Five years after its inception in 2016-17, the Pradhan Mantri Fasal Bima Yojana (PMFBY) has run into rough weather.
PMFBY needs a relook, as many States are opting out of it.
What is PMFBY?
PMFBY is a flagship crop insurance scheme, launched in 2016.
It is aimed at reducing agricultural distress at instances of monsoon fluctuations induced price risks.
It fixes 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%.
Why States are opting out?
Farmers are dissatisfied with both the level of compensation and delays in settlement.
Insurance companies have shown no interest in bidding for clusters that are prone to crop loss.
States (Bihar, West Bengal and Andhra Pradesh, Telangana, Jharkhand and now Gujarat) are opting out of the scheme.
These States are launching their own versions.
They couldn’t deal with a situation where these companies compensate farmers less than the premium they have collected from them and the Centre.
What would be the impact, if not opted out?
The sums can be serious for the States, given the current levels of fiscal stress.
If this amount is not to benefit farmers directly, States run the risk of being accused of aiding insurance companies rather than farmers.
What did the companies do?
In Maharashtra’s Beed cluster, farmers are up against the State government and insurance companies for not settling earlier claims.
The insurance companies have decided to stay out of bids for this region for the current season.
It is in the nature of the insurance business for entities to make money when crop failures are low and vice-versa.
Over the last three years, insurance companies have collectively paid claims amounting to about 85% of the premium collected.
There is a troublesome issue of 50% of farmers’ insurance dues being funnelled into less than 50 districts.
This raises questions on whether the scheme is being gamed by a few.
What needs to be done?
The task ahead is to sweeten the deal for farmers and insurance companies.
Clusters - The States are struggling to find insurers for its clusters.
Insurance companies should bid for a cluster for about 3 years.
By this, they get a better chance to handle both good and bad years.
Bids - The bids should be closed before the onset of the kharif/rabi season.
At present, bids remain open even as the monsoon is in progress.
As a result, farmers may feel persuaded to buy an insurance policy when the weather is adverse, even as the insurer wants to exit the cluster.
Change of product - The farmer is not enthused by crop insurance despite the 95-98% subsidy on premium.
So, it means that the product per se needs improvement.
Farmers deserve a better choice of insurance products to meet the specifics of each crop or region.
For this, insurance companies should be offered more freedom to operate.
Beed ‘model’ – In this model, a company assumes liability only up to 110% of the premium collected or shares gains in a good year with the State government.
For now, this model can emerge as a way out of the current mess.
