Kudos New Crop Insurance scheme: Building the Future

Agriculture being the mainstay of Indian people traditionally and culturally, the Narendra Modi government has been focusing on the agriculture front quite seriously. Therefore the announcement of the New Crop Insurance scheme on 13^th January, 2016 by the Government of India has received kudos from all quarters.

The government and the policy makers have always faced a few challenges vis-à-vis the task of ensuring food security, higher agri growth and adequate jobs in agri sector. There has been always a long felt need to bring together at one place all conceptual issues, detailed institutional framework and operational details related to farmers’ welfare, risk management of farming community and the crops during drought and floods and other localized risk factors.

The broad policy on drought and natural disasters management prepared by the government has prescribed multifold actions vis-à-vis the disaster mitigation plans, relief measures required for providing succor to the affected population and the need to integrate these with long term objectives.

In other words, steps were required to be taken on a war footing with a well thought of and far-sighted vision and action plans, both in short term and long terms.

The New Crop Insurance scheme must be understood from that perspective. This is all the more relevant at a time when the country is facing drought for the second straight year due to poor monsoon rains.

Under the new scheme that would cost government Rs 8,000-9,000 crore annually, the farmers' premium has been kept at a maximum of 2 per cent for foodgrains and oilseeds, and up to 5 per cent for horticulture and cotton crops.

To be rolled out from the Kharif season this year, the much awaited scheme - Pradhan Mantri Fasal Bima Yojana - was cleared at the Cabinet meeting, headed by the Prime Minister Narendra Modi.

The new scheme, to be executed also by private insurance companies, is seen as a significant step by policy makers, farming community and experts. The government’s move will enhance insurance coverage to more crop area to protect farmers from vagaries of monsoon. Hence the scheme is considered very timely and also quite in tune with similar initiatives in some countries.

For Rabi crops, the farmer’s share has been rightly fixed at 1.5 per cent — against actual premiums of 8-10 per cent. For year-long cash crops and horticulture crops, this has been capped at 5 per cent.

The PMFBY will replace the existing two schemes National Agricultural Insurance Scheme as well as the Modified NAIS.

The official sources also clarified that in terms of Service Tax, as the new

PMFBY is a replacement scheme of NAIS / MNAIS, there will be exemption from Service Tax liability of all the services involved in the implementation of the scheme. It is estimated that the new scheme will ensure about 75-80 per cent of subsidy for the farmers in insurance premium.

It is worth mentioning that the government is already shelling out around Rs 5000 crore annually average for the last five years for various disaster relief measures even as the government’s new move will now mean a tentative expenditure of about Rs 9000 crore. This will be more helpful especially for farmers as the risk factor would be looked into. According to many, the 'Pradhan Mantri Fasal BimaYojna' will also rid farmers of the web of complex rules of the earlier insurance schemes.

Within hours after official announcement was made, the Prime Minister Modi tweeted expressing confidence that the new Crop Insurance Scheme will bring about a major transformation in the lives of farmers. "This is a historic day. I am confident that this scheme, which is inspired by the consideration of farmers' benefit, will bring about a major transformation to the lives of farmers," the Prime Minister said in a series of tweets.

"Farmer brothers and sisters, at a time when you are celebrating festivals like Lohri, Pongal and Bihu, the government has given you a gift in the form of Prime Minister's Crop Insurance Scheme," he had further tweeted.

The new scheme includes successful aspects of the existing schemes and "effectively addresses" whatever was lacking in earlier schemes."The scheme has the lowest premium, it entails easy usage of technology like mobile phone, quick assessment of damage and disbursement within a time frame," the PM said.

The government would have to cough out Rs 8,800 crore annually whereas the coverage would be for a crop area of 194.40 million hectare. It is significant to note that after coming to power in May 2014, the Modi government had announced that it would bring a new crop insurance scheme.

Among others, expressing confidence that farmers will adopt this new scheme, the union Home Minister Rajnath Singh said it will help them tide over financial uncertainties.

Experts also say that the mechanism of higher subsidy for crop premiums is not out of line with international standards. The United States, for instance, covers over 120 million hectares and gives subsidy to the tune of around 70 per cent. China insures its farmers for a sown area of around 75 million hectares with a subsidy on premiums of about 80 per cent. In Indian context, during the next five years, the plan would probably cover over 50 per cent of the cropped area.

A Game-changer: There are a few significant features about the new scheme and this will make it both – farmers’ friendly and a game-changer in the long run. The new Crop Insurance Scheme is in line with ‘One Nation – One Scheme’ theme. “It incorporates the best features of all previous schemes and at the same time, all previous shortcomings/weaknesses have been removed,” an official announcement said and thus highlighting the end of the cob of complexities the farmers had to face earlier.

Importantly for the beneficiaries, risks leading to crop loss are to be covered under the scheme include: Yield Losses (standing crops, on notified area basis). Thus a Comprehensive risk insurance is provided to cover yield losses due to non-preventable risks, such as Natural Fire and Lightning, Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado. Risks due to Flood, Inundation and Landslide, Drought, Dry spells, Pests/ Diseases also will be covered.

Similarly in cases where majority of the insured farmers of a notified area, having intent to sow/plant and incurred expenditure for the purpose, are prevented from sowing/planting the insured crop due to adverse weather conditions, shall be eligible for indemnity claims upto a maximum of 25 per cent of the sum-insured.

In post-harvest losses, coverage will be available up to a maximum period of 14 days from harvesting for those crops which are kept in “cut & spread” condition to dry in the field. For certain localized problems, Loss / damage resulting from occurrence of identified localized risks like hailstorm, landslide, and Inundation affecting isolated farms in the notified area would also be covered.

Moreover, it has been made clear that there will be “no upper limit” on the Government subsidy. Even if balance premium is 90 per cent, it will be borne by the Government. Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit Government outgo on the premium subsidy. This ceiling has now been removed and farmers will get claim against full sum insured without any reduction.

The new scheme envisages among other things that there will be use of technology. More technology and science will be encouraged. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will also be used to reduce the number of crop cutting experiments, sources say.

Making use of technology mandatory will also improve operational efficiency and will be beneficial to both - the farmers and the insurers, experts and insurance players say. Additionally, since farmer's premium will be down, the uptake of policies would be high. Moreover making the new crop insurance scheme mandatory for states will also mean there will be increase in the list of policy takers. Adding catastrophic events also to this cover to protect farmers against crop loss/damage due to incidents like cyclone would be beneficial to all stake holders yet again.