Crop Insurance – current scope in India

Agriculture is backbone of Indian economy especially in terms of the population employed in it. According to the current estimates, 70 percent of the rural population is involved in various activities across the entire agriculture value chain.

These activities are so well interwoven in the social fabric of our culture (festivals/stories/folklore around agriculture) that it is actually a way of life. It is much more than just a transactional business activities as it has become in many western, developed countries. At the same time, agriculture is also most sensitive to natural,market and policy based uncertainties. This can have a direct impact on life and livelihood of affected population, mainly the farmers.

 Over a period of time, due to uneven modernization across various facets of society, and weakening of social security; such uncertainties have started to result in drastic consequences, such as farmer suicides.

When we talk about high growth of Indian economy, participation of farmers in this growth is critical for sustainability of the same. Crop Insurance has been a great support system for farmers in many developed countries. With fast maturing financial services market in India, it is indeed high time that an effective crop insurance benefit is available to the farmers.

Crop insurance has been one of the pivotal and arguable one of the most popular focus of governments for past few years. At the moment the Indian government’s flagship crop insurance scheme is titled PMFBY (Pradhan Mantri Fasal Beema Yojna). The current government claims to have 10.61 crore farmers under PMFYB and it is claimed that insured money per hectare has grown to Rs. 38,035. However, this is just one side of the story. It is also true that the number of farmers insured during both the kharif and rabi seasons has gone down by 14 per cent this year. Thus, the government’s final target of bringing 50 per cent.

(98 million hectares) of the gross cropped areas (GCA) under the PMFBY in 2018-19, appears to be an impractical goal. The government has allocated Rs 13,000 crore in the Budget for this purpose.

While crop insurance schemes are good initiatives, which appear to be great in vision, but much has to be done when it comes to their implementation.

The process of evaluating and delivering value to the farmers is something which is quite crucial. Agriculture in India is still way of life for a large majority of its population. The concept of insurance has to adapt to the ground reality in India – especially the fact that it is not just transactional business as in many western countries.

In the Indian context, due to decades of rampant corruption, farmers have little trust in benefit schemes announced by government. They have doubt whether the entire sum announced will reach them at the grassroots level. A fancy term – crop insurance – is still far from being correctly understood by the large majority of farmers. Even people in urban areas have insufficient understanding; hardly any chance to look into small letters of terms and conditions, since a smaller proportion of those claims are disbursed to the satisfaction of customer.

The situation is even more complex when it comes to agriculture industry and illiterate farmers. Moreover agricultural practices are far more complicated and the factors affecting claim, produce and productivity can vary greatly. Recent reports of farmers receiving INR 5 – INR 15 as crop insurance claims are extremely disappointing and sad. I am sure that cost of getting papers together and applying for the claim would have been many times more than the compensation received. It is very likely that farmers will lose interest in availing insurance and/or proactively pursuing the same.

Even more interesting fact is percentage of the premium paid pattern.

For an example, farmers need to pay 2% (of the premium) for Kharif crop, 1.5% for Rabi and 5% for horticultural crops. It looks attractive to farmers, but conversely it could also be a reason why they have lesser interest. It means more than 95% is borne by the Central and State government agencies. One wonders that who is loosing the money. Is it the government paying 95% of the premium, with a minuscule claim rate and on the top unrealistic claims (Rs. 5, Rs. 10)! It appears then, that most of the government or public money is going to insurance companies, largely bypassing the farmers. I am afraid to imagine if it is being misused in many cases to make a socially justifiable conduit for money – from government to insurance companies.

To add to the complexity of the situation, here is another high level reality check – according to a recent survey conducted in eight states – Uttar Pradesh, Gujarat, Odisha, Andhra Pradesh, Chhattisgarh, Nagaland, Bihar and Maharashtra by BASIX, it was discovered that only 28.7 percent of farmers were aware about the PMFBY. Among them 40.8 per cent gathered information from formal sources like agriculture department, insurance companies or customer service centres and rest were informed by specific channels creating awareness. From those who were aware of the scheme only 12.9 per cent could get their crop insured of which 77 per cent were linked to loan. Nearly 41.3 per cent of the farmers cited lack of necessary documents as the major challenge to get insurance, while other challenges included small land holdings (21.4 per cent), lack of assistance from government officials (26 per cent) and inefficiency of online systems.

As per the survey findings, the farmers complained that the process for enrollment as non-loanee farmers was difficult. They had to obtain sowing certificates, land records from the local revenue department which is time consuming.

– Further, the bank branches and customer service centres are not always available for enrollment as they are pre-occupied with other works, it showed.

– Farmers are not told why they have received or not received claims and what is the basis for the claim calculations.

State officials say the bid of private insurance companies for more profit and delay in settlement of claims are crucial factors for the decline of farmers’ interest in the scheme. Interestingly, the scheme has performed poorly in the BJP-ruled states of Maharashtra, Gujarat, Chhattisgarh and Uttar Pradesh, while it has received a good response in non-BJP states like Telangana and Tamil Nadu. In a most recent statement by agriculture minister, in Kerala, the premium deposited was Rs. 3 crore in 2016 kharif and farmers got benefit of Rs. 18 crore. In my opinion, this is more to do with farmer literacy and better awareness of these schemes.

It seems that the farmers had lost interest as the compensation was either denied or delayed, besides flaws with the crop-cutting experiment to obtain accurate estimates of crop output. The new scheme permits insurance company representatives to take part in the crop-cutting experiments. It has been observed that they lower the threshold level of the output than the ideal. Therefore, the farmers cannot claim even if their actual output is low since it will be above the threshold limit many times. According to some farmers in Madhya Pradesh, they received their compensation six months after filing their claims.

Indeed, there is a need for a transparent platform wherein application, survey request and payout status can be timely checked. In addition, the grievances of farmers and insurance companies need to be redressed via a grievance redressal mechanism, which should be set up by government in advance.

Along with that, participation from NGOs and businesses is required to help create awareness of such schemes among farmers. A good amount of public money is being spent for insurance premium, thus, farmers must get the benefits.

Specifically, I do see a great opportunity to create services that will help farmers with documentation and other relevant processes for availing the scheme and for the claims processing.

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Prakash dreams to create a comprehensive platform to bring transparency in agricultural value chain by converging crop planning, crop production, plant protection, weather information, harvesting, market/supply chain on a single platform. Besides, he is passionate about helping entities realize potential of information technology in the areas – digital transformation, analytics, internet of things and information security. Prakash has been to (worked at) Bokaro (JH), Banaras (UP), Hyderabad, Delhi, Bangalore, Singapore, US and Vietnam. Prakash brings in over 16 years of expertise in market and competitive intelligence, business analytics, pricing, product management and strategy. His hobbies are – Football, Badminton, Singing, Political Economy and Indian Mythology.

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