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If Crop Insurance Continues to be Viable, Will Centre’s Plan for Smoothing Out Other Wrinkles Work?

The other two major problems with PMFBY have been non-payment or delayed payment of premium subsidy by state governments and the tedious process of conducting crop cutting experiments.

This is the second in a two-part series about the changes made by the government to the Pradhan Mantri Fasal Bima Yojana. Read the first part here.

It was the Motor Vehicles Act of 1988 that first made it mandatory in India for all vehicles to have valid third-party insurance coverage.

As per a recent amendment to the Act, driving an un-insured vehicle can attract a penalty of Rs 2,000 or imprisonment of up to three months or both. According to a General Insurance Council (GIC) report of 2016, only about 8.26 crore vehicles had a valid third-party insurance policy while the number of registered automobiles was about 19 crore. It is estimated that about 60% of two-wheelers on Indian roads are uninsured.

This, in a nutshell, is the challenge that an optional crop insurance scheme will face and it will have to do a lot better than motor vehicle insurance. It has to attract a sufficiently large number of farmers so that actuarial premiums remain in the range of 10-12%. Higher premiums will increase government subsidy and both the Centre and states will find it too burdensome if average premiums (for all crops taken together) are much higher than this range.

Nevertheless, if the PMFBY is a viable proposition for insurance companies even after becoming optional, various other decisions taken by the Cabinet on February 19, 2020, will substantially improve its performance by paying the claims much faster.

But there is a big ‘if’.

In the past, two major reasons for a delay in settlement of claims were: non-payment or delayed payment of premium subsidy by state governments and a tedious process of conducting crop cutting experiments. The government has decided to address both these issues in an exemplary manner.

It has been decided that if a state government does not pay premium subsidy for kharif and rabi by March 31 and September 30 respectively, it will not be allowed to operate the scheme in the next season. The Madhya Pradesh government has not paid a premium subsidy of Rs 1694 crore for kharif 2018 and Rs 500 crore for rabi 2018-19. Since the farmers insurance claims were lower than gross premium paid to insurance companies for kharif 2018, the MP government has not bothered to pay its share of subsidy for kharif 2018.

Also read: Ground Report: Congress Is Not Fulfilling Promises Made to Farmers in MP

At the same time, the Madhya Pradesh government wants that insurance companies should pay the claims arising out of unseasonal and late rains in kharif 2019. For this, the government has paid Rs 509.60 crore as advance for premium subsidy of kharif 2019.

The Cabinet decision of February 19, 2020 addresses this problem and it has been decided that the Centre will not allow insurance for a subsequent crop season if a state has not paid its share of premium subsidy for previous season. It is expected that this decision will ensure payment of premium to companies in time which would enable them to pay the farmers’ claims expeditiously.

The second set of decisions of Cabinet relate to crop cutting experiments (CCEs). The government has decided to reduce the number of CCEs by using scientific parameters of weather and remote sensing satellite imagery. CCEs will be required only in areas where there are deviations from normal. Smart sampling will also reduce the number of CCEs by focusing on areas where loss in productivity is predicted.

It has also been decided that if states do not provide CCE data to insurance companies by cut-off date, the claims will be settled by using remote sensing and weather technology. In case of disputes between states and insurance companies regarding yield, the centre was already using the RST and market arrival data. The states will now have to gear up to complete CCEs within the time prescribed in guidelines of crop insurance.

If successful, India will be the first country in the world to marry technology with CCEs to assess loss of productivity. The world is watching India with interest.

Farmers plant saplings in a rice field on the outskirts of Srinagar June 10, 2015. Photo: Reuters/Danish Ismail

The third major challenge addressed by the government decision is the appropriateness of certain crops in various regions. So far, the government was paying premium subsidy even if insurance companies found a crop so risky that they quoted premiums above 30%.

For example, the premium was 49.8% for groundnut in Rajkot, Gujarat in kharif 2018. The Centre has now decided that its premium subsidy will be restricted to only those crops which get premium of only 30% in un-irrigated areas and 25% in irrigated areas. If states still want to insure such crops, they will have to bear much higher premium subsidy than they were paying so far.

The Centre has done well to recognise that agriculture in such unirrigated areas requires interventions other than crop insurance.

For example, Bundelkhand in Uttar Pradesh and Madhya Pradesh, and Marathwada in Maharashtra need larger investment in irrigation which can reduce the risk to crops. One hopes that this will nudge the state governments to modify their policies e.g. setting up sugar units in Marathwada or growing paddy in water stressed areas in Tamil Nadu.

They will also do well to persuade farmers of these areas to go in for less water intensive crops in such areas. Investment in development of drought and flood tolerant varieties will also help agriculture in these areas.

