Do you know about the critical analysis of crop insurance mechanism in India? Well, the Farmers are often exposed to natural vagaries, which adversely affect their agricultural production and farm incomes. One of the most effective mechanisms to mitigate agricultural risks emanating from natural calamities is adoption of a robust insurance system.

Need for crop insurance in India

  • Rainfed agriculture: Agriculture in India is mainly dependent upon climate. More than half (53 percent) of it is rainfed. That makes it highly sensitive to weather conditions, causing uncertainty in agricultural output.
  • Climate change: As per the 5ht report of the Inter-governmental Panel on Climate Change (IPCC), over the period 1880 to 2012, the average combined ocean surface and land temperature data has shown an increase of 0.85°C.
  • Climate change increases agricultural risk by increasing variability in rainfall, causing water stress, enhancing susceptibility to plant diseases and pest attack. Recent case of fall armyworm (FAW) in North-east region is one of its examples.
  • Climate change also raising the frequency, intensity and duration of extreme weather events like droughts, floods, cyclones and storm surges.
  • There is variation in the growth of agriculture across states.
  • Types of risk to farmers: Due to all these factors, Farmers primarily face two types of risks – yield risk and price risk. An unplanned and major variation in either the yield or price of a crop in a particular agricultural cycle can translate into significant losses to the farmer.
    • Price risk refers to the uncertainty about prices that farmers receive for their produce. During years of high production, prices of crops slide downwards, affecting the incomes of farmers.
    • Yield risk refers to uncertainty regarding the quantity and quality of agricultural product harvested at the end of an agricultural cycle. Yield is mainly affected by the quantum of annual rainfall.

Thus, it becomes imperative for the government to provide support to the farmers in terms of insurance against all of the mentioned odds.

Government measures

Previous schemes

Comprehensive Crop Insurance Scheme (CCIS) was first nation-wide crop insurance scheme launched in 1985. This scheme was based on an area approach and area units were identified for the purpose of assessing indemnity. This scheme was replaced by National Agriculture Insurance Scheme (NAIS) in Rabi 1999-2000, that was further changed to Modified National Agricultural Insurance Scheme (MNAIS) during Rabi 2010-11.

Some of the limitations of old schemes

  • Low penetration: the penetration of agricultural insurance in India was low and stagnant. The number of farmers insured was 13 million in the Rabi and 25 million in the Kharif for all the schemes. It was due to unaffordable premium rates and capping of premium.
  • Low sum insured: Sum insured per hectare was reduced to an amount to commensurate with capped premium rates and this led to low sum insured for most of the crops.
  • Delay in settlements: The assessment of damage was based on the traditional system of crop cutting experiments that took 6-12 months. The settlement of claims took an unduly long time; at times it extended beyond the next cropping season.
  • Area discrepancy: There was issue of discrepancy. The area insured in many cases was greater compared to net sown area. As per PK Mishra Committee report (2013). In Kharif 1993, the claim for groundnut alone was Rs 192.96 crore out of a total claim Rs 207.42 crore for all crops.

In 2016, Both these schemes were replaced by the new Pradhan Mantri Fasal Bima Yojana (PMFBY).


  • Well, it is a flagship crop insurance scheme launched by the government. It replaced the previous 2 crop insurance schemes: National Agricultural Insurance Scheme as well as the Modified NAIS.
  • In fact, it provides for a uniform premium to be paid by farmers at 2% for all Kharif crops, 5% for commercial and horticultural crops and 1.5% for rabi crops.
  • The government removed the capping against the claims of farmers. Now farmers will get a claim against full sum insured without any reduction.
  • It encourages the use of technology, such as Smartphones, to capture and upload data of crop cutting to reduce the delays in claim payment to farmers and Remote sensing to reduce the number of crops cutting experiments.
  • It is compulsory for Farmers in the notified area, who possess a Crop Loan account/KCC account.
  • 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.
  • The public sector company, Agriculture Insurance Company (AIC) of India along with other public and private insurance companies are participating in the new crop insurance scheme.
  • The government (both Central and State) must release 50 percent share of premium subsidy to insurance companies, in the beginning of every crop season and settle balance of actual premium subsidy for season as soon as final figures are submitted by insurance company.
  • Settling of claims is done after crop cutting experiments (CCE) are carried out in affected areas by the district administration to estimate average loss per unit area. On the basis of this, insurance companies pay out the claim money.

