• Pradhan Mantri Fasal Bima Yojana was launched to expand crop insurance coverage in India
  • But coverage has shrunk, despite compulsory enrollment of farmers at the time of taking loans
  • Private companies retain a larger share of government funds than before
  • Farmer groups have opposed compulsory enrollment and complained about payment delays.  

In its manifesto for the 2014 elections, the Bharatiya Janata Party promised to improve and expand an insurance scheme that buffers farmers against unexpected crop losses. In February 2016, it launched the Pradhan Mantri Fasal Bima Yojana.

The scheme replaced the National Crop Insurance Programme introduced by the Congress-led United Progressive Alliance government in 2013. Prime Minister Narendra Modi claimed the new scheme would increase farmer protection.

But analysis by independent researcher Kannan Kasturi shows crop insurance coverage shrunk, both in terms of number of farmers insured and area covered. Funds allocated for the scheme have profited private insurance companies more than farmers.

How does crop insurance work?

Crop insurance works by spreading the risk of crop damage across farmers. Since the risk of crop damage is high in India, the actual premiums based on production figures are high. Small and marginal farmers cannot afford to pay them, which is why the government needs to step in.

In the past, under the National Agricultural Insurance Scheme, a public sector company called the Agricultural Insurance Company collected premium from farmers and serviced claims. Whenever the claims exceeded the money it had, the central and state governments stepped in and paid the rest.

In 2013, the UPA government replaced the National Agricultural Insurance Scheme with the National Crop Insurance Programme, which was implemented only in 2015-’16.

It was based on the participation of private companies. The government placed caps on the premiums that companies could charge before inviting bids from them. The company offering insurance at the lowest premium won the bid. Farmers paid a small part of the premium, while the government paid the rest. If companies charged higher premiums, then the sum insured was to be reduced, to limit the government’s expenditure.

Months after this model was implemented, the Modi government launched the Pradhan Mantri Fasal Bima Yojana, which was an iteration of the same scheme.

How is PMFBY different from previous schemes?

The Modi government claims the Pradhan Mantri Fasal Bima Yojana has better accuracy since the insured unit – the unit of calculation for average yield, risk and loss – is the village and not the block. But this feature was part of older schemes too. Besides, PMFBY mandates that villages should be the insured unit only for major crops. For minor crops, the unit can be up to the block level.

The major difference between PMFBY and previous schemes is that it removes the upper cap for insurance companies. Without a cap, farmers can theoretically receive the entire value of the sum insured.

But, in reality, this has meant a larger part of government spending on crop insurance is held by insurance companies, as explained later in this piece.

PM Narendra Modi unveils guidelines for Pradhan Mantri Fasal Bima Yojana at Sehore, Madhya Pradesh, in February 2016. Photo: PMO website
PM Narendra Modi unveils guidelines for Pradhan Mantri Fasal Bima Yojana at Sehore, Madhya Pradesh, in February 2016. Photo: PMO website

Who can access the scheme?

Like previous crop insurance schemes, all farmers who access credit from public sector and cooperative banks are compulsorily enrolled in the PMFBY. These are called loanee farmers.

Those who are not compulsory enrolled through bank loans – or non-loanee farmers – rarely sign up independently. In Uttar Pradesh, for instance, only 0.3% of farmers enrolled under the scheme have not been compulsorily enrolled through bank loans.

Apart from four states – Jharkhand, Maharashtra, Tamil Nadu and Karnataka – non-loanee farmers comprise fewer than half of the enrollments in the Kharif 2017 season.

Has the scheme increased crop insurance coverage?

In 2014-’15, around 27% of agricultural households were covered by insurance. With PMFBY, the Modi government said it would expand coverage to 50% of all farmers. However, the percentage of farmers covered in 2017-18 came down to 26% in 2017-18.

Even with compulsory sign-ups through institutional credit, coverage among loanee farmers declined by 87.8 lakh or 20% from 2016-17 to 2017-18, a Lok Sabha reply in Parliament said. The government has attributed this to an overall decline in institutional credit.

However, the same reply says, the number of non-loanee farmers covered by the scheme has declined by 5.6% or 7.8 lakh enrollments.

In September 2018, the government released a revised set of guidelines mandating that insurance companies increase their coverage of non-loanee farmers by 10% each year.

Why are farmers upset with compulsory enrollment?

Farmers allege claims payouts from insurance companies go directly to the bank accounts from where they have taken loans. Banks in turn credit the claims towards paying off the loan, which leaves farmer with little, if any, immediate compensation.

In Gujarat, the Bharatiya Kisan Sangh, the Rashtriya Swayamsevak Sangh’s farmer wing, filed a public interest litigation in April 2018 challenging the clause that makes enrollment in the scheme compulsory.

What are the other complaints of farmers?

Claim payments are often delayed, sometimes beyond 18 months. In 2018, insurance companies had not paid farmers more than Rs 2,800 crore nine months after the claims were made, The Wire found in a Right to Information Act response.

One reason is that states delay their share of the premium subsidy to insurance companies, which in turn leads to delays payments from companies to farmers. This was one of the rules the Centre changed in the scheme’s revised operational guidelines in September.

Now, insurance companies have to clear payments within 21 days of receiving the claim, regardless of whether the state pays its part of the premium, or be charged with 12% interest. The state too will be penalised with interest for delayed payments.

Who benefits more from the scheme – farmers or insurance companies?

Under the Pradhan Mantri Fasal Bima Yojana, insurance companies have in the last two years retained about 44% and 23% of the government’s contribution towards paying premiums. In contrast, under older crop insurance schemes, a majority of the government’s contribution to the premium was spent in settling farmers’ claims.

While the Centre says that allowing private insurance companies to participate in crop insurance is good because this drives them to be more competitive than public sector insurers, in practice, this does not work out. As only one company is allowed to operate in a given area, this results in a monopoly, where insurance companies have little incentive to increase their presence on the ground or to clear claims as soon as they are made.

What are the other criticisms of the scheme?

Some analysts have noted that the deadline for states to finalise tenders for crop insurance companies for the kharif season is in July, well into the monsoon season. This gives insurance companies an unfair advantage in setting premium rates, as they can increase their bids based on the projected seasonal rainfall.

A report by the Ministry of Agriculture says that premiums in rainfed areas have gone up to 25%, with a lower number of companies bidding for these areas. States also do not notify all crops sown in their states, the report said, leading to several farmers being left out of the scheme.

At the start of each agricultural season, states conduct crop cutting experiments for each insured crop and area and pass on this yield data to insurance companies. These experiments have been riddled with inaccuracies for decades.

The Department of Agriculture has rolled out a mobile application for crop-cutting experiments, in an attempt to standardise them. However, as this article in The Wire calculates, even with such an application, if each district has to conduct a minimum of 24 crop-cutting experiments as the scheme mandates, the entire country will need 40 lakh such experiments. All these happen at the cost of states, not the insuring company.

Read more

Modi’s ambitious crop insurance scheme is failing. Here are the hard facts

How Modi’s crop insurance scheme benefits private insurers far more than it does farmers

This article is part of The Modi Years series which recaps the major milestones, controversies and policies of the BJP government.