Farmer distress: Why NITI Aayog’s cashback proposal for Fasal Bima Yojana is a bad idea

By: | Published: October 19, 2018 2:29 AM

agriculture sector, niti aayogWhile the government probably sees the estimated Rs 10,000 crore lying with insurers over the last two kharif seasons as an undue benefit accruing to the insurers at the cost of the farmer, the fact is that agriculture is an high-risk activity given so much of it rain-dependent. (Reuters)

NITI Aayog has proposed that 75% of the premium paid by farmers under the Pradhan Mantri Fasal Bima Yojana (PMFBY) will be returned to them if they don’t file claims for crop damages for four-six consecutive agricultural seasons. Government officials reckon that such a move would attract more farmers into the insurance fold; at present, just 29% of the 12 crore farmers/cultivators in the country are covered under the crop insurance scheme. However, the proposed change is likely to not find favour among insurers. While the government probably sees the estimated Rs 10,000 crore lying with insurers over the last two kharif seasons as an undue benefit accruing to the insurers at the cost of the farmer, the fact is that agriculture is an high-risk activity given so much of it rain-dependent. This risk will increasingly get worse with climate change impact worsening. The fact is that farmers are receiving the payments against their claim with a significant lag, and given agri-households’ dependence on harvest incomes, such lags could actually be eroding farmers’ trust in the scheme. It is not high premiums—farmers pay just a fifth, with the state government and the Centre paying the rest—that are to blame but the delay on the part of states in paying their share of the premium.

With the claims ratio—the value of the claims made to the premium charged—rising from 68% in kharif 2016 to 88% in kharif 2017, and set to increase further, the government will have to ponder whether the current model of insurance is the best since higher coverage really isn’t an option unless farmers get their dues paid back quicker. The Centre’s steps to improve compliance by insurers and close-fisted state governments—farmers need to be paid 12% interest by insurance companies for any delay in settlement of claims beyond two months of the prescribed cut-off date, while states will have to pay 12% interest for the delay in release of their share of premium beyond three months—will not be financially sustainable for either the insurance companies or state governments. If insurance companies can’t take anymore hits on their margins, the government—Centre and states—have to relook their entire spending on agriculture and allocate money to the place where it is best used.

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