This document discusses crop insurance in India. It outlines several challenges facing Indian agriculture like small land holdings, soil exhaustion, drought vulnerability, and issues with minimum support prices. To address risk, the government offers various crop insurance options like yield index insurance and weather index insurance. India has had a publicly administered crop insurance scheme since 1972, but all variants introduced had flaws and incurred losses. The latest initiative is Pradhan Mantri Fasal Bima Yojna launched in 2016 to incorporate the best features of previous schemes and remove weaknesses in an effort to alleviate farmer distress.
2. Sydenham Institute of Management Studies, Research and Entrepreneurship Education B-Road, Churchgate,
Mumbai400 020, INDIA
Introduction: India, today amidst several
threats is standing up-to the challenge of food
security. The consecutive droughts over years
and ever changing climate on account of
global warming have jeopardised several
farmers’ lives. The acute distress level has
even forced several of them to commit
suicide.
Major challenges faced by Indian agriculture
Indian agriculture system is marred by several
challenges such as:
Marginal land holding
Soil exhaustion
Depletion of fresh ground water
Draught vulnerability/ vagaries of
weather
Issues with MSP (Minimum support
price)
These challenges expose farmers to risk, and
to cover/spread the risk we use the concept of
insurance. In crop insurance, greater the
variation in crop production, higher has to be
the crop insurance premium. For farmers
growing crops low in yield, value and
stability of production, high crop insurance
premium will not be affordable. The
governments, therefore, have to pay in full the
entire crop-insurance premium in case of
farmers with dry-land holdings and farmers
with marginal irrigated holdings, subsidise
payment of crop insurance premium for
farming-cooperatives and other farmers and
encourage horticultural farmers and orchard
and plantation owners to opt for crop
insurance.
Available options to insure
Insurance could be one of the following:
1. Yield index insurance
2. Weather index insurance
3. Traditional insurance on loss
assessment basis
Crop Insurance system in India
Right from independence in 1947 the work in
field of crop insurance could be seen. Initially
the modalities of crop insurance considered
was whether it should be on Individual
Approach or Homogenous Area Approach.
In 1965, the Central Government introduced a
Crop Insurance Bill framing a scheme to
cover indemnity obligations of the states.
However because of very high financial
obligations, none of the states accepted the
scheme.
Though, agricultural insurance is largely in
the public domain some private efforts
especially in weather insurance have also
been there for some time. Their experience is
not all that discouraging encouraging. The
real challenge is to scale up the distribution
and ensure fast claim settlement. India has a
publicly administered crop insurance scheme
since 1972.
All the variants of the scheme introduced
from time to time had flaws. Nevertheless
India is not alone where public crop insurance
has not been successful. In both developed
and developing countries such insurance
schemes have incurred losses without offering
an effective product. Public crop insurance
schemes are available to cultivators as means
of reducing the cost associated with crop
failure. The schemes, however, suffers from
moral hazards and adverse selection and are
very costly as payment eligibility is
determined by crop damage assessment for
each individual farmer. There is a feeling that
it is not profitable proposition at all.
3. Sydenham Institute of Management Studies, Research and Entrepreneurship Education B-Road, Churchgate,
Mumbai400 020, INDIA
Implementation Mechanism
All major schemes are supported by
Governments. Government of India
announces the scheme to be adopted by State
Govts. Further each state releases season
wise notifications,. Coverage of insurance is
done through banking network-and is
compulsory for crop loans. Non borrowing
farmers can go for it through banks/PACCS
or intermediary. Claims payments are directly
credited to bank accounts.
Evolution of crop insurance
J S Chakravarthi proposed ‘Drought
Insurance’ based on rainfall index in 1920.
First ever crop insurance started in 1972 for
H-4 cotton based on ‘individual farm’. In
1979 a pilot insurance was introduced based
on ‘homogenous area’ based yield index
(Pilot Crop Insurance Scheme: PCIS). In
1985 the PCIS was converted into a country-
wide ‘yield index’ based crop insurance
covering cereals, millets, pulses and oilseeds
(Comprehensive Crop Insurance Scheme:
CCIS) . Scope of CCIS expanded in 1999 as
National Agricultural Insurance Scheme
(NAIS) .
Weather Based Crop Insurance Scheme:
WBCIS was introduced from 2007. Modified
NAIS as pilot in 50 Districts from Rabi 2010-
11 season. National Crop Insurance
Programme (NCIP) introduced from Rabi
2013-14
Coverage and Effectiveness
The above table summarily shows how crop
insurance has fared in India comparatively. We see
that in NAIS the claims have been 24.24% higher
than the premium collected. It reflects upon the
poor sustainability of the scheme. Considering
above,regular improvements has been made under
crop insurance scheme. The recent such initiative
in this is Pradhan Mantri Fasal Bima Yojna
Launched in feb. 2106. The scheme is based upon
theme of One Nation – One Scheme: where best
features of all previous schemes are incorporated
and all previous shortcomings / weaknesses have
been removed. We just hope that the scheme helps
in alleviating the distress level of farmers.
References
1. Handbook on crop insurance by
IRDA
2. Annual report of Agriculture
Insurance Corporation of India
3. Crop insurance in India: Gurudev
Singh IIM A
4. Press information bureau: Cabinet
approves New Crop Insurance
Scheme – Pradhan Mantri Fasal Bima
Yojana – A boost to the farming
sector
