“If I am not eligible, why was the premium deducted from my account? Given a chance, I would opt out of PMFBY; it isn’t helping me,” Sandhu said.
It is because of such anomalies that Sandhu and other farmers in his village greeted with relief the government’s July 16 announcement in Parliament that it may make PMFBY voluntary. To this end, the government has solicited views from state governments (West Bengal has opted out and introduced its own farm insurance product).
This is a remarkable reversal for a scheme touted as the world’s largest and cheapest crop insurance programme. The scheme was compulsory for farmers taking institutional loans – known as loanee farmers — and voluntary for others. Between kharif 2016 and rabi 2018-19, 115.2 million farmers enrolled for the scheme, 73 per cent of them loanees.
Twenty-seven states and Union Territories had opted for PMFBY that sought to address problems in such older schemes as the 17-year-old National Agricultural Insurance Scheme (NAIS). For a start, it was much cheaper. Against 8 to 12 per cent under NAIS, the farmer under PMFBY pays 2 per cent of the sum insured for kharif crops, 1.5 per cent for rabi crops and 5 per cent for horticulture and commercial crops. If the actuarial premium is lower than this rate, the lower of the two would apply. The difference between the actuarial premium rate and the premium paid by the farmer was the subsidy, shared equally between the Centre and states.
The proposal to make PMFBY voluntary was part of the Bharatiya Janata Party’s 2019 election manifesto. Why is the government proposing to jettison a scheme that was central to its proposal to double farm incomes by 2020?
The Centre’s cash crunch could be one reason: it has paid out more than Rs 36,500 crore between 2015-16 and 2018-19 as its share of the subsidy (see chart). But poor claim recovery complaints from western Uttar Pradesh also played a role. In fact, the scheme has been mired in controversy from the start. Between then and kharif 2018 enrolment dropped 26 per cent, though this was attributed to weeding out multiple claimants after Aadhaar was made mandatory for registration.
Then in a July 2017 report, the Centre for Science and Environment (CSE) reported that insurance companies raked in profits of around Rs 10,000 crore (as on April 2017) on account of the low number of claims relative to premiums charged.
The Centre had countered CSE’s report, saying savings in a good year could be utilised for payouts in bad seasons. “It would be statistically more robust to undertake a comprehensive evaluation of both the framework and quality of implementation of the scheme over data sets garnered from at least two-three kharif and rabi seasons each. The central government will be doing this,” the statement said.
But implementation appears to be the principal sticking point, and the blame lies with the states. Crop-cutting experiments or CCEs are critical for insurance companies to get an accurate estimate of yields of principal crops. PMFBY requires states to conduct at least four crop-wise CCEs in every gram panchayat and the yield data submitted to insurance companies within 30 days of harvest. Acute manpower and resource shortages often lead to inadequate CCEs. States have also been slow to clear their share of the premium subsidy.
To correct this, the Centre in September 2018 imposed a 12 per cent penalty on insurance companies if the settlement took more than two months, and for state governments if they delayed settlement beyond three months of the due date.
“These changes show that the government is well aware of the problems, and is taking all the steps to make PMFBY more friendly to them,” said a senior official of a state-run crop insurance company. He added that the government was also working on creating a corpus to handle the premiums to remove the perception that insurance companies were making huge profits off the scheme.
Making the scheme voluntary, however, could well spell the end of PMFBY. “If the scheme is made voluntary for even loanee farmers, it would not only impact farmer enrolments but also push up actuarial premiums, since there would be fewer targeted farmers,” said former agriculture secretary Shiraz Hussain, one of the architects of PMFBY.
Insurance companies think the scheme could still be made to work. “If premiums were made nil for farmers or a cap put on premiums PMFBY could still survive, because there is hardly any insurance product anywhere in the world that hedges farmers’ risk at such low cost,” said a senior official of a state-run crop insurance company.
As the Centre awaits the states’ response, the sternest test for PMFBY lies in the days ahead when claims will soar on account of a weak monsoon.