logic of insurance, its premium amounts and the extent and circumstances of coverage. As a result, agriculture insurance did not engage large numbers and grow as a product.
In order to cover a larger number of farmers, as a genuine social safety net, the technology component was to form the backbone for covering large areas and reducing human intervention and arbitrariness. Real time monitoring of areas, conditions of the crop and increasing productivity was to be possible once the technology framework was developed and put in place. This was an important step for protecting farmers in areas where there are no assured means of irrigation and crops are dependent on rainfall. It would permit monitoring of multiple parameters such as soil moisture, plant canopy water, crop health and would ultimately track crop loss. In case of a drought, this would facilitate early compensation for crop loss, in order to recuperate the upfront investment of the farmer.
Other weather events such as floods, blight, disease or hail are a constant threat to crops. However, the interesting aspect is that they can have varying impacts in the same area. Flooding can have varying affects depending on the terrain. In areas afflicted by water logging, the crop damage tends be higher than in areas having a natural drainage. Similarly, hailstorm impacts can vary in the same village or across an area. Given the limitation of scanning large areas manually, a combination of platforms was the answer.
The other important aspect of the scheme was that the financial commitment of the state and Central governments was limited to the premium contribution. Beyond the premium, contribution from the farmer and state and Central governments, the insurance companies were to compensate from their resource pool. The bundling of individual farmer risks over larger areas and numbers and then taking a supporting cover from the re-insurance companies was part of the new programme. Therefore, the technology component was crucial.
The PMFBY had posited a crop cutting system whereby technology was to be the backbone for the assessment of productivity and crop loss, if any, and thereby the settlement of the insurance claims. The guidelines laid down the selection process of the plots to be taken up for crop cutting. Using satellite data, the fields were to be selected based on the areas having high, medium or low productivity. Since concomitant development of remote sensing applications for agriculture were not in place, the drawback of the previous insurance schemes for plot selection manifested itself in the new programme and companies were under pressure to compensate where losses had not occurred. So long as the crop losses were reimbursed by the government to the insurance companies beyond the premium amount, there was no incentive to build an unbiased system for production and loss assessment. With the shift in pay-out burden, payment of compensation without verification and assessment was not possible.
For instance, crop cutting data showed crop loss but the market arrivals were so in plenty that warehouses were overflowing with stocks and the state was unable to sustain price support operations. The second problem faced on-ground was that, in many districts, insurance was done for notified crops but the farmers also planted other uninsured crops. In some cases, multiple crops were insured on the same plot of land. The infrastructure available with the insurance companies to do farm insurance or settle claims, when they arose, was insufficient. Expansion of crop insurance without technology induction required engaging larger numbers which insurance companies were not willing to commit to in the short-run.
The signal to the farmers and the community was that, if they pushed hard enough, agriculture insurance could provide income support even when not justified. The community and the state governments developed a common interest to defeat agriculture insurance, thereby short-circuiting the thrust of the new insurance initiative.With the growing distrust between the farmers, insurance companies and the state governments, there was no attempt to enforce the ground rules. This confusion at the grassroot level put the state governments, farmers and the companies at odds. In this tussle to fend off pressure, insurance companies delayed claim settlements because no assessment over large areas could be accurately done and a needle of distrust hung on all sides. With this confusion, the government delayed the release of subsidies and the companies delayed their compensations, even in areas where farmers may had genuinely suffered crop loss. It may be noticed that the technology platform, which was to be the cornerstone, for agriculture insurance never emerged to support its operation.
Therefore, farmers, who may have, over a period of time, opted for agriculture insurance, were discouraged from joining due to delays in the settlement of claims. The second reason was that it did not cover tenants. Tenancy is not recognised in many states and continues to be suppressed and, therefore, lease holders cannot be covered by agriculture insurance.With growing male migration of labour to towns, to sustain household income, agriculture operations have been taken over by women in the small and marginal farmer category.
Agriculture is probably the riskiest business with upfront investments and inadequate risk assessments of long-term weather events leading to loss of capital and indebtedness. In fact, there has been a growing feeling in the farming community that agriculture offers low surpluses, given the uncertainty of weather and prices. An additional advantage that may have accrued was the real-time data gathering of crop production across the country and fairly accurate price predictions. The technology support envisaged in the PMFBY would have enabled the rapid resolution of insurance claims.
-The writer is a retired IAS officer