PMFBY voluntary registration

Why Have Some States Lost Interest in the Centre’s Flagship Crop Insurance Scheme?

The Pradhan Mantri Fasal Bima Yojana programme will complete five years when rabi crops are harvested in March-April 2021. But it’s been a bumpy ride for most of the way so far.

Out of all the ‘Pradhan Mantri’ schemes launched over the last few years – and there have been quite a few – none has received as much criticism as the PM Fasal Bima Yojana (PMFBY).

Due to the variety of crops even within a cluster, the small size of farms, differences in farming practices, uncertainty of weather and budgetary constraints of state governments, there is no central scheme which is more difficult to administer than this.

To its credit, the government has been responsive to the criticism and the scheme guidelines have undergone major changes twice, in September 2018 and February 2020.

Launched from Kharif 2016, the scheme has now been implemented for four seasons each of kharif and rabi. There have been three major criticisms of the scheme.

The first is that, at an all-India level, the claims paid by insurance companies are less than the gross premium received by them and this, critics say, resulted in ‘undue’ enrichment.

The second form of criticism is that the scheme is compulsory for all farmers who avail crop loans on their Kisan Credit Cards.

The third major criticism is that the assessment of crop losses is done through a large number of crop cutting experiments (CCEs) conducted by state governments. Not only are these CCEs quite time-consuming, they are also not reliable enough. In several cases, the yield data produced by CCEs has been challenged by both farmers and insurance companies. In several cases, the Government had to take the services of Mahalanobis National Crop Forecast Centre to resolve the disputes on yield of a crop.

Also read: Govt Revamps PMFBY Crop Insurance Scheme, Makes Farmer Registration Voluntary

The guidelines issued by the Centre in February 2020 have sought to address the above criticisms by making at least three major changes in the scheme.

Firstly, from Kharif 2020, the scheme was made voluntary and the farmers were given an option to opt out of crop insurance by submitting a written request to the bank.

Secondly, like the Modified National Agricultural Insurance Scheme (MNAIS), introduced by UPA II in 2010-11, the government capped the Central government’s liability in the premium at 30% for unirrigated areas and crops and 25% for irrigated areas or crops.

Districts having 50% or more irrigated area are to be considered as irrigated areas or districts (both under the PMFBY and Restructured Weather Based Crop Insurance Scheme). It means that the states will have to bear additional premium subsidy if actuarial premium exceeds the above limits.

Normally, unirrigated areas and risky crops attracted higher rates of premium in the tenders. However, there is no capping of benefits to the farmers, unlike the earlier scheme of MNAIS.

Also read: PMFBY: 50% of Farmers’ Dues Being Paid in Only 30-45 Districts, Agri Ministry to Probe

Thirdly, the government decided to substantially enhance the use of modern technology (satellite, drone, mobile, etc.) for assessment of crop yield and estimation of losses and claims. For this a two-step process is to be adopted based on a ‘deviation matrix’ using triggers like weather parameters etc. It was also decided that the CCEs are to be conducted only in those areas in which there are strong deviations, noticed from use of remote sensing and other technologies.

Premium conundrum

It is true that due to high actuarial rates in several clusters, the states found that a substantial part of their agriculture budget was going to pay premium subsidies. The PMFBY was launched from kharif 2016 but Punjab never joined it.

In several states, the claims have exceeded the gross premium. In 2017-18, Chhattisgarh, Haryana, Madhya Pradesh, Odisha and Tamil Nadu the claims were more than the premium.

In 2018-19 also, Chhattisgarh, Haryana, Kerala and Tamil Nadu had a claims ratio of more than 100%. In 2019-20, harvested crops, lying in the farmers fields were damaged due to late surge of monsoon. Claims of more than Rs 4,500 crore have been paid in the state.

Yet, it is true that in several states the claims were less than the premium.

