AgricultureInsurance in India

Reducing Risk And Ensuring Better Returns
“Sabka Sath Sabka Vikas” is not possible without effectively helping farmers of the
country to achieve “Vikas” of agriculture. Agriculture has become a loss making business.
Anybody involved in agriculture grabs the first opportunity that comes her way to get out
of this loss making business. As per the last census of 2011 we have lost a little over 2000
farmers everyday since 1991. About 15 million farmers in 2 decades. On top of that
consider suicide numbers. Together they paint a grim picture. Do we need more proof to
drive home the point that agriculture is in dire straits. Those who continue working in
agriculture, do so mostly for lack of alternatives.
On this back drop Modi's stellar record as CM of Gujarat was a ray of hope for
farmers. Gujarat recorded excellent growth of Agri GDP under CM Modi nearly for a
decade and that is no mean feat. CM Modi provided better roads, better electricity
supply, irrigation and easy market access. That helped farmers in Gujarat get better
returns for their crops. CM Modi did a lot better than PM Modi if looked from farmer's
perspective alone. PM Modi though started with good intentions and grand plans but a
lot remains to be desired.
Prices of agricultural produce always come down post harvest on account of higher
arrivals except in case of extreme shortages as experienced in case of 'Tuwar Dal' a few
years ago. Also it has been a policy of successive governments to keep prices low so that
consumers get food at lower prices. So far, for many reasons, Minimum Support Prices or
MSP mechanism has failed to provide farmers any relief. Ideally government must not
meddle in markets. It must allow demand and supply dynamics find its equilibrium and
proper prices. But successive governments have continued the same policy of keeping
prices low.
Farmers and those dependent on agriculture directly form a majority of our

population. Economic wellbeing of this section of society will give a boost to national
economy as this section has a great potential for consumption. Also money put into
hands of those involved in agriculture means more even distribution as this group forms a
major chunk of our population. Besides people living in rural india are not skilled enough
to get better jobs in industry. Considering their skill level, as of now, till they are better
skilled they must continue working in agriculture as that is most suited job. Now if we
agree to engage people in agriculture, there is an urgent need to reduce risks associated
with agriculture and to help farmers get better remuneration for their produce. That will
give huge relief to more than half the population.
Providing insurance cover for agriculture is a step in right direction. Pradhan Mantri
Fasal Bima Yojana (PMFBY) announced in January 2016 fares better than all other
isurance schemes rolled out earlier. CAG in it's report No 7 of 2017 has audited various
insurance schemes and presented its observations. In this article we shall discuss PMFBY
and ways to improve it.
Though this scheme is better than what we have had earlier, there is still
government agency intervention at each and every step. Central government has
shortlisted about 10 insurance companies. State governments are supposed to select
insurance company or companies based on many parametars as detailed in this quote
which is copied from document published on scheme website. (http://agri-
insurance.gov.in/pmfby.aspx) “Such selection of IA shall be done from amongst the
designated / empanelled companies which shall be be initially pre-qualified ,
strictly on the basis of, experience, existence of infrastructure in the area and
quality of services like coverage of farmers & area, pay-outs in terms of quantum &
timely settlement thereof, willingness to do publicity & awareness campaigns etc.
The final selection of IA from amongst the pre-qualified insurance companies shall
be done based on the lowest weighted premium quoted by a pre-qualified company
for all notified crops within the cluster of districts”. It is very clear that a lot of
considerations are involved at state government level that also means a lot of red tape
and delays. And this is about selecting an Insurance Company. Further state governments
are supposed to notify areas and crops for the same.
On top of this all state government agencies are supposed to carryout CCEs that is
crop cutting excercises. Now this is a big gray area. As per the scheme guidelines for one
crop in one Gram Panchayat there are minimum 4 CCEs to be carried out. For more than
one crop, there would be 4 CCEs for each. Therefore it will be safe to assume that there
will be at least 4 x 2,50,000 x 2 = 20,00,000 that is 2 million such excercises to be carried
out for one season. Crop is unit area is harvested and processed. If moisture content of
crop is hgh then it needs to be dried before weighing. For such an excercise, selection of
sample plot is crucial and is to be done very scientifically. If fields with poor crops are
selected then yield will turn out to be lower. Lower average yield will reduce amount of
sum to be given to farmers in case of claims regarding to loss of yield. On the other hand
if better crop is selected for CCE it will increase average of yield thereby increase amount
of compensation. It is clear that in order to make more profits and make lesser payouts,
Insurance companies would be interested in lowering yield as much as possible. So far no
such manipulation has been noticed or alleged but that possibility cannot be denied for
future CCEs. There are talks making rounds for using sattellite imagery, mobile telephony
for better and quicker estimations of CCEs. Even after making use of technology, CCEs
involve a lot of manual labour, huge logistical excercise and a lot of manpower thereby
human errors.
The whole insurance excercise involves a lot of preparations. There are deadlines
defined by central government for each task. Let us not get into details of it all but in a
nutshell we can say it involves huge amount of efforts from maultiple agencies all in
synchronisation. And that is where there are chances of failures. Insurance companies
need to get full premiums from state, central governments and of course farmers before
they approve or settle any claims. Besides in order to arrive of amout of claim they need
to have CCE data ready along with Minimum Support Prices.
For the first year of the scheme, insurance companies made more than good profit.
Governments (State and Center) and farmers paid a premium of about 22,180 crore
rupees against which they approved claims worth Rs 14,433/- crores and paid about Rs
12,959/- crores. Number of farmers covered was about 5.75 crore. About 20% of those
were benefited by way of claim settlements. But again there is an interesting point to
note. In 2016-2017 season, farmers made claims worth Rs 15624 crores. Out of which
claims worth Rs 14433 were approved by insurance companies and only claims worth Rs
12959/- crores were paid. Nearly 20% of claims were not approved. And not all that were
approved were paid. This points out to gaping holes in implementation of the scheme.
The reasons for such gaps could be many.
In the second year of the scheme that is 2017-2018, the story is far from
encouraging. For Kharif season the premium increased by nearly 20%. Estimated claims
for Kharif alone stood at Rs 13,655/- crores, little less than claim estimate of Kharif and
Rabi seasons of 2016-2017 put together which was about Rs 15,624/-. But claims that
were approved stand at Rs 1759/- crore only. Out of which claims settled are a meagre Rs
401.8 crores. This points to huge gaps in scheme implementation.

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Reducing Risk And Ensuring Better Returns

Farmers and those dependent on agriculture directly form a majority of our

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