The inheritance of crop losses: How are Centre's insurance schemes faring in drought-hit Tamil Nadu?

Raindrops cover the expanse of the shanties, putting smiles and prayers on lips of Sivagangai's farmers. It is raining here after months. But the farmers don't bunch up under their asbestos roofs; they jump and dance, breathe in the wet mud and drench their green loincloths.

Velu, 60, wears the brightest grin, and steadies his body to begin his lament. "I have 12 acres and no yield. You know how that feels. And you know what people do when they are in my situation. But I did not do that regrettable thing," he declares, referring to insuring his crop.

And Velu is not alone in this rancid opinion of the insurance scheme meant to protect farmers against crop losses due to natural disasters like the drought that dried up Tamil Nadu's fields in 2016 and 2017.

Representational image. Reuters

Representational image. Reuters

But first, a look at how crop insurance works.

India has a history of experimenting with crop insurance, most of which have tipped towards failure. Every scheme so far has been made compulsory for farmers who take agricultural loans from any financial institution, and is voluntary for other farmers.

Comprehensive Crop Insurance Scheme

The Comprehensive Crop Insurance Scheme (CCIS) was implemented for 15 years, from 1985 to 1999. According to the Centre for Civil Society, the CCIS only charged premiums of 1-2 percent, while claims made were approximately 9 percent of the sum insured. Factoring in administrative costs, participating farmers as a whole would have had to pay approximately 15 percent of the sum insured without the 50 percent subsidy for small and marginal farmers.

Take for instance a farmer who insured his entire crop worth Rs 20,000. He would have had to pay an annual premium of Rs 3,000, which is 15 percent of the total worth of the crop. In case of crop losses, if he made a claim, he would receive only Rs 1,800. Therefore, under the scheme, he would stand to lose Rs 1,200 in a year, which is in addition to his crop loss worth Rs 20,000. This scheme was scrapped in 1997.

Why CCIS didn't work

Crop insurance for a farmer who had taken a loan would be only Rs 10,000 despite the loan amount being higher. If the loan taken by the farmer was less than Rs 10,000, the insurance would cover the entire loan amount. The number of claims made was drastically higher than the actual premiums paid — for every 100 premiums paid, 572 claims were made during the CCIS period. The loss between premiums paid and insurance claims amounted to Rs 1,844 crore, not counting administrative costs.

National Agricultural Insurance Scheme

Following the CCIS, the National Agricultural Insurance Scheme came into effect in 1999. The premium rates varied from 1.5 percent to 3.5 percent of sum insured for food crops. In case of horticultural and commercial crops, actuarial rates were charged, which is a calculation of the expected loss based on available historical data of yield over the years and the losses expected in this trend.

Small and marginal farmers were entitled to a subsidy of 50 percent of the premium charged — the subsidy was shared equally between the central government and the states, just as CCIS worked.

Why NAIS didn't work

Experts say that the NAIS did not take into account local factors while disbursing claims, but took a national overview of the prices of crops instead. This resulted in farmers getting lesser payouts in many cases.

Olivier Mahul's book Crop Insurance in Karnataka points out: Under the NAIS, crop insurance is not effective because insurance premium rates are calculated at the national level and do not take local yield risk, heterogeneity into account. Although local crop yield data are available, they are not effectively used in pricing crop insurance contracts.

As a result, the government was forced to modify the scheme by 2010.

Modified National Agricultural Insurance Scheme

The Modified National Agricultural Insurance Scheme (MNAIS) was approved for implementation on a pilot basis in 50 districts from 2010-11. The premium rates were higher in comparison to earlier schemes — 11 percent for Kharif season, nine percent for Rabi for food crops and oilseeds, and 13 percent for annual commercial crops and horticultural crops. The full crop, however, could not be insured by most farmers, since there were various caps on premiums.

This was the first scheme that provided cover for foreseen losses. For instance, a farmer would know that his crop was failing in a particular season, and if he applied 14 days prior to harvest, stating his expected losses, the insurance amount could be disbursed without having to wait for final calculated actual figures.

The MNAIS also covered post-harvest losses for the first time. These are crop losses incurred when the crop is removed from the ground and deteriorates immediately thereafter, resulting in an inability to sell. This phenomenon was addressed by this scheme.

Why MNAIS didn't work

Under MNAIS, premium rates to be paid by farmers are 2-15 percent while the actuarial premium is up to 57 percent depending on high-risk crops and areas. There was a provision of capping the premium rate, which resulted in low claims being paid to farmers.

This capping was done to limit government outgo on the premium as the previous NAIS had bled the state. For example, if the actuarial or estimated rate for Nagapattinam district in Kharif 2014 was 22 percent and the sum insured was Rs 30,000, the farmer would only get Rs 10,500 due to the premium being capped at 11 percent.

These caps proved disastrous for many farmers in high-risk districts. Insurance claims also differed from district to district based on actuarial premium rates.