Several other states have also decided to discontinue this centrally sponsored scheme, in which the states had to pay 50% of premium subsidy. Bihar and West Bengal discontinued PMFBY from kharif 2018 and kharif 2019 respectively. From rabi 2019-2020, Andhra Pradesh opted out. From kharif 2020, Telangana and Jharkhand have also decided to opt out.

Farmers load paddy on a bullock-cart in a flood affected field in Morigaon district of Assam, Thursday, May 28, 2020. Photo: PTI

Bihar and Jharkhand have started their own crop insurance schemes under which farmers do not have to pay any premium and they are eligible for crop insurance upto 2 hectares, if shortfall in yield is more than 20% of threshold yield. The insurance scheme in West Bengal is modelled on PMFBY and the companies are selected through a tender. The state does not take any premium subsidy from the Centre.

Andhra Pradesh has decided to set up its own crop insurance company and it has applied to Insurance Regulatory and Development Authority for a licence. No premium is charged from farmers. So far, the scheme is being operated by the state government and there is no participation of insurance companies. As a result, the state government will be responsible for payment of any claims.

Haryana is also said to be exploring if it can form its own insurance company. For kharif 2020, however, it has gone in for PMFBY.

Also read: By Making Crop Insurance Optional for Farmers, Has the Centre Effectively Ended the Scheme?

In the states which have set up their own insurance companies, premium subsidy from the Centre will be available only if actuarial premium rates are discovered through a transparent process of tendering. In any such tenders, all the empaneled companies of private and public sector will also be eligible to participate. It is yet to be seen how the state level insurance companies will compete with Agriculture Insurance Company (AIC) and other private companies which have long experience of running crop insurance.

Despite recommendation of experts, this year also, the states did not finalise their tenders before the first forecast of monsoon was issued in early April. As a result, several states could finalise the insurance company and issue notifications only in July.

For this kharif, the cut off date for insurance is July 31, 2020 but Uttar Pradesh is yet to decide if it will be ‘opt out’ or ‘opt in’ for farmers. If it decides for ‘opt in’ option, every farmer will be required to submit their request to the bank for insuring their crops. Other states have gone in for ‘opt out’ option under which only those farmers need to submit a written request to their bank who do not want to insure their crop.

A farmer tends to his field in Shimla during the nationwide lockdown to curb the spread of COVID-19. Photo: PTI

As mentioned above, one of the major criticisms of PMFBY in the media and public discourse was that it has resulted in undue enrichment of private insurance companies. In 2019-20, out of Rs. 31,391 crore of gross premium of all the insurance companies, PSU companies collected Rs 16,325 crore (52%). AIC alone collected GP of Rs 13,651 crore (43.5%).

ICICI Lombard, Cholamandalam MS, Shriram General Insurance and Tata AIG have opted out of PMFBY from kharif 2019-20, as they felt that the claim ratios in previous seasons were too high.

The government’s own Public Sector Undertakings (PSUs) – General Insurance Corporation, United India Insurance Company, National Insurance Company, Oriental Insurance Company and New India Assurance have also faced difficulties in getting reinsurance due to their losses and high claim ratio in previous seasons. As a result, only 10 out of 18 empanelled insurance companies were eligible to participate in crop insurance in the kharif 2020 season.

Finally, the government took a good decision last year to engage 12 organisations to conduct pilot studies in kharif and rabi 2019-20 for gram panchayat level crop yield estimation using remote sensing, artificial intelligence bases softwares, drones, mobile applications and other technologies. International Food Policy Research Institute (IFPRI), International Crops Research Institute for the Semi-Arid Tropics (ICRISAT), Gokhale Institute of Politics and Economics and Trinity League India are among those who have submitted detailed technical reports to MNCFC.

These reports suggest that accuracy upto 85-90% can be achieved in assessment of crop yield for rice & wheat. This can reduce dependence on crop cutting experiments. There is a need to integrate use of technology for assessment of yield. This can shorten the time taken by CCEs which has been a major cause of delay in settlement of claims.