Also read: Exclusive: Centre’s Crop Insurance Scheme Fails the Drought Test, 40% Claims Unpaid

In another innovative decision, the Cabinet has introduced insurance coverage for single peril e.g. hailstorm. So far, Punjab did not participate in the flagship crop insurance scheme due to a high irrigation ratio and lower risk to crops. However, hail and pests continue to threaten productivity of crops in Punjab. The state can now design single peril insurance policy.

The above changes will however help only if insurance companies and state governments are able to persuade farmers to take insurance for their crops. The experience of motor vehicle insurance as well as cattle insurance does not inspire much confidence. In 2012, the population of cattle and buffaloes was 29.96 crore but the total number of insured animals in 2016-17 was a paltry 7.44 lakh.

The only silver lining for crop insurance is in Maharashtra where in 2018-19, 1.28 crore non-loanee farmers insure their crops. It will require a lot of effort of state governments, banks and insurance companies to persuade farmers, both loanee and non-loanee, to insure their crops to shield themselves from vagaries of nature.

No one is hit harder by climate change than a farmer. Next few months towards kharif 2020 will show whether these changes will make crop insurance attractive enough to farmers.

Siraj Hussain is Visiting Senior Fellow at ICRIER. He has served as Union Agriculture Secretary.

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

Making crop insurance mandatory for loanee farmers provided an attractive deal for insurance companies. Without this, will the business still be viable?

This is the first in a two-part series about the changes made to the Pradhan Mantri Fasal Bima Yojana. Read the second part here.

On February 19, 2020, the Union Cabinet approved major modifications to the two crop insurance schemes, the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme (RWBCIS).

While the former provides insurance on the basis of guaranteed crop yield, the latter provides coverage on the basis of weather parameters, irrespective of the yield of crop.

The two schemes were launched in 2016 and there were major modifications in guidelines in 2018. The implementation of the overall project has attracted criticism from farmers, some state governments and the media for delay in settlement of claims and inadequate pay outs in the event of losses.

The most important decision taken by Cabinet is to make the scheme optional.

Thus, at the time of availing crop loan from bank or cooperative, a farmer (henceforth referred to as ‘loanee farmer’) will be able to decide if he wants to take crop insurance. So far, insurance premium was deducted from his crop loan even if he didn’t want the insurance. There are several other positive changes in the scheme but this one decision alone will decide the future of crop insurance in India.

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

It was a long-standing demand of farmer organisations and activists that crop insurance should not be compulsory for loanee farmers.

Compulsory insurance was important, though, because it provided insurance companies an idea about the number of farmers and the premium they will be able to collect. Now that it has become optional, before submitting their bids for premium rates, insurance companies will have to devise alternative methodologies to estimate the number of farmers who will take insurance for their crops. If they want to continue in this business, they will have to aggressively reach out to farmers and explain to them the benefits of crop insurance.

This will not be easy as farmers in less risky districts (e.g. irrigated areas) may not opt for crop insurance. Similarly, in the event of a normal monsoon, farmers may not go for insurance either.

The real impact of this decision will be known soon, through the response of insurance companies in tenders in various states. In the last four years, after the launch of the scheme in 2016, the number of non-loanee farmers has been going up. In 2018-19, 2.11 crore non-loanee farmers insured their crop while the number of loanee farmers was 3.57 crore. But, out of 2.11 crore non-loanee farmers, 1.29 crore farmers were in Maharashtra alone.

West Bengal, Tamil Nadu, Karnataka and Jharkhand were other states where non-loanee farmers took crop insurance. In most other states, the scheme predominantly provided insurance coverage to loanee farmers only. Here, it must be noted that the state governments notified the crops which could be insured.

Sturdy crops, where risk was not perceived to be very high, like sugarcane, were generally not covered by the state governments under crop insurance.

Also read: Exclusive: Centre’s Crop Insurance Scheme Fails the Drought Test, 40% Claims Unpaid

Tenders of Uttar Pradesh, Haryana and Jammu and Kashmir to select insurance companies for 2020-21 have already been issued by state governments. After the Cabinet decision to make the scheme optional, the J&K tender was canceled on February 20.

Insurance companies retain only about 25% of premium in their books. For the rest, they take ‘reinsurance’, a form of insurance for insurers. The terms and conditions of reinsurance may also undergo a change due to this decision.

In all likelihood, insurance companies will quote a much higher premium due to chances of heavy reduction in the number of farmers and the premium, at least in kharif 2020. Due to this decision of the Union government, there may well be substantial decrease in area coverage under crop insurance in 2020-21.

