Fixing farm insurance

News: Recently, Maharashtra has indicated that it might exit PMFBY because the farmers are dissatisfied with it.

What are the issues existing with PMFBY?

First, it is the government’s flagship crop insurance scheme. But there are numerous issues even after modifications. Six states have exited from it, while Punjab, a leading agricultural state, never joined it.

The states Gujarat and Bihar which are run by NDA opted for it but later decided to quit along with states like Andhra Pradesh, Telangana, Jharkhand, and West Bengal.

Second, the financial burden of running the PMFBY is difficult to sustain, even though the Centre shares 50 per cent of it. A large part of agricultural budget goes into paying premium subsidies and meeting other administrative expenses.

Third, insurance companies find it unattractive because the risks involved are too high. For instance, risk of natural hazards and attacks by diseases, pests, and stray animals. Hence, claims are generally far higher than the premium collected.

Fourth, the compensation computed by insurers is often disputed. The farmers also do not find it financially rewarding because claims are most often rejected by the insurers, the payment is usually too small and there are long delays.

For instance, in a recent event, Madhya Pradesh’s chief minister held public function to disburse PMFBY claims worth over Rs 7,600 crore. In reality, the payment was actually due for over 16 months.

Fifth, Farm insurance is always associated with problems since first introduced in 1972 and the PMFBY is no exception. In 2020, it was made voluntary for the farmers, but the major issues are trust deficit and the credibility of insurance as a means of hedging production risks.

Sixth, other issues are lack of transparency, the time lag in undertaking crop-cutting experiments to assess crop damage, the inadequacy of site-specific past data on crop yields to serve as a benchmark for computing losses, delays in paying states’ share of premium subsidy to the insurance companies and procedural complications.

That is why the area covered under the PMFBY has not exceeded 30 per cent of the total cropland, against the government’s target of extending it to a 50 per cent area.

What is the way forward?

First, the parliamentary standing committee on agriculture probed the PMFBY and highlighted many issues in its report presented last year. Hence, the government should pay attention to those specific issues.

Second, the government has also set up a working group to revisit this scheme. There is a need to recast the scheme to ensure adequate compensation for the losses and timely payment to the farmers.

Source: This post is based on the article “Fixing farm insurance” published in Business Standard on 18^th Feb 2022.