The recent report of the Comptroller and Auditor General stated that the Central and State governments spent Rs 32,606 crore to subsidise crop insurance premiums without maintaining farmers’ records up to 2015-16. The Government of India started the Pradhan Mantri Fasal Bima Yojana (PMFBY) since 2016-17 with uniform premium rates for farmers with 1.5%, 2% and 5% of the sum insured for kharif, rabi and annual crops respectively.
But the insurance companies will charge actuarial rates. The gap between farmers’ premium rates and actuarial rates will be subsidised by Central and State governments. The PMFBY target is to provide crop insurance to 30%, 40% and 50% of the total cropped area in the country during 2016-17, 2017-18 and 2018-19 respectively. As per Budget 2017-18, PMFBY has to cover 40% of the gross cropped area and reduce risk by 60% for about 60 million farmer households.
In its first year (2016-17), the PMFBY reached its targets in terms of farmers and area coverage, but field observations show that there are implementation bottlenecks to maximise benefits for farmers.
Insurance Companies’ Profits
The total premium collected by the insurance companies for 2016-17 was Rs 22,337 crore, of which farmers paid Rs 4,411 crore and the Central and State governments paid the remaining Rs 17,926 crore. But the farmers’ claims were only Rs 13,500 crore and the claims ratio was 60%. The insurance companies made huge profits of Rs 8,837 crore.
The government needs to increase competition among the insurance companies to reduce premiums. On an average, they charged about 12% premium. The State and Central governments paid 5% each and the remaining 2% was borne by farmers.
Currently, about five public sector and 13 private sector insurance companies are empanelled to bid. Bidding takes place cluster-wise (comprising 3-4 contiguous districts) for all notified crops as a single bundle and the final bidder for the cluster is selected based on the lowest weighted average premium rate quoted.
There were insufficient bidders in rainfed and remote districts. The premium rates were as high as 25% in some backward districts in Telangana. This is mainly due to less competition among insurance companies. This resulted in huge profits for the insurance companies, purely from government subsidy. So, there is a need to encourage more companies to increase competition.
The geographical distribution of PMFBY was highly skewed with only five States — Maharashtra, Rajasthan, Madhya Pradesh, West Bengal and Uttar Pradesh — together accounting for about 70% of the insured farmers, although these States account for only 43% of the country’s total farmers. Crop insurance also needs to be promoted in rainfed districts to cover risk.
Priority must be accorded to strengthening State Level Coordination Committee on Crop Insurance and District Level Monitoring Committee to coordinate State-level plans and to suggest timely adjustments in implementation schedule in collaboration with financial institutions and insurance companies for maximum coverage.
Since crop insurance is compulsory for loanee farmers and for non-loanee ones it is voluntary, the real demand for PMFBY should be assessed through premium payments by the non-loanee farmers. For 2016-17, 5.7 crore (4.41 crore loanee and 1.33 crore non-loanees) farmers were covered of the 12 crore farmers in India. A total 58.1 million hectares was covered out of 194 million hectares of gross cropped area.
Though the PMFBY achieved its targets both in terms of number of farmers and area, most farmers are complaining about delayed or non-payment of claims. Given the low level of satisfaction among farmers, the following improvements can be considered:
* Increase Awareness
All three key stakeholders — department of agriculture, financial institutions and insurance providers — need to increase awareness of PMFBY and its modalities among farmers. Outreach through advertisements in newspapers, telecasts through audio-visual media, distribution of pamphlets in local languages, organising kisan melas, trainings, workshops with the help of KVKs, agricultural universities and banks should be stepped up.
* Front-line field staff
Front-line field staff from the agricultural department, banks and insurance companies are important and they will be change agents for this scheme. They themselves need to be educated about the scheme modalities first so that they can effectively disseminate information among farmers, who are generally unaware of the complexities.
It is also important to increase awareness about PMFBY among input dealers, gram panchayat office bearers, elected representatives and revenue officers as they are opinion-makers in villages and can influence farmers’ behavioural change to take up crop insurance.
* Use Technology
There is also need to increase the efficiency of the whole set of operations starting from the functioning of weather stations, crop-cutting experiments, use of drones and satellite images and GIS-based mobile phones to estimate yield losses, provide seamless connectivity and transfer of information among farmers, agriculture department, banks and insurance companies. Most of the farmers are not aware of crop insurance portal and most of the times, online registration is non-functional.
From our field observations, it is evident that there was a lack of infrastructure in terms of weather stations and dedicated field staff to inspect yield losses, take readings from weather stations, complaints from farmers and to address their grievances. Insurance companies should be barred from bidding if they don’t have adequate infrastructure and dedicated staff to address farmers’ grievances.
* Cut-off Dates
Uniform cut-off dates across India for premium payments are not ideal for diverse agro-climatic conditions across States. States should have flexibility in deciding cut-off dates for premium payments as well as release of claims in time before the sowing of next season so that farmers use the claims money to purchase seeds and other inputs for next season without depending on moneylenders.
Timely release of advances (up to 25% of the claims) in case of adverse events such as inability to sow owing to inclement weather and mid-season adversity like floods is important to increase belief in the system. For this, there should be sufficient staff and resources for quick field survey and prompt notification by State governments. Cut-off dates should be widely publicised.
The success of PMFBY depends on the how well crores of small farmers can adopt it to reduce their crop risk.
(The author is Director – Monitoring and Evaluation, National Institute of Agricultural Extension Management (Manage), Hyderabad; firstname.lastname@example.org)