Fasal Bima Yojna: More Misses than Hits

Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched from Kharif 2016 to provide comprehensive insurance coverage for all food crops. Does the Scheme provide much needed relief ? BK Jha analyses the efficacy of the Scheme

Fasal Bima Yojna: More Misses than Hits

Farmers in India are in distress because of multiple reasons. Intermittent protests by farmers across the country highlights the misery they are facing. Crop loss, due to weather and natural calamity, certainly is one of the major pain points for the farmers.Moreover, they are not getting adequate and timely relief even though much touted Pradhan Mantri Fasal Bima Yojana (PMBFY)- a comprehensive insurance coverage for all food crops- is in place since last one year. The PMBFY supersedes all insurance schemes which were in existence earlier. Studies, Farmers’ bodies, Surveys and recently released Comptroller and Auditor General Report underlined several flaws and systemic issues. It is observed that for two agriculture sessions-Kharif 2016 and Rabi 2016-17, the PMFBY could not achieved desired outcomes in terms of providing relief to the farmers. 

Implementation of PMFBY 

The PMFBY was launched from Kharif 2016 to provide comprehensive insurance coverage for all food crops (cereals, millets & pulses), oilseeds crops and annual commercial/horticultural crops against all non-preventable natural risks. Perennial horticultural crops can also be insured under Restructured Weather Based Crop Insurance Scheme (RWBCIS).  
In the last one year of implementation of PMFBY/RWBCIS, 23 States implemented the schemes during Kharif 2016 and 25 States and 3 Union Territories during Rabi 2016-17. 

The crop insurance schemes are only risk mitigation tools available to farmers at extremely low premium rates payable by farmers at 2 percent for Kharif crops, 1.5 percent for Rabi Crop and 5 percent for annual commercial/horticultural crops. The balance of actuarial premium is shared by the Central and State Governments on 50 : 50 basis. The schemes are voluntary for states and available in areas and crops that are notified by the State Governments. Further, the schemes are compulsory for loanee farmers and voluntary for non-loanee farmers. 

Insurance Companies versus Farmers 

The PMFBY was implemented in the first year through 16 empanelled insurance companies, including five government companies, and premium rates were settled through a bidding procedure where the lowest bid won the award.

According to the Agriculture Ministry, Insurance companies collected over Rs 9,000 crore as premium for the Kharif season in 2016. As per the PMFBY rules farmers only gave Rs 1,643 crore of this amount with the balance Rs 7,438 crore being directly given to the companies by the state and central governments.

The question here is, who got benefited most under PMFBY- Farmers or insurance companies? Official data itself suggests that insurance companies made profit out of it. 

The total claims received by the insurance companies were Rs 2,725 crore. Even when all these claims are paid out in full, the profit of these companies would be about Rs 6,357 crore. That’s for one agricultural season- Kharif 2016. In 2016-17, insurance companies had paid only Rs 639 crore as claim settlements to the farmers.

Insurance Companies, however, claimed that they actually did not earn a profit because their payout for the weather based insurance scheme was much more. However, private and public insurance companies failed to provide data to substantiate their claim.

“Instead of transferring thousands of crores to insurance companies directly as profit why can’t the govt use that money to compensate the farmers? The whole scheme reeks of benefiting companies at the cost of farmers,” said K Krishnaprasad of the All India Kisan Sabha, a farmers’ organisation.

CAG Detects Loopholes 

The Comptroller and Auditor General of India (CAG) has pointed out several flaws in the Scheme. It said that Agricultural Insurance Company of India Limited (AIC) failed to exercise due diligence in verification of claims by private insurance companies before releasing funds. The CAG said that coverage of farmers, particularly small and marginal farmers, under the schemes was very low. Monitoring of the schemes by the Centre, State governments and Implementing Agencies was very poor. Two-thirds of the farmers surveyed during audit were not aware of the schemes.

The CAG has called for public audit of private insurance companies as they have been given huge funds as subsidies from the public exchequer. In its performance audit report of Agriculture Crop Insurance Schemes, the CAG said, while huge funds were provided to private insurance companies, there was no provision to check whether the funds were properly utilised.

It was made clear that even though the CAG Report dealt with crop insurance schemes that were in existence in the country from 2011 to 2015, the observations hold true for the new crop insurance – PMFBY – which came into being in January 2016. Currently, there is no independent regulator to scrutinise the PMFBY implementation, where private insurance firms play a much bigger role than ever. 

What went Wrong ?

Gopal Naik, Professor IIM-Bengaluru & Board Member, Agriculture Insurance Company of India Limited (AIC) said that the scheme needs an updated land records data will help in accessing verifiable data on ownership and crop acreage with the Insurance companies so that subscription by farmers can be made easy and disputes can be reduced and payment can be done quickly. 

“Agri-extension system which provides information to farmers continuously and collects data periodically within the season so that crop damage can be assessed accurately as and when it happens. This system can guide farmers on crop insurance as well help them subscribe to insurance. This will help reduce hassles during subscription. Also help reduce cost to insurance companies which should reflect in the reduced premium amount. This will also help providing insurance at the individual farmer level,” he suggested.

It is unfair to delay insurance payments. Even six months after Kharif season 2016 ended the insurance claims settled are less than a quarter of the total claims made. After a crop loss takes place anything beyond a month to receive claims is a long time for farmers to wait. Long time taken in assessment of crop losses, delay in payment of subsidies by state government, deficient IT structure of insurance companies and absence of good agricultural data as the main reasons for delays.

On the basis on feedback gathered from the farmers during his ‘Kisan Mukti Yatras,’ 
Yogendra Yadav, Social Activist and President Swaraj India said that awareness about the Scheme was very low among farmers which undermines its efficacy. “Apart from lack of awareness, farmers are not getting adequate claims timely. So delays in assessments and payments of claims, lack of proper monitoring makes the Scheme ineffective. The PMFBY is poorly designed and badly implemented,” he added.

The Centre and the States 

Agriculture is state subject and therefore onus lies on the State governments to implement the Scheme effectively. The Centre is providing support to the farmers by subsidising the premium. Union Agriculture Minister Radha Mohan Singh said, “If states feel they are burdened to pay their share of premium to private insurers, then we have asked them to set up their own insurance firms to implement the scheme.” 

“Efforts were being made to bring more farmers under the scheme. Earlier, only loanee farmers were eligible for the crop insurance, now non-loanee farmers are also allowed. Last year, the crop insurance coverage was 30 per cent and it will be increased to 40 per cent this year,” he added.

Agriculture Ministry denies that insurance companies, especially private players 
have benefited from the scheme. A senior official  claimed that the government has increased its resource allocation from Rs 3,000 crore in 2015-16 to Rs 9,000 crore in 2017-18.

The Way Forward

Going forward, competition created under the PMFBY should address several problems. Setting proper data systems on land ownership, crop area data and good crop assessment system will facilitate competition in the market place and bring down the premium rate.

While increasing coverage, there is a need to deploy full complement of technology and robustness of crop-cutting experiments. This will bring down the financial obligation for both the Centre and the States. It is widely admitted that the PMFBY addresses shortcomings of previous initiatives but it needs to be simple and easy on farmers because they pay fixed, low rate of premium for all crops in a particular season across the country. 

The Centre and the state governments need to provide a reliable mechanism to ensure that the details of actual area sown are accurate as the amount of insurance claims payable to the affected farmers is dependent on this.

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