Pradhan Mantri Fasal Bima Yojana (PMFBY)

Launched in 2016, this crop insurance is a lot different from the MNAIS. While the insurance unit in MNAIS was a block or tehsil of villages, which comprises 20-30 villages, PMFBY has cut it down to firkas, which is a unit comprising 6-7 villages.

Under PMFBY, being implemented from the Kharif season of 2016, the premium paid by farmers has been reduced to 2 percent of the insured value for the rain-dependent Kharif crop and 1.5 percent for the Rabi season, compared with 3.5-8 percent charged under the two earlier schemes NAIS and MNAIS. In the case of horticultural crops, the farmers' premium burden will be 5 percent of the sum insured.

Under the PMFBY, there would be no upper limit on government subsidy provided by the Centre and state governments. "Even if the balance premium (after farmers' contribution) is 90 percent, it will be borne by the government," said an agriculture ministry statement in 2016.

In the earlier schemes, as explained earlier, caps were imposed on premium rates, which resulted in low claims being paid to farmers. "This capping has now been removed and farmers will get claim against full sum insured without any reduction," an official said.

Another difference is the introduction of private insurance firms Cholamandalam, IFFCO-Tokyo, ICICI Lombard apart from the government insurance companies. Each state will have one insurance provider — for instance, ICICI Lombard covers Tamil Nadu, Karnataka, Kerala, Andhra Pradesh and Telangana. But the PMFBY too is not without problems, as is evident in Sivagangai.

The Sivagangai Pilots:

In Tamil Nadu, Sivagangai has time and again been identified as a pilot district for new insurance schemes by the government and reports the highest insurance coverage in comparison to other states. Of the farmers this reporter met, seven were loanees covered mandatorily under crop insurance and five were non-loanees who had registered under the scheme.

According to Selvam Kumar, joint director of agriculture in Sivagangai district, due to extensive campaigns conducted by the collector and district officials in 2016-17, 5000 additional farmers had come under the latest Prime Minister's Fasal Bima Yojana crop insurance scheme.

"There was pressure for coverage from the government, yes. Especially in this scheme. Isn't that good?" he asked. Kumar said the number of farmers covered under the scheme has shot up by 50 percent in comparison to 2015-2016. In Sivagangai, private company ICICI Lombard handles the insurance scheme. An official who refused to be named said ICICI has shown little interest in the scheme because of the lack of profits in the scheme and the pressure to increase coverage.

The Faults In Technique:

The first problem is with the calculation of insurance units. While the insurance unit has been reduced in size from blocks to firkas, the problem lies in random sampling during times of drought.

Since it is impossible for state governments to cover all villages and calculate losses, the Centre assigns the state a random number for sampling of firkas and crop losses in them. This random sampling method is meant to eliminate any bias in the calculation of crop losses.

For example, if there are 8,000 farmers in a district, and the Centre picks the number four, then state officials sample four firkas in the area. Unfortunately, farmers in these four firkas cannot be representative of all farmers. Two firkas in the sample might have a better yield than the other two which could be reeling under drought. Farmers in the area could lose out on insurance despite paying premiums every month.

"The method is fine, but we do not have the infrastructure to do it properly. We do not have reliable crop area data. Therefore the random sampling method may not achieve its purpose. If the drought is severe and extensive there is no need to evaluate. It all depends on the degree of drought," says Gopal Naik, professor at IIM Bangalore who has extensively studied crop insurance.

Calculating what is called threshold yield is key to ascertaining the insurance amount. Threshold yield is the average of the yield over the past five years. This also depends on the indemnity level which is decided state by state, based on how severe the climate is — 90 percent for low risk, 80 percent for medium risk, and 70 percent for high risk.

For example, if a farmer sows 12 quintals of paddy and his yield is only five quintals, he ideally should receive the claim amount based on the average of the past five years of yield. If the yield has been lower in the three out of the last five years, say at six quintals on average, he will not receive any insurance amount for various reasons:

One, the possibility of perfectly documented threshold yield data over five years is rare, and is prone to being fudged. Two, if there are three successive years of varying amounts of crop losses within the past five years, it would ensure that the farmer gets nothing from the claim despite a severe drought in the current claim year.

Sum insured must completely cover the cost of cultivation as per the scheme. For non-loanee farmer Abraham Kandasamy, cultivation costs are a total of Rs 15,800 for one acre out of six. But he has received nothing due to his actual yield being one quintal more than the threshold yield. His overall yield this year is only nine quintals as against a regular yield of 15. It is only when actual yield is lesser than the threshold yield, that Abraham will get his claims.

Governmental Role:

Farmers who this reporter spoke to say many government officials do not visit most villages. "They pick one or two farmers, that's all," Jagadeesh Mani, a loanee farmer said.