If the insurance companies assess that there will be a substantial decline in the number of farmers who will insure their crops, they will quote higher (actuarial) rates of premium and the premium subsidy will substantially increase, as premium paid by farmers is fixed at 2% for kharif, 1.5% for rabi and 5% for annual commercial and horticultural crops.

The difference between premium quoted by companies and what the farmer pays is borne by the Centre and state governments in the ratio of 50:50.

A farmer carries firewood during the dry season in Nicaragua, one of the Central American countries affected by a recent drought. Photo: Flickr

If insurance companies do not quote in tenders or give exorbitant rates, the states may decide not to go for crop insurance at all. In this event, farmers will have to be provided relief under the State Disaster Relief Fund (SDRF). For agriculture, horticulture and annual plantation crops, compensation to small and marginal farmers (called input subsidy) is Rs 6,800 per hectare (of sown area) in non-irrigated areas and Rs 13,500 per hectare in irrigated areas.

In the case of farmers owning more than 2 hectares of land, the assistance is limited to only 2 hectares. Under crop insurance, the sum insured is based on the scale of finance for the district and it is many times more than the compensation for which farmers would be eligible under SDRF.

For example, in kharif 2018, the scale of finance in Rajkot district of Gujarat was Rs 39,000 per hectare for castor, Rs 58,000 per hectare for irrigated cotton and Rs 42,000 per hectare for groundnut.

So, in the absence of crop insurance, the farmers will get a much smaller amount of compensation under current norms of SDRF.

Implementation of crop insurance has substantially improved over the last four years and some decisions of Cabinet will further improve the scheme. But all this is subject to insurance companies finding it a viable business.

Siraj Hussian was Union Agriculture Secretary. Presently, he is Visiting Senior Fellow, ICRIER

NE Dispatch: Pests Create Havoc in Assam’s Cropland; Shah Blows Poll Bugle in Manipur

A round-up of what’s happening in India’s Northeast.

Mukul Sangma. Credit: PTI

Meghalaya: BJP ally moves no confidence motion against Congress government

Two days before the Congress lost Arunachal Pradesh to the People’s Party of Arunachal – an ally of its archrival, the Bharatiya Janata Party (BJP) – the party’s government was to face a no-confidence motion in yet another northeastern state – Meghalaya.

The motion, slated by Speaker Abu Taher Mondal for September 15, was moved on September 12 by another ally of BJP’s North East Democratic Alliance (NEDA) – the National Peoples’ Party (NPP) – jointly with Hill State People’s Democratic Party (HSPDP) and United Democratic Party. Yet another no confidence motion against the speaker was slated for September 16.

Not that a united opposition could have won the motion against the Mukul Sangma government, which has the support of 30 of his party MLAs besides the 11 independent and two Nationalist Congress Party (NCP) legislators in the 60-member state assembly.

On September 15, after a six-hour long heated debate in the assembly – of which two hours were taken by Sangma to address the house – the opposition withdrew the motion.

The Shillong Times editor Patricia Mukhim commented in an article published the same day, “Before bringing a ‘No Confidence Motion’, the combined opposition should have shared with the public who they have in mind as the alternative leader and what is the plan of action of that new dispensation. But what we see is an opposition going to battle without the ammunition required to take the battle to its logical end.” She termed both the motions as a “waste of time”. A combined opposition has only 13 legislators in the house.

Later, speaking to the media, the HSPDP chief Ardent M. Basaiawmoit said, the party’s intention was not to oust the government, but to draw its attention through the motion to debate on some “burning issues” concerning people. He said that the opposition “succeeded in its plan”. The issues raised by the opposition parties in the discussion were regarding the rising rate of crime against women and children.

Sangma has lately been facing open opposition not just from the rival parties, but also from within Congress. It became more prominent after he fielded his wife Dikkanchi D. Shira as the party candidate in the Tura parliamentary by-election in August. The election, warranted by the demise of the sitting MP Purno A. Sangma, was won by his son and NPP candidate Conrad Sangma. Former chief ministers D.D. Lapang and Salseng C. Marak allegedly teamed together to lead a reported “rebellion” against Sangma’s “dictatorial style of functioning”. Four-time chief minister Lapang, also the state Congress president, was replaced by Sangma mid-term in 2010.

On September 15, Lapang, now the chief adviser to the government, spoke against the motion, but also said, “They [the opposition] have raised valid suggestions and I appeal to the state government to take note on the matter.”

If chief minister Mukul Sangma loses his chair before the state goes to polls 15 months later, it won’t be anything new in Meghalaya, which has so far seen only one chief minister complete his full term since it gained statehood in 1972. S. C. Marak, who took over as the state CM in 1993, completed his term in 1998.

