Saturday 5 December 2020
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Boost to farming sector

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Economy Boost to farming sector

news analysis

With back-to-back droughts and unseasonal rain and hail in certain pockets, it became clear that the risks in farming are on the rise. The existing system of crop insurance proved inadequate to meet the needs of the peasantry. The problems were many:

  • The sums insured were low; it was based on the cost of inputs rather than prospective income from the crop sown.
  • The premiums used to be high, generally ranging between 8-12%.
  • The assessment of crop damage lacked transparency.
  • The assessments used to be more political exercise than scientific one using the latest technologies
  • Compensation payment took unduly long through a process ridden with corrupt practices.

The highlights of the new Pradhan Mantri Fasal Bima Yojana (Prime Minister’s Crop Insurance Scheme) are:

  1. There will be a uniform premium of only 2% to be paid by farmers for all kharif (monsoon) crops and 1.5% for all rabi (winter) crops. In case of annual commercial and horticultural crops, the premium to be paid by farmers will be only 5%. The premium rates to be paid by farmers are very low; the balance premium will be paid by the government to provide the full insured amount to the farmers against crop loss on account of natural calamities.
  2. There is no upper limit on government subsidy. Even if balance premium is 90%, it will be borne by the state.
  3. Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction.
  4. The use of technology will be encouraged to a great extent. Smartphones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments.

The scheme is a step in the right direction to de-risk farming and encourage farmers. However certain details on operationalisation of the scheme are awaited.

  • While the scheme ensures that farmers will get almost 80% subsidy in insurance premiums, in the issue of which government will bear the burden of subsidy; whether that will be the Centre and/or the State government has not been specified.
  • The government also needs to ensure that crop assessment would be done in a transparent manner within a specified period of time and using high technology such as automatic weather stations.
  • Compensation must be paid to farmers’ accounts directly, within a stipulated time after the assessment of crop damage. To ensure this an effective system needs to be created urgently with accountability of each stakeholder clearly demarcated.

The new scheme is estimated to cost the government around Rs 80,000-90,000 million annually. Given that the government is already shelling out around Rs 50000 million annually through its mechanism for disaster relief, the additional cost of the scheme isn’t much.

The insurance scheme could be the harbinger of change, provided that it does not falter at the implementation level.

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Sugato Hazra
Sugato Hazra
Public policy analyst based in Delhi


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