Re-design and deliver – Govt crop insurance scheme needs radical rethink

Source: The post is based on an article “Re-design and deliver – Govt crop insurance scheme needs radical rethink” published in Business Standard on 1^st December 2022.

Syllabus: GS 2 – Governance

Relevance: problems with PMFBY and ways to address it

News: The government has decided to bring changes in the Pradhan Mantri Fasal Bima Yojana (PMFBY) in the view of increasing climate hazards on farming. This is a great step as the current PMFBY has many lacunae.

What are the issues with PMFBY?

Decline in numbers: This scheme has failed to meet the expectations of farmers and state governments. The number of states implementing the PMFBY has declined from 22 in 2018 to 19 in 2022 and cultivators opting for the insurance cover has dropped from 21.6 million to 15.38 million.

Issues of farmers/insurers: Farmers argue that the compensation paid by insurers is too low and comes too late to help them whereas the insurers argue that farm insurance is a low-profit business with high risk involved in it. Therefore, some insurance companies have also stopped offering farm insurance cover.

Cost of sharing subsidy: PMFBY is a Central-sector scheme but half its cost is required to be shared by the states, and implementation is in the hands of public-sector and private companies. States already face financial issues due to which they find it hard to pay their share of subsidy for PMFBY.

What can be the way forward?

Change in the scheme: PMFBY should be either made a wholly Central scheme with all expenses borne by the Union government or leaving it entirely to the states as agriculture is a state subject under the Constitution.

• This will give autonomy to states to either choose to pay compensation to farmers or offer situation-specific insurance models acceptable to the farmers.
• It will also help the state to look at the level of the risk involved in the agriculture of its state depending upon local agro-ecological conditions.

Addressing reimbursement flaws: Even though the norms and rules for making claims and disbursement of the insurance are clearly given in the PMFBY but it is not followed. Therefore, the issue of delayed settlement of claims and inadequate reimbursement of the losses also needs to be addressed.

So, there is a need to carry out structural and procedural modifications to the PMFBY to make it feasible for insurance firms and financially gainful for farmers.