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Evaluating Pradhan Mantri Fasal Bima Yojana

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November 23, 2019

Why in news?

Four private insurance companies have decided to opt out of Pradhan Mantri Fasal Bima Yojana (PMFBY), government’s flagship crop insurance programme.

What is PMFBY?

  • The Pradhan Mantri Fasal Bima Yojana (Prime Minister's Crop Insurance Scheme) was launched in 2016.
  • The scheme is aimed at reducing agricultural distress at instances of monsoon fluctuations induced price risks.
  • It envisages a uniform premium of just 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%.

How has the scheme performed over the years?

  • The PMFBY is better than most other farm insurance instruments tried out with little success since the early 1970s.
  • However, it does suffer from several inherent flaws which undermine its appeal to both insurers and farmers.
  • The insurance companies find it a loss-making business despite the hefty 90% subsidy by the government.
  • On the other hand, the farmers complain that the compensation is too meager and comes with an inordinate time lag.
  • The common impression that the subsidy is being cornered unfairly by insurance firms seems true but only partly.
  • In the initial years after the launch of the scheme in 2016, supportive weather had prevented crop damages.
  • Hence, the reimbursement claims were low.
  • This allowed the insurers to make good profits.
  • But, the situation has since changed with irregular monsoon rainfall.
  • There was 9% deficient in monsoon rains in 2018 and 10% excess in 2019.
  • This inflicted heavy crop losses in several states.
  • As a result, the compensation claims have exceeded the collected premium.
  • This, consequently, eroded the insurance companies’ profits.
  • It ultimately made crop insurance an unattractive proposition for them.

What are the concerns with the scheme?

  • The shortcomings in the design of the PMFBY include -
  1. the involvement of banks in the mandatory insurance of the crops grown by borrower farmers
  2. the assessment of damages on the basis of average crop loss in a given contiguous area rather than in the farmer’s field
  • The banks usually adjust the compensation amount against the loans without the consent or knowledge of the farmers.
  • This worsens the trust deficit among farmers, banks and insurance companies.
  • Also, the involvement of the state governments in sharing the financial burden equally with the Centre is creating problems.
  • The states’ involvement in estimating the losses through crop-cutting experiments and other means is also problematic.
  • The use of technology in damage evaluation is not happening to the desired extent.
  • This is limiting the credibility of the crop loss data and is also needlessly delaying the finalisation of reimbursement amounts.
  • Moreover, states often release their share of the funds late and in installments.
  • This affects the liquidity and paying capacity of the insuring firms.
  • Many states have capped the sum assured at unrealistically low levels, which do not adequately cover costs.

How does the future look?

  • The above issues need to be suitably addressed to prevent the PMFBY from meeting the same fate as its predecessors.
  • The Indian farmers are typically heavily indebted small land holders.
  • They need crop insurance to hedge their risks which are steadily mounting due to growing menace of pests and diseases and rapidly changing climate.
  • The frequency of erratic and extreme weather events has already aggravated.
  • Devastating cyclones, which used to be rare, have become a common feature in coastal areas.
  • These developments have added to the woes of the cash-stressed farmers.
  • It is, thus, crucial to provide reliable risk management avenues like conveniently accessible farm insurance to abate farmers’ distress.

 

Source: Business Standard

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