Manmohan Singh Vs Modi: Whose crop insurance is better ?

(This is an updated version of an earlier story published in Firstpost)

Narendra Modi-led NDA-government has finalised the contours of the revamped crop insurance scheme for Indian farmers. The scheme has been welcomed by sector experts who say it can work better compared with the old scheme to address the problem of farm distress in the country.

The Rs 17,600-crore crop insurance scheme, cleared by the cabinet on Wednesday (January 13), aims to cover crop losses due to natural calamities like drought by promising very low premium payout by farmers. The scheme will be rolled out from the the kharif season beginning June.

To be sure, there have been crop insurance schemes in the country for long. In 1985, the then Congress government had launched a comprehensive Crop Insurance scheme (CCIS) 1985. In 1997-98, the government re-launched the scheme, which lasted only for a year. The government ran this until 1999. In 1999, the government launched National Agricultural Insurance Scheme (NAIS). Modi’s scheme assumes significance in the backdrop of the drubbings the BJP suffered in the recent Bihar-elections.

Rural distress
Going by government data, as many as 207 districts in nine states have been hit by drought. As much as 90 lakh hectare of land had been affected due to drought and the affected states had sought relief of over Rs 25,000 crore from the central government, a recent IANS report said.

Also 302 districts in the country had received 20 percent less rain, which, though is not categorised as drought, will affect the farmers in these areas. Announcing the sop, Modi described the scheme wherein the centre will provide Rs 8,800 crore annually to make up for almost all of the premium for the crop insured, as a move "that will transform the lives of the farmers in a big way".

Under the scheme Pradhan Mantri Fasal Bima Yojana (PMFBY), the state will also provide a matching contribution while farmers will pay only 2 per cent of the premium fixed by the insurance company for kharif foodgrains/ oilseeds crops and 1.5 per cent for rabi foodgrains/ oilseeds crops. The premium will be 5 per cent for horticultural and commercial crops for both seasons.

"This new crop insurance scheme will have lowest premium for farmers in the history of Independent India," said Home Minister Rajnath Singh.

There will be no provision of capping the premium rate so as to ensure farmers get a higher claim against the full sum insured. At least 25 per cent of the likely claim will be settled directly on farmers' bank account.

How is it different from the UPA scheme ?
According to the government, farmers will get a higher claim for the full sum
insured unlike the existing schemes such as National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS).

The new scheme will cover yield loss of standing crops, prevented sowing/ planting risk, post harvest losses and localised risks, including inundation.

At present, loanee farmers are mandated to take crop insurance cover. The new scheme is open to all farmers irrespective of whether they are loanees or not.

There will be one insurance company for the entire state, farm-level assessment of loss for localised risks and post-harvest loss. And private insurance companies, along with the Agriculture Insurance Company of India Ltd, will implement the scheme.

“Under the previous crop insurance scheme, risks were only partially covered. The existing premium rates vary between 2.5 per cent and 3.5 per cent for kharif crops and 1.5 per cent for rabi crops but the coverage was capped, meaning farmers could, at best, recover a fraction of their losses,” analysts at Firstobject Technologies, an analyst firm, said . “Also, the premium for commercial and horticulture crops was calculated on actuarial basis, meaning premiums could be as high as 25 percent depending on the risk factor involved,” they said.

Here is a direct comparison between the crop insurance schemes announced by the Manmohan Singh-government and the one announced by the Narendra Modi government :

According to FirstObject, the scheme is certainly the best for the farmer till date as it provides for localized events and removes the cap.

Apart from this, another major aspect of the scheme is the better use of technology. The government will use remote sensing, smartphone and other modern technologies for accurate and quicker information on crop yields and losses.

The challenges

So far, the coverage of crop insurance schemes has been too low due to lack of awareness among the farmers. According to media reports, the coverage as of now stands at just 23 percent. The government is aiming at 50 percent coverage with the new scheme. This, prima facie, is going to be the biggest challenge for the government.

Secondly, crop insurance sector is bogged down by frauds. According to an earlier report in The Economic Times, bank officials, insurance officials and farmers are hand in gloves to siphon off insurance money. How is the new scheme going to address this?

Third, it is not yet clear what will be the yardsticks the revamped crop insurance scheme will use to assess crop losses. “Although the low premium will drive penetration and enrolment and make the insurance scheme viable for insurers, it remains to be seen if the unit for assessing crop loss has been reduced to the village level,” Firstobject analysts said.
With PTI