February 07, 2016

What Farmers Need is Insurance from Govt Policies

Vijoo Krishnan

THE Prime Minister’s Crop Insurance Scheme (PMCIS) was announced with much fanfare as the panacea for all risks faced by the farmers. Ironically, on the same day, news came out that in the year 2015 over 3,228 farmers had committed suicide in BJP-ruled Maharashtra. The phenomenon of farmers’ suicides has continued unabated for over two decades when the neo-liberal economic policies have been in operation. The ruling classes in a denial mode however, have sought to underplay the unprecedented human tragedy and linked farmers’ misfortunes to the weather gods. What the prime minister is proposing is to insure the farmers from vagaries of nature. What is actually required is to insure farmers from the adversities created by deliberate government policies. The efficacy of the PMCIS to address risks of farmers also needs to be analysed as effective insurance has the potential to build confidence among the cultivating peasantry.




The first and foremost demand of the peasantry was for a universal comprehensive crop and income insurance scheme covering both income and yield risk for all farmers including tenant farmers and sharecroppers as well as for all crops. The PMCIS continues with the system of covering loanee farmers only on a mandatory basis. Non-loanee farmers as well as tenant farmers and sharecroppers are likely to remain excluded from its ambit as is the case at present. The socially and economically deprived dalit and adivasis will also largely be excluded from the scheme. Most of them living in precarious situation with meagre incomes from cultivation will find it difficult to pay the premium. To be truly inclusive the central and state governments must subsidise the entire premium for the poor, small and marginal farmers, tenant farmers, share-croppers as well as all adivasi and dalit farmers. Even among non-loanee farmers in this category, compulsory insurance must be done with the government fully bearing the expenses. The centre and state should share these expenses in 70:30 ratio as many states are unable to bear this huge expense. North Eastern states and states like Odisha, Jharkhand, Chhattisgarh, Bihar etc must be fully subsidised by the central government.

“All-Risk Agricultural Insurance” which can absorb the shock of crop failure by providing a cushion that assures the farmers of adequate protection against crop losses as well as fall in incomes due to market volatilities is what was required. At present there are restrictions on crops that can be insured in a district though the crop is traditionally grown in the district for the last several years. Any new scheme for being effective should be applicable to all districts and expanded to cover all crops and all farmers including tenant farmers/share-croppers. It should also cover all stages of cultivation, from sowing to harvest and also the risks involved including post-harvest risks.




The underlining principle should have been that even in case there is crop loss in a farm, the farmer should be able to get compensation. At present, assessment is being done at block, taluk or mandal level. The unit for insurance should be provided on the basis of data on yield and weather collected at the level of the village with the losses on individual farms taken into account. Only then the calculation of the threshold yield and indemnity levels can be sensitive to local conditions and address losses suffered by individual farmers. For ensuring this, the government should immediately establish systems of village-level collection of data on crop yields, weather conditions and price situation with adequate personnel. It is also notable that even in such a situation and undervaluation of losses as well as undue delays in settlement of claims, the coverage and indemnity payments are biased towards a few regions and crops.

The extension of risk period under crop insurance till the produce reaches the storage within reasonable time after crop harvest must be ensured. At present in the case of post-harvest losses, the harvested crop bundled and heaped at a place outside the field before threshing will not be covered in the scheme. Coverage is available only up to a maximum period of 14 days from harvesting for those crops which are kept in “cut and spread” condition to dry in the field after harvesting, against specific perils of cyclone/ cyclonic rains, unseasonal rains throughout the country. This could act as a loophole to deny farmers genuine claims from damages caused post-harvest by rains or other causes.




In calculating the threshold yield for purpose of settling insurance claims, the present scheme proposes to take the rolling averages of past seven years, rather than the potential yield in a normal year. Semi-arid and dry-land agriculture as well as flood-prone areas and drought-prone areas will show a low average leading to gross undervaluation of losses and thereby denying the farmers their due.  In areas that are frequented by drought and floods, yields of the affected years should be eliminated and only yield for normal years should be taken into consideration to fix the threshold level for loss assessment. Removal of two calamity years alone will not suffice as erratic climate in many regions leads to losses and low yields every season. Indemnity levels, threshold yields and other yardsticks must be amended to safeguard the interests of peasants in arid and semi-arid zones. The PMCIS excludes the damages caused by stray cattle and wild animals. This has emerged as a major problem in recent years. Farmers are facing considerable risk of wells failing during the crop growth period. Failure of irrigation facilities and bore-wells are one of the important reasons for the farmers’ distress and suicides. Such issues unfortunately remain unaddressed.

