Farmers in India are constantly under the threat of drought and other natural calamities such as floods, hailstorms, pest attacks etc leading to unprecedented loss of crop output. Unable to pay back loans [taken for growing crop], tens of thousands of them commit suicide every year. It is a national curse.
The issue has been debated several times in the parliament wherein parliamentarians across the political spectrum pledge to put an end to it but things have so far remained at a standstill. The Pradhan Mantri Phasal Bima Yojna [PMPBY] launched by Modi – government early this year has come as a beacon of hope.
Under PMPBY, a farmer will be compensated for the crop loss by paying small premium @ 2% of sum assured for all kharif [April-September] crops and 1.5% for all rabi [October-March] crops. For annual commercial and horticultural crops, premium will be 5%. He/she will be eligible for compensation on reporting 33% loss [down from 50% in previous schemes] and get compensated for entire loss unlike in the past when, there was a cap.
The insurance covers a variety of situations. It includes damage done to the standing crop [and ready for harvest] due to cyclone or un-seasonal rains/flooding of the field as also scenario whereby the farmer has already spent money on buying agri-inputs viz., fertilizers, seeds, pesticides etc and yet is unable to grow crop as rains do not arrive [60% of cultivable area is rain-fed]. Even farmers who have not taken bank loans are covered.
The government proposes to fully leverage technology for determination of the loss. Smart phones will be used to capture and upload data of crop cutting to reduce delays in settlement of claims. Remote sensing will be used to reduce number of crop cutting experiments thereby further expediting the process.
The scheme is being touted as ‘trans-formative’ that will result in increasing insurance coverage of farmers from existing low of 20% of area under cultivation to 50% within 3 years i.e. by 2018-19. But, there are too many imponderables which the government will have to surmount and cross over.
At the outset, considering the inherent risks/vulnerabilities associated with agricultural operations especially in rain-fed areas, the insurance companies would expect premium to be set at fairly high level [precise level will depend on their assessment of crop/soil/rains scenario]. Since, the farmer pays only minuscule amount @1.5/2%, the differential will have to recompensed by the government.
In this regard, the center expects states to share the differential in 50:50 ratio. While, finance minister, Jaitely has provided Rs 5500 crores for the scheme in the Union budget, states too need to make matching commitment. Even as kharif season is in full swing, many states are yet to join; some feel that because of good rains in this season, farmers won’t need insurance cover!
This reflects a complete lack of vision and narrow mindset whereby, concerned states don’t even realize that nature’s fury is not merely restricted to drought; it goes much beyond. It can come by way of untimely heavy rains or pest attack damaging even standing crops [as visualized by prime minister and provision made in the scheme]. Yet, they are unwilling to join. Team Modi will need to work with states to take all of them on board.
Second, given the scale of natural calamities, attendant loss and compensation claims, insurance companies [ICs] would look for premium to be set at high level. If, the government concedes, this will increase subsidy support [excess of actual premium paid over 1.5/2%] putting pressure on fiscal deficit. On the other hand, if it coerces ICs to keep premium low, this would dent their viability. It will have to negotiate the trade-off carefully.
Third, determination of crop loss is very tricky exercise. This is all the more when the scheme seeks to compensate for the losses emanating from all possible factors viz., drought/excessive rains/pest attack etc and payments are plot specific. For instance, how to handle a situation of rains not coming and farmer does not put fertilizers, seeds, pesticides etc [already bought] to use? This can lead to lot of ‘discretion’ and scope for misuse and even bogus claims.
The situation is pregnant with the possibility of officials exercising excessive discretion in deciding how much to allow to each claimant. This could lead to new forms of corruption and nepotism. While, use of technology may help in making things transparent besides imparting speed to the process of loss determination and making payments, the government will have to come up with standardized procedures to minimize scope for discretion.
Fourth, the scheme is not targeted. Any farmer coming forward to join will be eligible. This will lead to a scenario whereby a large chunk of better-off farmers [who also happen to be well connected with the establishment/official machinery] will avail of the benefits even as majority of poor would be left out due to sheer lack of connectivity. The government will need to ensure that 50% coverage is achieved with majority of poor farmers covered first.
Fifth, the government will have to address a new challenge. The developed countries have taken strong exception to the scheme saying it violates India’s commitment under WTO. They contend that subsidizing premium for agri-insurance is trade distorting and forms part of the actionable subsidies. To strengthen its case while countering such challenge, it should seriously pursue restricting the benefit only to majority of the poor farmers.
Finally, the government must not sit complacent and should proceed to address the fundamental causes that make farming a risky business in the very first place. It should intensify efforts to build irrigation and other infrastructure to reduce farmer’s susceptibility to fluctuating weather and market uncertainties.
Prime minister Modi’s goal to protect at least 50% out of a total of 120 million farmers against fury of the nature is indeed laudable. PMPBY is also well thought out covering all possible scenario. But, reaching out to each one of them for granting cover and getting them paid for loss incurred when needed poses a mammoth challenge. One can only hope that with full cooperation of states, he will deliver.