PMFBY will complete five years when rabi crops are harvested in March-April 2021. In 2019-20, the Centre and the states paid Rs 27,075 crore as premium subsidy. It is time the government launched a comprehensive evaluation of the scheme which should be concurrent with this year’s kharif and rabi crops. This can enable the Centre and the states to decide the way forward.

Siraj Hussain is a Visiting Senior Fellow, ICRIER. He retired as Union Agriculture Secretary.

Exclusive: Farmers Owed Rs 3,000 Crore in Crop Insurance Claims 7 Months After Deadline

Delay in payment of claims has been a major problem with the PMFBY scheme, which PM Modi had said would ‘bring about a major transformation in the lives of farmers’.

New Delhi: Farmers have not been paid Rs 3,001 crore worth of crop insurance claims seven months past the deadline date, according to information obtained by The Wire through an RTI application.

The data pertains to the 2018-19 season whose last harvest – the rabi season – ended in May 2019, almost 10 months ago. According to the Pradhan Mantri Fasal Bima Yojana (PMFBY) guidelines – which require claims to be settled within two months of final harvest – the claims ought to have been settled by the end of July.

In the RTI response, the ministry of agriculture and farmers’ welfare has said that the estimated claims for the 2018-19 season were Rs 21,250 crore and Rs 18,249 crore has been paid as on February 27, 2020. So, 14%, or Rs 3,000 crore, worth of claims, have not been paid seven months after the deadline by which they should have been paid.

The gross premium collected by insurance companies in the 2018-19 season was Rs 25,822 crore, of which Rs 4,299 crore, or 16%, was paid by farmers. The rest – Rs 21,523 crore – has been paid – or will be paid, as some states have not paid the entire amount – by the Centre and the respective state.

Also read: By Making Crop Insurance Optional for Farmers, Has the Centre Effectively Ended the Scheme?

The maximum disbursement of claims has happened in Maharashtra where Rs 4,398 crore of the Rs 4,407 crore estimated claims have been paid. Gujarat has a 100% record of settling claims as Rs 2,777 crore of estimated claims have been settled.

The state with the maximum amount outstanding is Andhra Pradesh with Rs 875 crore worth of claims pending, out of the estimated claims of Rs 1,112 crore. Next is Madhya Pradesh, where not a single rupee has been paid and all the Rs 658 crore of estimated claims remain pending. Rajasthan and Jharkhand, with Rs 400 crore and Rs 370 crore, are among the other states with high amounts outstanding.

Delay in payment of claims has been a major problem with the PMFBY, as The Wire has reported several times (read here, here and here).

The Centre attempted to address the problem. In September 2018, it announced that the insurance companies will have to pay 12% interest on the amount due if the claim is not paid within two months of the cut-off date.

The threat of penalty has not worked fully, the information obtained via RTI has revealed, as Rs 3,000 crore remain pending seven months after the deadline date even when the penalty mechanism was in place. It is also not yet clear if the insurance companies will end up paying the penalty.

Insurance companies contend that the delay occurs when either the state or the centre delay in paying their share of premium, or when the state delays in providing data on crop loss. “We are not interested in delaying claims. We know we have to pay. But if we don’t get the premium amount, how can we pay claim?” said an official of a private insurance company.

The Centre argues that the delay occurs because states do not pay the premium amounts on time. “The states are not making the payment of premium on time. That is the main problem with crop insurance. For example, Madhya Pradesh has not paid its dues for the 2018-19 season,” said an official in the union ministry of agriculture and farmers’ welfare.

States, on the other hand, argue that they are cash strapped. “The Centre has been reducing Madhya Pradesh’s share of taxes every year. And given the fiscal responsibility act, there is very little fiscal space to manage all the schemes. The Centre keeps passing on its responsibilities to the states,” said an officer in the agriculture ministry of Madhya Pradesh.

These three stakeholders jointly responsible for the implementation of the PMFBY have been voicing these concerns since the first season under the scheme in 2016. But have been unable to solve the problems as delays in settlement of claims continue.