PMCIS says that 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 up to a maximum of 25 percent of the sum-insured only. This is unjust on farmers as the costs are incurred and they also suffer the loss of yield.  The government has also failed to use the opportunity for fixing liability of agribusinesses and input providers for crop losses due to spurious seeds and under performance. The methodology of using crop cutting experiments coupled with the use of smart phones, drones and satellite imagery are being suggested to assess crop growth or damage. Limitations of crop cutting experiments to arrive at actual damages on individual farms have not been addressed. How the government intends to make precise calculations of losses without a mechanism in place with enough personnel is also unanswered.




Farmers’ groups were of the considered opinion that it is imperative that public sector insurance companies must be engaged in the task with substantial support by central governments and state governments. Complaints that the private companies are defaulting in making payment to farmers although they are collecting high premium and government is also paying them, as well as defrauding of farmers, have been common. The empanelled private insurance companies include ICICI-Lombard General Insurance Company Ltd., HDFC-ERGO General Insurance Company Ltd., Bajaj Allianz General Insurance Company Ltd., Reliance General Insurance Company Ltd., Future General India Insurance Company Ltd., Tata-AIG General Insurance Company Ltd., etc. The industry hopes that the move is likely to more than double the agriculture insurance business within very first year of implementation of the scheme. The 11 general insurance companies, which offer agricultural insurance, have business of around Rs 5,000 crore and it is likely to cross Rs 13,000 crore by the end of the next fiscal year as new players are entering the fray in an aggressive manner. Clearly there seems to be urgency in opening up the agricultural insurance sector totally to private players including multinational companies with dubious credentials.




The BJP government claims that the PMCIS will have the “lowest premium for farmers in the history of independent India”. Under the existing National Agricultural Insurance Scheme (NAIS) which is in operation in 14 states the premium rates range from 1.5 percent to 3.5 percent for foodgrains and oilseeds and for horticultural and cash crops. Under the PMCIS, farmers will have to pay a uniform premium of 2 percent for all kharif crops and 1.5 percent for all rabi crops. For annual commercial and horticultural crops, farmers will have to pay a premium of 5 percent. In the name of Unified Package Insurance Scheme (UPIS) the policy contains seven sections. Crop insurance is mandatory. However, it mentions that farmers “have to choose at least two other sections also to avail the applicable subsidy under crop insurance section”.

Before coming up with the insurance scheme, an RBI committee headed by Deepak Mohanty has suggested that the interest subsidy scheme be scrapped on the pretext that it leads to “distortion” of the agricultural credit system and impedes long-term investment. Interest subvention at two percent for short-term crop loans of up to three lakh and additional three percent incentive for prompt repayment of loans also will be scrapped. Scrapping of the interest subsidy will only push into further distress the farmers who have taken loans from institutional sources as they will have to pay more.  For instance if Rs Three lakh is the loan, the rate of interest was seven percent and on prompt repayment only four percent that is 21,000 or 12,000/annum. Now it will remain 21,000 (that is 9000 more). In addition to this, the insurance premium to be paid will also be added.

The government has informed the Supreme Court that they are unable to keep their promise of meeting their promise of fixing MSP at least 50 percent above cost of production as recommended by Dr Swaminathan Commission. It has earlier issued an order banning procurement of paddy and wheat from states which give bonus to farmers over and above the MSP, has decontrolled agricultural inputs leading to high costs of cultivation, dismantled the extension and procurement mechanism, has not built any new irrigational infrastructure or storage facilities and has scaled down the MGNREGA. Surrender of our interests at the World Trade Organisation, trade liberalisation leading to dumping of cheap agricultural products, cuts in agricultural subsidies, exposure to volatile world market prices without any efforts at price stabilisation and income guarantee have all rendered agriculture unviable and broken the confidence of the farmers. The government has also failed to control the prices of essential commodities, health and education. Any insurance policy to be successful should also reverse these policies. The PMCIS is only seeking to address few symptoms rather than the disease.