Existing schemes and government policies to tackle agricultural disasters. Insurance and loan schemes: criteria and constrains of crop/animal insurance and credit guarantee schemes

Insurance

Pradhan Mantri Fasal Bima Yojana

Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched on 18th February 2016 is an insurance service for farmers for their yields. It was formulated in line with One Nation–One Scheme theme by replacing earlier two schemes [Agricultural Insurance Scheme (NAIS)] and Modified National Agricultural Insurance Scheme (MNAIS) by incorporating their best features and removing their inherent drawbacks (shortcomings). It aims to reduce the premium burden on farmers and ensure early settlement of crop assurance claim for the full insured sum.

PMFBY aims to provide a comprehensive insurance cover against failure of the crop thus helping in stabilising the income of the farmers. The Scheme covers all Food & Oilseeds crops and Annual Commercial/Horticultural Crops for which past yield data is available and for which requisite number of Crop Cutting Experiments (CCEs) are conducted being under General Crop Estimation Survey (GCES). The scheme is implemented by empanelled general insurance companies. Selection of Implementing Agency (IA) is done by the concerned State Government through bidding. The scheme is compulsory for loanee farmers availing Crop Loan /KCC account for notified crops and voluntary for other others. The scheme is being administered by Ministry of Agriculture.

The scheme is compulsory for all farmers who take agricultural loans from any financial institution. It is voluntary for all other farmers. The premium is subsidized for farmers who own less than two hectares of land. This insurance follows the area approach. This means that instead of individual farmers, a specific area is insured. The area may vary from gram panchayat (an administrative unit containing 8-10 villages) or block or district from crop to crop or state to state. The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated.

In case of crop insurance under Pradhan Mantri Fasal Bima Yojana, one of the criticisms is that the scheme is compulsory for loanee farmers (for crops notified by a state government) and banks deduct the premium from the farmers’ Kisan Credit Card account.

On the other hand, the animal insurance scheme is optional and that is the foremost reason for its failure. Banks are not involved in livestock insurance and due to a lack of awareness and the procedure required to purchase insurance, few farmers bother to insure their animals.

For an insurance scheme to succeed, large numbers of buyers of insurance product are needed, who then support the few whose claims become payable. This keeps the premiums low for everyone. Unlike crop insurance, the individual assessment of loss is required in livestock insurance. Insurance companies must be finding it highly expensive to reach out to a large number of small and marginal farmers who rear a few animals.

If the crop insurance scheme is also made optional and each farmer is asked to purchase insurance, it will possibly meet a similar fate as livestock insurance. The number of farmers may drastically go down and the actuarial premiums may actually go up substantially from current levels. Even in the case of tractors and motorcycles, it seems that few owners bother to renew even third-party insurance after the first year (Insurance in the first year is compulsory for registration and banks also insist on this while sanctioning loan).

So, in order to provide risk coverage to farmers rearing animals, especially in flood-prone states like Andhra Pradesh, Tamil Nadu, Odisha, Bihar and east Uttar Pradesh, the coverage of livestock needs to be substantially expanded.

Animal husbandry provides supplementary income to small and marginal farmers and it employs women in large numbers. Providing insurance coverage can protect them from losses in calamities. State governments and insurance companies need to do much more to popularise animal insurance products. If the flood-hit farmers of Kerala had taken animal insurance, they would have been able to minimise their losses.

While livestock insurance stagnates, it is possible that as a farmer-friendly measure in the run-up to parliament election, the government may ask farmers just to pay a token amount of Rs 1 per acre for crop insurance. A similar push for livestock insurance may also be in order.

Two major flaws apart from several lesser evils. The two biggest problems with the design of these schemes is that, first, even extremely poor farmers are expected to pay the premium. Second, if the farmer gets trapped in a cycle of debt and defaults on his agricultural loan — to which his crop insurance scheme is linked — his policy becomes inoperative. 

Thousands of farmers who have opened insurance plans through the Kisan Credit Card (KCC) scheme for instance find they cannot claim insurance because of unpaid dues on their bank loan.

Punjab, Haryana, Madhya Pradesh, Western Uttar Pradesh
- Farmers here don’t have any knowledge about insurance and remain without cover
- Small farmers have no incentive as they have to pay the premium
- In many cases farmers have written to banks saying they do not want insurance
- The banks have complied with such requests to meet targets although insurance is a compulsory feature of agricultural loan schemes 
States with High Levels of Insurance Fraud (Source: Crop Insurance officials)
          Maharashtra (Aurangabad and Jalgaon), Gujarat (Saurashtra), Andhra Pradesh (Rayalaseema), Karnataka (Dharwad and Haveri), Tamil Nadu (Nagapattinam and Sivaganga) and Telangana (Mahbubnagar)

- Coverage in these regions is high and so is fraudulence

- In some districts hundreds of farmers are literally living off fraudulent claims 

“If you tell the farmer that the crop insurance will stop if you default on loan repayments, how is this helping him during a crisis? This is important, given that the state decided to set up crop insurance schemes not only to help the farmer but also from a food security perspective. Giving aid to small farmers in terms of financial stability is one way of ensuring food security 

“In Mehsana in Gujarat, there was a case where the farmers had collected claims which suggested the groundnut yield was 32 quintals per acre. But when the state government did a re-check, they found the actual yield was around 450 quintals. 

An officer with a local bank that implements the KCC scheme said the farmers were not aware of how the insurance schemes worked. Most of them, for instance, did not know that the policy becomes inoperative if they default on payments. “The farmers do not know anything about the guidelines. The government has also not made any effort to make them aware. This is why these schemes are not too effective.

Also, well-to-do farmers should not get any subsidy for premiums as this will also help curtail frauds pertaining to repeat claims on the same plot of land. “But most importantly crop insurance policies should not come to a halt when a farmer defaults on account of the stress on him. When he gets continuous protection from agricultural distress, he will be motivated to continue with farming.

How Loans Going Bad Also Result in Unpaid Insurance Premiums

- Farmer takes a loan to meet cost of cultivation and for working capital; insurance premium is deducted
- Drought, flood or, as was seen recently, unseasonal rains damage the crop
- The farmer is unable to repay loan; as a result the insurance premiums can’t be paid; insurance goes to waste

- Farmer takes a loan from a moneylender to pay off previous loans

- The moneylender gets aggressive in case of default and threatens him. Many a time, the humiliation causes the farmer to commit suicide.