Successive governments have come out with various schemes to cover farmers against crop loss during disaster or extreme weather events, but the relief for farmers remains patchy. Two reports released on PMFBY - one by the Comptroller and Auditor General (CAG) and the other by private think-tank Centre for Science and Environment (CSE) - indicate the steep challenges to crop insurance schemes. While the CAG in its report, tabled in Parliament, figured out how the previous schemes had failed on various counts before 2016, the CSE analyzed the ground situation on implementation of the incumbent government's ambitious PMFBY and noted several loopholes.
The CAG, on its part, has slammed the poor implementation of crop insurance schemes in 2011-16, saying funds to the tune of over Rs 3,622 crore were released to private insurers without verification. In its report, it noted that both central and state governments incurred an expenditure of over Rs 32,606 crore towards payment of premium subsidy and claim liabilities during the five year period.
The CAG report examined the implementation of the crop insurance schemes -- NAIS, MNAIS and Weather Based Crop Insurance Scheme (WBCIS) — through 2015-16. These schemes, however, have now been replaced with new Pradhan Mantri Fasal Bima Yojan (PMFBY) from 2016 kharif season.
The Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched in April 2016. It fixed a low premium for farmers — 1.5 per cent for rabi crops, 2 per cent for kharif crops, and 5 per cent for horticulture and other commercial crops — and enhanced the sum insured to cover basically the cost of cultivation. It targeted bringing 100 million hectares (50 per cent of gross cropped area) under PMFBY by 2018-19. One had hoped that this new PMFBY will undertake the assessment of damages and settlement of claims expeditiously in the event of any natural calamity, and farmers will get enhanced compensation on time. Has that happened? The answer is no
According to the CSE report, PMFBY was more farmer-friendly provisions than its predecessors. It reduced the burden of premium on farmers significantly and expanded coverage. It also promoted use of advanced technologies to estimate losses accurately and accelerate payments to farmers.

The positives:

• Coverage of agricultural insurance has significantly increased in kharif 2016 compared to kharif 2015 across India. The number of farmers insured crossed 4 crores during kharif 2016, a jump from 3.09 crores in kharif 2015.
• The sum insured is now closer to the cost of production than before. It has gone up from Rs 20,500 per hectare of land during kharif 2015, to Rs 34,370 in kharif 2016. This means in case of losses, farmers should theoretically get significantly higher compensation than before. However, in some states like Rajasthan, the sum insured remains very low—about one-third of the cost of production.

The negatives:

• Gaps in assessment of crop loss: The sample size in each village was not large enough to capture the scale and diversity of crop losses. In many cases, district or block level agricultural department officials do not conduct such sampling on ground and complete the formalities only on paper. CSE also noted lack of trained outsourced agencies, scope of corruption during implementation and the non-utilisation of technologies like smart phones and drones to improve reliability of such sampling.
• Inadequate and delayed claim payment: Insurance companies, in many cases, did not investigate losses due to a localised calamity and, therefore, did not pay claims. For kharif 2016, the claim payment to farmers was inordinately delayed—till April 2017; claims for kharif 2016 were not paid or were partly paid in 14 out of 21 states. Only 32 per cent of the reported claims were paid out by insurance companies, even when in many states the governments had paid their part of premium.
• High actuarial premium rates: Insurance companies charged high actuarial premium rates during kharif 2016 – the all-India rate was approximately 12.6 per cent, which was highest ever. Much higher rates were charged in some states and regions. The average actuarial rate in Gujarat was 20.5 per cent, in Rajasthan 19.9 per cent, and in Maharashtra 18.9 per cent.
• Massive profits for insurance companies: CSE’s analysis indicates that during kharif 2016, companies made close to Rs 10,000 crore as ‘gross profits’.
• Coverage only for loanee farmers: PMFBY remains a scheme for loanee farmers – farmers who take loans from banks are mandatorily required to take insurance. The percentage of non-loanee farmers availing insurance remained less than 5 per cent during kharif 2016 and 2015. Like previous crop insurance schemes, PMFBY fails to cover sharecropper and tenant farmers.
• Poor capacity to deliver: There has been no concerted effort by the state government and insurance companies to build awareness of farmers on PMFBY. Insurance companies have failed to set-up infrastructure for proper implementation of PMFBY. There is still no direct linkage between insurance companies and farmers. Insured farmers receive no insurance policy document or receipt.