Assam: Pests damage thousands of hectares of cropland, farmers demand compensation from the state

The farmers of Assam – in as many as ten flood affected districts – are facing a protracted spell of disaster. After the flood water receded from their farmlands a few weeks ago, now they have been met with yet another challenge – swarms of harmful armyworms (spodoptera frugiperda), locally called sur puk, have descended on their croplands and are causing devastating effects.

The attack of armyworms, whose name is based on its apparent behaviour of migrating as an army to a new field after devouring available food sources in one, have come at a time when the state’s farmers have just begun readying their fields for winter paddy after last month’s floods.

Representative image of farming in Assam. Credit: PTI

According to state agriculture minister Atul Bora, the recent floods affected 2,17,414 hectares of the state’s cropland.

Local media reports said the large-scale emergence of the pests, also called swarming caterpillars, had forced the state government to send out agricultural scientists to various areas to rapidly contain the situation. Although the rampant appearance of pests is connected to the floods, the last such major attack was recorded by the state way back in 1967.

Bora told the media on September 19, “The armyworms are fast spreading. We are worried. So far they have affected 17,480 hectares of cropland across ten districts. Hopefully, they will bring the situation under control soon. The medicines are available in the market and the government will supply them to the farmers.”

According to a press note released on September 20, the state’s chief minister Sarbananda Sonowal has directed all the deputy commissioners “to personally inspect the farming lands” in order to assess the damage caused by the pests and “take necessary action.”

With 6,671 hectares of cropland under attack, Golaghat district is said to be the worst hit. The other districts are Majuli, Sivasagar, Dibrugarh, Barpeta, Jorhat, North Lakhimpur, Nalbari, Kokrajhar and Dhubri.

Demanding compensation from the government for the loss of crops, hundreds of affected farmers have hit the streets in the last few days, particularly in the agriculture minister’s constituency of Bokakhat, which falls under Golaghat district.

“Farmers of around 60 revenue villages of Bokakhat assembly constituency have been affected by the pests. Not just the standing crops have been eaten, but the grasslands are gone too. Since these grasslands were being used by their cattle, many cows have died in the last few days due to lack of adequate cattle feed,” Pranab Doley of Jipal Krishak and Shramik Sangha, which is spearheading the agitation in Bokakhat, told The Wire.

Doley, who was arrested last week for two days “for demanding adequate compensation for the farmers”, said, “While the state is mulling over giving compensation to the farmers as per the archaic state disaster relief fund (SDRF) rules, we have been demanding more than that. While as per SDRF, a farmer gets a compensation of Rs 6,600 for one hectare of cropland loss [which is 7.5 bigha], we are demanding it as per the market rate which is Rs 9,600 per bigha.”

At the time of writing the report no decision had been taken on the issue by the state government.

Manipur: Amit Shah blows the poll bugle in the state

The news may have failed to make national headlines, but on September 14 and 15, the Bharatiya Janata Party president Amit Shah was throughout Imphal – in posters, on the front pages of the local newspapers, in local TV news and then in person on stage at Hafta Kangjeibung, reportedly addressing 30,000 booth level workers of the party.

Shah, accompanied by general secretary Ram Madhav, human resource development minister Prakash Javdekar – who is also the national in-charge of Manipur – and NEDA convener Himanta Biswa Sarma, was in the state for a two-day visit to finalise the party’s strategy for the state assembly elections in early 2017. After winning Assam, the party has set its eyes on Manipur where the ruling Congress government is facing strong anti-incumbency after a 15-year rule.

Addressing those present at the party’s rally on September 14, Shah directed his ire at the Okram Ibobi Singh government “for lack of development” in the state. “The non-performing and corrupt Congress government has to go. From the huge gathering here I am confident there will be a BJP government in the state,” he said.

Amit Shah addresses rally in Imphal on September 14. Credit: PTI

Shah said, “The CAG [Comptroller and Auditor General] has established that the Manipur government cannot produce utilisation certificate for Rs 5,000 crore. As and when people start asking questions about this looted amount, the Congress shall not be able to face even the elections.”

According to a senior state BJP functionary, the fact that two days before Shah’s arrival former minister of the Ibobi government and a senior Congress leader Yumkham Irabot joined the BJP, was being looked at by the party as “a good sign”.

In March of this year, the Ibobi Singh government faced a crisis of sorts when 25 Congress MLAs demanded a cabinet reshuffle and change of leadership. Party president Sonia Gandhi reportedly intervened and announced change of leadership in the state unit. Gaikhangam Gangmei – who is also the state’s deputy chief minister – was replaced by T. N. Haokip.

In the 60-member Manipur assembly, the Congress presently has 42 MLAs, while the BJP has only two – Thongam Biswajit Singh and Khumukcham Joykishan, both of whom won the seats during a bye-election in November 2015.