Commodity Analysis

How is the crop insurance scheme faring?

Rajalakshmi Nirmal | Updated on January 12, 2018 Published on January 15, 2017

A year after launch, the Pradhan Mantri Fasal Bima Yojana faces implementation-level glitches

It is a year since the new crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana, was launched. Bringing down the premium rates substantially in the new scheme, the government targeted covering 50 per cent of farmers in three years.

BusinessLine crunched the numbers andspoke to farmers to find out the progress of the scheme in its first year.

The old schemes of the government — the National Agriculture Insurance scheme (NAIS) introduced in 1999, the Modified NAIS (mNAIS) introduced in Rabi 2010-11 — have not succeeded.

As per official data, in 2015, only a fifth of the country’s farm land was under crop insurance.

The limited risk coverage under these policies was a dampener, say experts. In mNAIS, the premium was capped at 8-12 per cent of sum insured to limit the government’s subsidy outgo.

So, in crops where actuarial rates were higher, the insurance company reduced the sum insured proportionally and many a time it was not sufficient even to cover the farmer’s cost of production.

What has changed?

In the Pradhan Mantri Fasal Bima Yojana, the cap on premium has been removed. The sum insured (SI) for a crop (per acre) is equal to the scale of finance as decided by the District Level Technical committee for both loanee and non-loanee farmers.

For an individual farmer, the policy’s cover will be this SI multiplied by the acreage of the land covered by the crop. A farmer will pay premium of 2 per cent of SI for kharif crops, 1.5 per cent for rabi and 5 per cent for commercial crops. The balance will be paid by the government.

The compensation to the farmer is decided based on the shortfall in yield. This is the difference between the threshold yield and actual yield.

Threshold yield is the average yield (for a crop in a notified insurance unit) in the past seven years (excluding maximum of two calamity years) multiplied by the indemnity level (varies 70-90 per cent; the farmer can choose any indemnity level and the premium varies accordingly).

For instance, if the threshold yield is 20 quintals, but the actual yield is only 15 quintals, this 25 per cent loss is what he is compensated for, explains Rajeev Chaudhary, Chief Risk Officer, Agriculture Insurance Company (AIC). Say, the SI is ₹20,000 here, the farmer will be paid ₹5,000.

Kharif 2016 was the first season of Pradhan Mantri Fasal Bima Yojana. A release of the Ministry of Agriculture in December says 366.64 lakh farmers (26 per cent of the total) were covered under crop insurance, an increase of 18.5 per cent from kharif 2015. The area under insurance coverage increased 15 per cent and the SI jumped 104 per cent. This is good progress for the first year. However, numbers from AIC show that the increase has mainly come from farmers who had an outstanding crop loan.


The Prime Minister’s pet scheme has not been received well by farmer associations. There are many reasons for this. One, while loanee farmers get mandatorily enrolled in the scheme, there is not enough effort taken to cover the non-loanee farmers, says Kavitha Kurungati, convenor of Alliance for Sustainable & Holistic Agriculture. “The non-loanee farmers are usually tenant farmers or share croppers who also pay huge lease rents. In coastal Andhra, for instance, a tenant farmer pays ₹30,000 per acre per year as lease rent, so the insurance needs of the non-loanee farmers are higher…” Tenant farmers in most States don’t have access to institutional credit in the first place and now that the Centre’s insurance scheme is implemented through the banking channel, they are being effectively ignored, she adds.

Farmer associations are also opposed to banks debiting premium from farmers’ account without their consent. Badri Narayan Choudhary, National Secretary, Bharatiya Kisan Sangh, says, “Banks are not sending any intimation to farmers before they debit the premium. In many cases, banks have actually taken insurance for a wrong crop and it has been of no use to the farmer…”

Why are insurance companies hiding behind bankers, ask farmer groups. “We don’t know them, we can’t pull them up for anything at a later point…” a farmer from Madhya Pradesh told BusinessLine.

The manner in which the yield of a crop is calculated to estimate the loss is also a cause for concern. In crop cutting experiments, which are done to estimate the yield of a crop, the unit area is a village and not an individual farm. But there is variation in weather events even within a village and this way of loss assessment would not help all, lament farmers.

Devinder Sharma, convenor of Kisan Ekta, raises these questions: “Why is the insurance cover not on a per farm basis? What is the difficulty in it for the State or the insurance company?”

As the mandate is to do four crop-cutting experiments in each village, for the 2.5 lakh-odd gram panchayats, assuming three different varieties of crops, a total of 30 lakh crop cutting experiments should be done, estimates a senior official with AIC. The revenue departments of States don’t have the manpower for this, say experts. The state-owned AIC — the insurer with 40 per cent share in crop insurance — is without a head. After J Joseph Plappallil left as CMD in March last year, the charge has been transferred twice. RN Dubey held the post till September, says an official inside AIC.

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