Friday, May 13, 2016

Pradhan Mantri Fasal Bima Yojana – Opportunities & Challenges


Agriculture and allied sector continues to be the backbone of our economy as more than 65% of  the population is dependent on it directly or indirectly. This  sector has been in trouble for last few years because of the  severe financial hardship well reflected by a never ending trail of farmers suicides. The changing climatic conditions and the uncertainty attached with the monsoon has been the real cause of this hardship. With the purpose of mitigating the losses arising out of the crop  related uncertainties and  helping the farmer community , the Govt. of India has launched a very ambitious crop insurance scheme named as “Pradhan Mantri Fasal Bima Yojana (PMFBY) ” staring with the “ Kharif” season this year.

The use of “Insurance” as a risk mitigating tool in agriculture is not new. It started in early 20th century in  Europe. In  India , the background can be traced back to 1915 in Mysore State where Shri J.S. Chakravarthi  did some pioneer work. But on big scale the concept got  introduced in year 1985 by crop Insurance division of General Insurance Corporation of India. The scheme got upgraded as National Agriculture Insurance Scheme (NAIS) and Modified National Agriculture Insurance Scheme (MNAIS) subsequently . Even a specialized insurance company named Agriculture Insurance Company (AIC) was established in 2002 to carry out these  schemes with the help of state governments and the designated banks.   However  the  schemes failed to deliver the expected results. Some of the reasons  which can be attributed to its failure could be linked to the fact that  these schemes were restricted only to the loanee farmers, the premium rates were higher , the cover granted was inadequate  and most important claim settlement experience was very poor. The farmer centric approach was completely missing and it remained a scheme to help the banks recover their outstanding loans partially. As per the latest data available for year 2014 , out of the gross cropped area of 195.26 million hectares only 42.82 million hectares or 22% was covered under crop insurance.

The new scheme is prepared on the five basic premises i.e.  coverage to all , enhanced  coverage in terms of sum insured & perils, high subsidization , use of latest technology and participation of more insurance companies. The important features of the scheme are as follows:
  1.        The scheme is open to all the farmers across the country . it is no more restricted only to those who take agriculture related loans from banks. it provides a wide scope of  business to the insurance companies to motivate them to venture in to crop insurance. In fact it is first “ One nation – one policy” kind of initiation.
    2.       There is no capping of the maximum sum insured. A farmer is free to take higher coverage for his crop within the scope of principle of indemnity depending up on his premium paying capacity. The scope of the cover has also been enhanced by adding all possible perils such as prevented sowing , loss to standing / harvested crop and localized calamity such as hailstorm, landslide and inundation during the crop cycle.
    3.       The premium to the farmer community is low and there is a heavy subsidy by Govt in it.  It is kept @2% for kharif and 1.5% for the rabi crop. For the commercial & horticulture crop it is capped @ 5%. The difference between the actual premium quoted by insurance companies and these fixed rates for farmer , is to be born by Central & State Govt on 50:50 basis. There is no upper cap proposed as far as the subsidy element is concerned.
    4.       The heavy emphasis is given on use of technology such as remote sensing ,drone and mobile technology to assess the damage for smooth and speedy claim settlement. The geographical limit for loss assessment has also been brought down to village level which used to be a block / tehsil earlier – there by making more realistic claim assessment. The entire insurance process right from joining of the farmers to disbursement of claim is to be made electronically to make it a fraud free and effective scheme.
    5.       For the wide coverage , the Govt has empanelled eleven insurance companies one PSU and ten private insurance companies to participate in the scheme. It is for the first time that a much wider participation from the private sector companies is seen. 

    Like its all other schemes , the Govt of India has fixed a ambitious target of getting 50% of the farmers under the PMFBY ambit and has set aside a budget of Rs 8,800 Cr as its share of premium for the next three years. 

    However like in the  past,  the path is not going to be easy even for this new scheme. Few expected challenges  are as follows :

    1.       The scheme has a high level of in built subsidy to be born by Central & State Govt. It requires a full participation and commitment from the State Govt. too. It is very unlikely that all states would support it because of political & financial reasons. It is rumored that some of the debt burdened states have expressed their unwillingness to be part of this grand scheme.
    2.       The success of the scheme is heavily based on its acceptance by the non-loanee farmers. In a country where people are averse of taking even mandatory motor third party insurance more so in rural belt , promoting voluntary crop insurance would not be an easy task.
    3.       The distribution set-up of the insurance companies empanelled for the scheme are not up to the desired level and it require huge effort in infrastructure building. At the time when insurance companies are struggling with their cost structure such investment is doubtful. One surprise element is non-inclusion of the four PSU general insurance co which have the huge network.  
    4.       The proposed claim settlement process of the loss assessment by Govt. agencies could also lead to the dispute. There is a possibility of such agencies assessing claim looking at the political benefit rather than on the sound technical footing. The proposed use of technology has not been used in past and relaying solely on it can give trouble.
    5.       There has been no solution to the  very genuine issue of the relationship between land owner & the cultivator i.e. cultivator incurring loss and the land owner getting compensation ( officially) in this scheme too. All hope is on the proposed legislation which is under consideration to take care of it.  

    Irrespective of the challenges mentioned above , no one can dispute this fact that the scheme is really good and has the potential of changing the fate of agriculture sector if implemented with true spirit.