Comment | Crop insurance scheme comes a cropper

Shishir AsthanaMoneycontrol Research

The road to hell is paved with good intentions, so goes the saying. Farmers in India can easily relate to it. For years, politicians across parties have made them tall promises without any definitive plan to make good on them.

The Pradhan Mantri Fasal Bima Yojana (PMFBY) is another such example where intent has not really translated into outcome. The scheme was launched with much fanfare and got a good response as well from the farmers. Initially, only those farmers who had availed of bank loans were given the cover. The revamped scheme was attractive as it also covered farmers who had not taken bank loans. Further, the new policy covered more food crops, oilseeds, and horticultural crops.

What changed is that farmers could now insure their income stream as against only their liability earlier. The icing on the cake was that the farmer had to pay only 2 percent for Kharif crops and 1.5 percent for Rabi crops. For commercial and horticulture crops, the premium increased to 5 percent. The remaining portion of the premium was subsidised by the state and the central government.

So what went wrong with this farmer-friendly policy?

Two reasons can be attributed to the abysmal state of affairs in crop insurance. One is operational and second is fiscal in general and financial in particular.

Let’s take a look at the operational issue, which is long-term in nature. In order to fix a benchmark of what is the average yield of a crop, the government agencies conduct tests called crop cutting experiments (CCE). These are conducted at a district/sub-division level. A field is selected by the agency to conduct the test and the crop is grown and harvested. It then goes through other processes which makes it ready to be taken to the market, just as any farmer would do. The crop is dried and weighed to get the yield.

This method has been in use by the government to arrive at agriculture production data. Now this yield acts as a benchmark for insurance companies and more recently to the state government who have made loan waivers a norm.

While there is nothing wrong with the process of CCE, the sheer size of it makes the entire exercise restrict growth. As per the PMFBY, state governments are expected to conduct four CCEs in every village panchayat for each crop and submit the data within a month of harvest.

India has 2.5 lakh gram panchayats, which mean 10 lakh CCEs in a single season for a single crop. If more than one crop is grown in the area, the number shoots up. The sheer size of implementing the CCE is one of the main reason preventing growth as well as the closure of claims of PMFBY.

The second reason is state government apathy. The poor state of finances of most of the state governments in the country has prevented them to pay their part of the subsidized crop premium. The process requires that the farmer first pays his premium to initiate a crop insurance which is followed by the state government and the central government.

While claims keep on mounting payouts have crashed. Reports say that against claims of Rs 14,453 crore for crop losses in Kharif 2017 insurance firms have cleared only Rs 733 crore. That is a closure rate of only 5 percent. This is a sharp drop from 95 percent in the Kharif season of 2016.

The delay in disbursing the crop insurance claim can be the difference between life and death. Farmers generally borrow, either from the local moneylender, input suppliers or banks ahead of the cropping season with the promise of returning the amount with interest post harvesting. If the crop fails, the only way to prevent the lender from coming at his doorsteps is to get the insurance money as soon as possible.

Perhaps the bank might understand the delay in payment of claims by the government, but a local loan shark couldn’t care less.

Governments have made loan waivers a norm by announcing it in their election manifesto, but when it comes to honoring their part of the bargain in crop insurance they shy away from it. Unfortunately, some suicides and a farmer dharna is the only language that the government seems to understand.

The PMFBY was seen as a promising scheme and one that could help achieve Prime Minister Narendra Modi’s plan of doubling farmer income. Complexity in operations and the state governments getting away with non-compliance is a sure way of killing the scheme. A time-bound approach to reimbursement of claims and a practical way of addressing the operational issues can make crop insurance a success.

Presently only around 30 percent of the country’s cropped area is covered by PMFBY, the target is to raise this to 50 percent in 2018-19. Unless the government gets its act together, PMFBY will join the league of hundreds of incomplete well-intentioned government schemes.