Fundamental flaws in crop insurance scheme’s design makes it ineffective

Pradhan Mantri Fasal Bima Yojana (PMFBY), the flagship programme launched with much fanfare in 2016, has run into rough weather. With both the area covered and the number of enrolled farmers declining, the country’s premium crop insurance scheme is certainly in need of an overhaul.

Pradhan Mantri Fasal Bima Yojana (PMFBY), the flagship programme launched with much fanfare in 2016, has run into rough weather. With both the area covered and the number of enrolled farmers declining, the country’s premium crop insurance scheme is certainly in need of an overhaul

Challenges at present:

Insufficient reach and the issue of penetration.

With just around 45% of the claims made by farmers over the last three crop seasons data for the last rabi season is not available paid by the insurance companies.

The reason for the very low payout of claims is that only a few state governments are paying their share of the premiums on time and till they do, the central government doesn’t pay its share either. Till they get the premium, insurance companies simply sit on the claims.

There is hardly any use of modern technology in assessing crop damages. There is a lack of trained outsourced agencies, the scope of corruption during implementation and the non-utilisation of technologies like smartphones and drones to improve the reliability of such sampling

Less number of notified crops than can avail insurance, Inadequate and delayed claim payment.

High actuarial premium rates: Insurance companies charged high actuarial premium rates.

If states delay notifications, or payment of premiums, or crop cutting data, companies cannot pay compensation to the farmers in time.

There has been no concerted effort by the state government and insurance companies to build awareness of farmers on PMFBY. Insurance companies have failed to set-up infrastructure for proper Implementation of PMFBY.

PMBY is not beneficial for farmers in vulnerable regions as factors like low indemnity levels, low threshold yields, low sum insured and default on loans make it a poor scheme to safeguard against extreme weather events.

About PMFBY:

In April 2016, the government of India had launched Pradhan Mantri Fasal Bima Yojana (PMFBY) after rolling back the earlier insurance schemes viz. National Agriculture Insurance Scheme (NAIS), Weather-based Crop Insurance scheme and Modified National Agricultural Insurance Scheme (MNAIS).

It envisages a uniform premium of only 2% to be paid by farmers for Kharif crops, and 1.5% for Rabi crops. The premium for annual commercial and horticultural crops will be 5%.

The scheme is mandatory for farmers who have taken institutional loans from banks. It’s optional for farmers who have not taken institutional credit.

Objectives:

  • Providing financial support to farmers suffering crop loss/damage arising out of unforeseen events.
  • Stabilizing the income of farmers to ensure their continuance in farming.
  • Encouraging farmers to adopt innovative and modern agricultural practices.

Ensuring the flow of credit to the agriculture sector which contributes to food security, crop diversification and enhancing growth and competitiveness of the agriculture sector besides protecting farmers from production risks.

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