While campaigns to cover farmers under the scheme are laudatory, many are unaware of policy details and are not provided premium acknowledgement receipts. "We are simply under the impression that they will deduct the premium from our accounts and that we have a chance of claiming insurance. How this works we don't know. We only know what's in our passbook," said Kuppusamy Arumugam, a farmer in Ramanathapuram.

Farmers believe the crop insurance scheme is a lottery. Whoever gets lucky enough to fall under the sampling firka, could claim a good amount. This amount may or may not cover their cost of cultivation, but for them, something is better than nothing.

Assessments of crop losses still face the same problems of less infrastructure, staff and workers to handle them. "Absence of systematic historical data on yields of crops makes it difficult to have an objective assessment of relationship between weather index and the crop performance," says Professor Naik from Bengaluru.

Proper land records, proper crop cutting experiment data or crop assessment, release of state's share in the premium amount in time, and reach of insurance companies to non-loanee farmers in particular, are all key bottlenecks in the current system.

An official who refused to be named said the Tamil Nadu government had factored in a block as an insurance unit, instead of the firka, as demanded by PMFBY. This was a big blunder and was somehow resolved. But whether claims were decided using block units or firka units is still mere speculation, he said.

Many experts opine that the PMFBY is a dressed-up version of the earlier MNAIS scheme. Premiums were low in the NAIS, and both preventive sowing and post harvest losses were covered in the MNAIS, despite the government's claim that this was a first under the PMFBY.

The present scheme's biggest drawback is the Centre not taking account as to whether state governments have enough money to disburse their 50 percent share of the subsidy. When claims have to be disbursed to a whopping 90 percent of farmers, states don't release money on time.

Where insurance goes to waste:

D Arogyam is a 55-year-old non-loanee farmer who cultivates paddy in his six-acre land. He claimed to know little about the scheme and said he had enrolled due to pressure from the district officials. His crop has been failing for the past year due to drought. He pays a premium of Rs 300 per acre under the PMFBY scheme as opposed to the Rs 250 he paid under the MNAIS.

Premiums are higher under PMFBY than earlier schemes as farmers stand to gain more claims. However, Arogyam has not received his claims in the past two years, despite paying premiums regularly and being under the firka being assessed. He has now had to take a loan from a financial institution in order to cover his losses. The loopholes in the PMFBY have turned Arogyam from a non-loanee farmer who had the option of not coming under the scheme to a loanee farmer who had to take the scheme compulsorily.

S Velu is a loanee farmer from Kiliyur village 10 kilometres away from Sivagangai town. With a loan of Rs 70,000 and 15 acres of failing crop, Velu was under the assessed firka and banked on a guarantee that his claims would be settled. He paid Rs 308 an acre as premium and as loans piled up, the natural thing to do for banks was to debit the premium from his account.

But as his crop failed, he was unable to pay back the loan and as a result, the premiums could not be paid. He now has a bad loan and an insurance gone to waste. He was denied a loan from the cooperative bank and has been forced to borrow from a local moneylender at much higher interest rates. This, he says, is a big risk for him.

According to the PMFBY scheme, the claims should be settled in 20 days, or at most one month. But claims take over three to six months, according to the Joint Director of Agriculture, Sivagangai. The last date for the registering insurance claims for the Kharif season is April-May and for the Rabi season is November-December.

There has however been a delay in both instances. This delay pushes many non-loanee farmers like Arogyam to take loans and lose hope in crop insurance that was sold to them as a safety net in times of drought and poor yield. "In Sivagangai, for every 1,000 loanee farmers, there are 2,000 non-loanee farmers. The latter are the toughest to rope in under the scheme because for them, Arogyam is a cautionary tale. While they need the insurance the most due to high lease amounts, they are wary of being tricked," says Adimulam S, general secretary of the Sivagangai Farmers' Association.

The Sivagangai CoOperative Bank handles all claims and often bears the brunt of farmers' anger over delays. The secretary is tight lipped and refuses to answer over fears of being hauled up by the collector, who may view the CCTV footage of him speaking to this reporter in his office. "Farmers always come here and fight with us, but what can we say? With more farmers covered, this was bound to happen," he said.

The state's share of subsidy of Rs 8.1 crore was sanctioned in December 2016 for claims that had to be paid in May-June 2016.

Experts say that the latest crop insurance scheme still has wrinkles that need smoothening. "A good crop insurance which covers both yield and price takes away the need for loan waivers. Insurance or other risk management mechanisms have to cover both yield and price," Professor Naik said.

On his way home, Jagadeesh Mani of Kiliyur read the paper and pointed to a picture of farmers protesting in New Delhi. He moved his finger to the next photo of Tamil Nadu chief minister Edappadi Palanisamy who is consoling a farmer prostrating in front of him. "I think we farmers are in actuality, prostrating and crying to a government and to a God that doesn't exist," he said, wiping the last of the rain drops on his forehead.

Updated Date: Jul 09, 2017 19:50 PM

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