The report has also identified issues like delayed notification by state governments, less number of notified crops than can avail insurance, problem with threshold yield estimation etc. that has diluted the usefulness of PMFBY. One of the key conclusions of the report is that PMBY is not beneficial for farmers in vulnerable regions. For e.g. farmers in vulnerable regions such as Bundelkhand and Marathwada, factors like low indemnity levels, low threshold yields, low sum insured and default on loans make PMFBY a poor scheme to safeguard against extreme weather events. CSE analysis shows that farmers in these areas might not get any claim even if more than half of their crops are damaged.

One does not see PMFBY achieving its target of covering 50 per cent of gross cropped area (GCA) by 2018-19. Except a few states (see graph), India’s current insurance cover is about 30 per cent of GCA. As against this, China insures about 70 per cent of its GCA and the US extends insurance cover to about 90 per cent of GCA. The primary reason behind PMFBY’s lacklustre performance is that it suffers from several administrative glitches and the typical red tape that does not inspire confidence with farmers as they have to wait for months, and even years, to be compensated for their losses.

The most important role, however, is played by state government, which finalises the insurance company for every cluster through open tenders, pays half of the premium subsidy, conducts crop cutting experiments and submits data of crop yield to the insurance company. In order to get reasonable rates of premium, timely finalisation of bids to discover premium is critical. This should be done well before the first forecast of the monsoon by the IMD so that there is no adverse selection. However, the experience of the first two years shows that most states do not finalise the selection of the insurance company in time. This year, for example, Gujarat and Rajasthan have still not finalised the insurance company for their clusters. We fear that in a year of a poor forecast of the monsoon, the companies will quote a very high premium.
In an appreciable decision, the government launched an insurance portal in kharif 2017 and the banks were directed to enter the complete information of farmers in the portal. However, due to teething problems, even data for kharif 2017 is not up to date. As a result, one does not know for sure whether area under the scheme has increased or fallen in 2017-18. From kharif 2018, one hopes that every farmer will receive an SMS from the insurance company displaying the premium deducted and sum insured.

The scheme has been implemented in four seasons, starting from kharif 2016 to rabi 2017. In 2016-17, the gross premium paid to insurance companies was Rs 22,189.62 crore out of which farmers paid Rs 4,327.40 crore. Both 2016-17 and 2017-18 were years of normal monsoon in most parts of the country, yet the claims paid in 2016-17 reached Rs 12,948.98 crore. Some states like Tamil Nadu (TN) ensured the efficient settlement of claims by promptly conducting crop cutting experiments (CCE) and submitting the data to companies.
As a result, in TN, the gross premium in 2016-17 was Rs 1,252.42 crore while claims of Rs 2,724.82 crore were paid to farmers. This shows that the scheme can be effective in mitigating farmers’ distress provided banks submit data to companies in time and state governments pay the premium subsidy and conduct CCE promptly and accurately. But such states are more the exception than the norm. The norm that prevails in most states is of red-tape manifested in delays in finalising tenders, in payment of the premium subsidy, in conducting CCE, etc. All these delays finally end up making farmers suffer for months without getting any compensation whatsoever. It may be amusing to know that there are states like Bihar, Chhattisgarh, Haryana, Karnataka, Kerala and West Bengal that have not paid the premium subsidy for even 2016-17 crops, while companies are now insuring farmers for kharif 2018. Obviously, in such a situation, one cannot hope to run any insurance scheme meaningfully.
What’s the way out now? Can PMFBY be made to deliver to the satisfaction of farmers?
The answer lies in strengthening the scheme at least on three fronts: One, induct a team of 10-15 insurance experts at the Centre to continuously track, evaluate its progress, negotiate lower premium rates with re-insurers, and also guide states in efficiently implementing the scheme; two, ensure that the states and Centre give the premium subsidy in time and tenders are finalised for three years to get lower premium rates; three, use technology, like satellites, LEOs (Low Earth Orbits), drones, smartphones, etc., for a faster and more accurate assessment of losses.
It may be noted that due to the extreme paucity of expertise both at the Centre as well as in states, many states feel bewildered when they get premiums as high as 40 per cent for some crops. We strongly feel that premiums can be brought down through negotiations with re-insurers, giving significant savings to the Centre and states, provided the scheme is run efficiently and in a transparent manner. But it would require professional expertise, and a dedicated team, to deliver. In its current state of play, alas, a lot of public money is being spent without timely benefits for farmers.