PMFBY – no panacea for farmers’ woes

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 and personal consumption needs], tens of thousands of them commit suicide every year.

During a recent hearing, the Supreme Court [SC] reprimanded the union government for its slow and inadequate action in dealing with the problem. But, the latter put up a strong defense citing launch of Pradhan Mantri Fasal Bima Yojna [PMFBY] though Attorney General, KK Venugopal [who argued on its behalf] opined it will take time for the impact to be felt on ground.

Under PMFBY, a farmer is 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. He is eligible for claim on reporting 33% loss and gets compensation for the entire loss unlike in the past when, there was a cap.

The insurance also covers damage to standing crop due to cyclone or unseasonal rains/flooding of field. It also covers spend on buying agri-inputs viz., fertilizers, seeds, pesticides etc in a scenario where he is unable to grow crop due to non-arrival of rains. It is field specific i.e. even if other fields in a local area don’t face damage, concerned farmer will still get compensation. In short, the scheme promises complete immunity to farmers from all kinds of vagaries. It assures prompt payment of claims.

If, all of what is promised can happen on ground zero, this will be truly transformative. If, leakages/loss of income due to all factors are taken care, the farmers will be assured of ‘stable’ and ‘high’ income. This will improve their loan servicing ability and reduce debt. In turn, this should make a dent on the problem of suicide. But, there are several imponderables.

At the outset, considering the inherent risks associated with agricultural operations especially in rain-fed areas, insurance companies [ICs] expect premium to be set at fairly high level. Since, the farmer pays only minuscule amount @1.5/2%, the differential [nearly 5 times as much] has to be met by government.

During Kharif 2016, for providing cover to 25 million farmers [out of total 120 million], ICs collected total premium of about Rs 9000 crores. Of this, only Rs 1600 crores was paid by farmers. The balance Rs 7400 crores was to be shared equally between union government and states – as stipulated under the scheme – i.e. Rs 3700 crores each. Against this, funds made available were much less.

For 2016-17, the Union Budget provided for Rs 5500 crores which on a pro-rata basis for Kharif comes to Rs 2750 crores, nearly Rs 1000 crores short of requirement. As regards states, they were reluctant to provide matching commitment from the day one [some escaped citing good rains hence, farmers won’t need insurance cover!]. Clearly, the inadequacy of funding by states was even greater.

Weather-wise, 2016-17 was a good year. But, in a drought year, when the risks/vulnerabilities increase manifold, premium charged by ICs will increase steeply. This will lead to slippages in fiscal deficit targets for both center and states [already under threat due to splurging expenses on subsidies, farm loan waivers etc]; alternatively, farmers won’t get require insurance if adequate funds are not given.

Second, 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?

The situation is pregnant with the possibility of officials exercising excessive discretion in deciding the quantum of eligible claim. This could lead to new forms of corruption and nepotism. The use of technology may help in expediting the process, but this won’t help in reining in corruption in a scenario wherein determination of compensation amount is field-specific.

There is also no guarantee that farmers will get compensation in time; courtesy, inadequate allocation of funds besides lacunae in working of administrative departments. This would be amply clear from the claim experience for Kharif 2016. So far, as against claim amount of Rs 2700 crores [payable to 3.2 million farmers], only Rs 600 crores has been released thus far.

Third, the scheme is not targeted. Any farmer coming forward to join is 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.  This defeats the very objective of the scheme.

Fourth, 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. Such challenge could be countered only if the establishment restricts the benefit only to the poor farmers.

To sum up, for PMFBY to make any meaningful impact, all stakeholders especially insurance companies and state governments should be galvanized to ensure effective implementation. Both centre and state must ensure timely availability of required funds. Most important, the benefits of the scheme should be restricted only to poor farmers for maximum impact and compliance with WTO.

All said and done, it would be a grave mistake to assume that PMFBY is the panacea for farmers’ woes. The government should continue to vigorously pursue all efforts viz. increase in irrigation, use of improved technology, building infrastructure [rural roads, storage etc], assured markets, remunerative price etc needed to make farmers less vulnerable to vagaries of the nature and markets.

4 Comments

  1. Raghavan says:

    Problems of small and marginal farmers can be resolved if we resort to pooling of these fragmented lands and form large tracts on which agri-professionals can work and earn year round wages.
    Form as an FPC by farmers and professionals and create value. Do all that today is being said to these farmers to follow!!

    Dr. Uttam Gupta, I would like to know your views. I am a small fry and you are a giant in this subject but I like to be told if my approach is incorrect.

    • Uttam Gupta says:

      Agreed; this incidentally is in continuation of your previous comment on the article.

  2. Raghavan says:

    Further to my last post, I am sending you on what you wrote:

    April 14, 2006, in the Hindu. I am unable to copy and paste. You may understand the context. I concur with you wholeheartedly.

    The entire narrative needs a change. In this country with over 80% of farmers are marginal and small, and no Majic can happen unless we can attempt to turn this profession as an Industry. Therefore my suggestions are:

    1. Convince farmers that their destitution can change only when they let professionals conduct farming on their pooled lands in villages. It is hard but not impossible. Independently they cannot perform farming on a sustained basis.
    2. Farmers will work as workmen on these lands for wages all round the year( The impact of this can be understood).
    3. Professionals in agriculture and business managers will run the show along with a few farmers who are smart and intelligent to be a cohesive team and to be inclusive.
    4. Results will be fantastic. Agri-professionals will apply the technique of water-Crop balance to plan the most profitable and marketable crops.
    5. A well-executed plan cannot fail unless some catastrophe occurs. Dividends will be the second stream f revenue for the farmers.
    6. Persons who may arrange for funds can be remunerated by the cash-flows.

    I look for your valuable blue comments, Mr. Gupta.

    • Uttam Gupta says:

      I am in full agreement with your approach. Meanwhile, I used this opportunity to take a re-look at my April 14, 2006 article and I see lot of symphony between yours and my ideas. Thanks.

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