 Critical evaluation of PMFBY

 Achievements of PMFBY

After launch of PMFBY:

  • Overall area insured has increased marginally by 6.5 percent (from 53.7 million ha in 2015-16 to 57.2 million ha in 2016-17).
  • The number of farmers insured has increased by 20.4 percent.
  • The number of farmers insured has increased by 20.4 percent
  • Premium paid has increased by 298 percent (from Rs 5,491.3 crores to Rs 21,882 crores).
  • There a slight improvement in the number of non-loanee farmers coverge.

 Criticisms of the Scheme

  • High numbers of loanee farmers: According to data from the industry, the PMFBY, like previous schemes, is primarily covering only loanee farmers as they account for 74 percent of total farmers insured in Kharif 2016 and 79 percent in Rabi 2016-17.
  • Increased actuarial premium: With the removal of capping of premium rates and no reduction in sum insured, actuarial premium rates have increased in Kharif 2016 compared to previous years. It increased from 11.6 percent in Kharif 2015 to 12.5 percent in Kharif 2016.
  • Faulty product design: Whenever there is a temperature trigger, farmers are eligible for compensation even if there is no reduction in yield. Whereas there is no correlation between temperature and other triggers in the weather station and yield calculation.
  • Payment of claims in some States/areas get delayed due to reasons like:
    • delayed transmission to yield data,
    • dispute raised by Insurance Companies on yield data,
    • reconciliation of individual farmer data on portal by bank branches,
    • late release of their share in premium subsidy by some States and NEFT related issues.
  • Data conflict: There were differences in the data on drought collated by the Agriculture Department and the Revenue Department. Based on which farmers would have been paid.
  • Exit of states: Some of the states like Bihar and West Bengal have decided to withdraw from the scheme. They are developing their own State-level schemes, while Panjab never participated in the scheme.
  • The time gap between conducting CCE and settlement of claims is usually very long and the farmers suffer in this process as they may not have surplus money to invest in inputs required in the following season.
  • Low penetration: In total, area covered in 2016-17 accounts for about 30 percent coverage to gross cropped area in the country, less than half of what USA (89 percent coverage) and China have achieved (69 percentage coverage).

performace in North-east regions

  • As per the senior Agriculture Ministry officials, of the total earmarked amount of ₹1,400 crore for north-eastern States under PMFBY, only half a percent or ₹8 crore was spent in 2018.
  • Four north-eastern States — Arunachal Pradesh, Nagaland, Manipur, and Mizoram — are not covered under the scheme at all.
  • In the States of North-East and Union Territory of Daman and Diu, firstly, Insurance companies have not shown their interest, secondly, there is lack of state budgetary resources to pay their share of the premium.
  • The reasons for the lack of interest among insurance companies are:
    • High administrative costs
    • There are no proper land records.
    • Historic yield data is not available for these States.
    • It is difficult to conduct CCEs [crop-cutting experiments] needed for many of the horticulture crops

Guidelines 2018

The following provisions have also been made in the revised Operational Guidelines under PMFBY:

  1. Provision of 12% interest rate per annum to be paid by the Insurance Company to farmers for delay in settlement claims beyond 10 days of prescribed cutoff date for payment of claims.
  1. State Government have to pay 12% interest rate for delay in release of State share of Subsidy beyond three months of prescribed cutoff date/submission of requisition by Insurance Companies.

 Way ahead

  • it is important that remote sensing technology is used that could reduce the time between assessment of crop damage and payment of claim amount.
  • The application of drones and remote sensing satellites at fine resolution can prove to be effective in taking images that could be used by agronomists to assess crop damage in the fields.
  • An increase in awareness among farmers through government agencies, insurance companies and banks is required.
  • Farmers should be informed through an aggressive media campaign about the compulsory deduction of premium, amount of sum insured, name of the insurance company and the procedure for settlement of claims.
  • In order to ensure timely settlement of claims, the government could make use of the JAM trinity by linking land records of farmers with their Aadhaar numbers and bank accounts.

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