Farmers argue that the compensation for crop damage would be useful if it comes in time for the next sowing season. If a farmer suffers loss in the kharif season, the compensation should be paid in time for the money to be used as working capital for sowing during the rabi season.

When the PMFBY was launched in January 2016 by merging two existing crop insurance schemes, Prime Minister Narendra Modi had said that the scheme would ‘bring about a major transformation in the lives of farmers’.

Also read: BJP Manifesto: Voluntary Enrolment Under PMFBY Could Kill the Programme

That, however, has not happened and over the last two years, farmers have demanded that the scheme be made optional. Until recently, the scheme was mandatory for farmers who took loans under the formal credit system as premium amount was deducted from their loans.

In February this year, the Centre finally gave in to the demands and made the scheme voluntary. As Siraj Hussain has written for The Wire, this move could significantly scale down the scheme.

Farmers who had opted for the scheme, i.e. those who had not taken loans but had opted for crop insurance (non-loanee farmers), were only 27% in 2017-18. That percentage has increased to 39% in kharif 2019.

But most non-loanee farmers who have opted for crop insurance are from one state – Maharashtra – where a Bombay high court order means that premium cannot be deducted from the loan amount without consent of the farmer.

“The number of non-loanee farmers in Maharashtra is most probably an over estimate as loanee farmers have been listed as non-loanee to work around the court order,” said the agriculture ministry official.

So, if Maharashtra is taken out of the equation, only 17% of the total farmers enrolled in PMFBY in Kharif 2019 are non-loanee raising questions on the scope of the scheme now that it has been made voluntary.

Govt Revamps PMFBY Crop Insurance Scheme, Makes Farmer Registration Voluntary

As The Wire has reported over the last year and a half, the PMFBY was of limited benefit to farmers in its erstwhile format.

New Delhi: The Union Cabinet on Wednesday made some major changes to the Pradhan Mantri Fasal Bima Yojana (PMFBY), the most notable among which is that it is now voluntary for all farmers.

Earlier, all farmers who had availed themselves of loans on their Kisan Credit Card were registered for the PMFBY automatically and the amount of premium was deducted from their loan amounts. Farmers who were not in the formal credit system could choose to opt for the scheme.

Now, even farmers who have taken loans can choose to not enrol themselves in the PMFBY. This had been one of the promises made by the Bhartiya Janata Party in its manifesto prior to the Lok Sabha elections of 2019.

Over the period of implementation of PMFBY, on an average, around 70% of farmers who registered for the scheme were those who had taken loans, and who could have, potentially, chosen not to register for the scheme had the choice been available.

Farmers and farmer organisations had demanded that the scheme be made voluntary as they argued that they see no benefit in the scheme and should not be made to pay the premium involuntarily.

As The Wire has reported over the last year and a half, the PMFBY was of limited benefit to farmers as the claims raised remained pending for several months after the stipulated time period in which they ought to have been paid.

Also read: Under Modi’s Crop Insurance Scheme, Companies Owe Farmers a Whopping Rs 2,800 Crore

We had also reported that after the launch of PMFBY – which subsumed two existing schemes – premiums collected by insurance companies increased by 350% while the number of farmers covered by the scheme remained about the same.

In its revamp, the government has also said that states which fail to pay their share of premium subsidy within the time allotted, will not be allowed to implement the scheme in subsequent seasons.

One of the reasons why insurance companies delayed making payments of claims to farmers was that in several cases, they had not received the premium amount that was supposed to be paid by states. The cut off dates will now be March 31 for kharif and September 30 for rabi.

The new PMFBY also contains a provision for using ‘technology solution’ to arrive at yield data in case states fail to provide yield data beyond the cut off dates. It has not yet been made clear what exactly the ‘technology solutions’ will entail.

In another decision, the Cabinet also approved the formation 10,000 farmer producer organisations by 2024 which is set to cost Rs 4,496 crore. This will be implemented jointly by the Small Farmers Agri-business Consortium (SFAC), National Cooperative Development Corporation (NCDC) and National Bank for Agriculture and Rural Development (NABARD).