Making crop insurance work

The government’s move to revisit the flagship crop insurance scheme — the Pradhan Mantri Fasal Bima Yojana (PMFBY) — is a welcome step to make this well-intentioned risk-mitigation measure beneficial for the farmers. However, whether such a review called for setting up a high-level group of ministers (GoM) headed by the defence minister and having the home minister, among others, as a member is debatable. Field experts, along with representatives of the stakeholders like farmers, insurance companies, and the state governments, could perhaps do a better job. The need for a review and revamp of the PMFBY was felt soon after its launch in 2016, though the government has taken its own time to acknowledge it. This scheme, despite being better than all its predecessors, had failed to impress any stakeholder because of some inherent structural, financial, and logistical deficiencies.


The all-pervasive dissatisfaction on this count is evident from the decision of three major agricultural states — Andhra Pradesh, West Bengal, and Bihar — to withdraw from it. At least three more states — Karnataka, Gujarat, and Odisha — are also intending to do so. They find the cost of running the scheme higher than the benefits from it and are, therefore, making alternative arrangements for recompensing the farmers’ losses. This aside, four private insurance companies have also opted out of it, maintaining that it is a loss-making business. Worse still, more companies are likely to quit this business, though the common impression is that the insurers are cornering the bulk of the subsidy given by the government. The farmers, too, are discontented with the scheme though they have to pay a premium of merely 1 per cent for rabi crops, 1.5 per cent for kharif crops, and 5 per cent for commercial crops.


A key flaw in the design of the PMFBY is the involvement of the states as equal partners with the Centre for sharing expenses (read subsidy). Defaults in the payment of their share of funds, which are quite common, affect the insurance companies’ ability to clear settlement claims promptly. Empowering the states to notify the crops, the extent of the land, and the maximum sum that can be insured have also contributed to the downfall of the PMFBY. The states often fix the caps rather low to contain their financial burden, thereby curtailing the scheme’s utility for the cultivators. Moreover, allowing banks to insure the crops of their borrowers is another problematic feature of the scheme. The banks usually adjust the settlement amounts against the loans, thus leaving the farmers high and dry. The insured cultivators often do not even get to know the details of the transactions.


Though the scheme envisages the use of technology, notably satellite imaging, to expedite the assessment of crop losses, it has so far not happened to the desired extent. The methods used by the state governments to gauge the damage are mostly time-consuming and non-transparent, resulting in trust deficit. Unsurprisingly, therefore, inadequate or non-payment of compensation is the main grudge of the farmers against the scheme. If the GoM can suitably address these and numerous other minor, but pertinent, glitches in the implementation of the PMFBY, this vital risk-hedging measure can prove a boon for the farmers.

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