AGRICULTURAL INSURANCE POLICY IN INDIA: PROBLEMS AND PROSPECTS

 

AGRICULTURAL INSURANCE POLICY IN INDIA: PROBLEMS AND PROSPECTS:

ABSTRACT:

Agriculture remains the primary sector of the Indian economy. While it accounts for merely 16 percent of the country’s GDP, approximately 43.9 percent of the population depends on it for their livelihood. In recently, indebtedness, crop failures, non-remunerative prices and poor returns have led to agrarian distress in many parts of the country. The government has come up with various mechanisms to address these issues, insurance, direct transfers and loan waivers, among them. However, these mechanisms are ad-hoc, poorly implemented and hobbled by political dissension. In February 2016 the government launched the crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY) to reverse the risk-averse nature of farmers. While the PMFBY has improved upon its predecessors, it faces structural, logistical and financial obstacles. This article makes an assessment of the Agricultural Insurance Policy in India Specially the Pradhan Mantri Fasal Bima Yojna and what are the problems and prospects with such agricultural insurance Scheme in India. The paper also discussed earlier insurance policy also, to find the problems and progress the implementation of Agricultural Insurance Policy in India.

1. INTRODUCTION:

At the very beginning India mainly agriculture-based country. Indian Agriculture made a good percentage in Contribution of GDP. Agriculture production and farm incomes in India are frequently affected by natural disasters such as droughts, floods, cyclones, storms, landslides and earthquakes. Susceptibility of agriculture to these disasters is compounded by the outbreak of epidemics and man-made disasters such as fire, sale of spurious seeds, fertilizers and pesticides, price crashes etc. All these events severely affect farmers through loss in production and farm income, and they are beyond the control of the farmers. With the growing commercialization of agriculture, the magnitude of loss due to unfavorable eventualities is increasing. The question is how to protect farmers by minimizing such losses. For a section of farming community, the minimum support prices for certain crops provide a measure of income stability. But most of the crops and in most of the states MSP is not implemented. In recent times, mechanisms like contract farming and future’s trading have been established which are expected to provide some insurance against price fluctuations directly or indirectly. But agricultural insurance is considered an important mechanism to effectively address the risk to output and income resulting from various natural and manmade events.

Agricultural Insurance is a means of protecting the agriculturist against financial losses due to uncertainties that may arise agricultural losses arising from named or all unforeseen perils beyond their control. Unfortunately, agricultural insurance in the country has not made much headway even though the need to protect Indian farmers from agriculture variability has been a continuing concern of agriculture policy.

According to the National Agriculture Policy 2000, ‘Despite technological and economic advancements, the condition of farmers continues to be unstable due to natural calamities and price fluctuations. In some extreme cases, these unfavorable events become one of the factors leading to farmers suicides which are now assuming serious proportions. Agricultural insurance is one method by which farmers can stabilize farm income and investment and guard against disastrous effect of losses due to natural hazards or low market prices.

Crop insurance not only stabilizes the farm income but also helps the farmers to initiate production activity after a bad agricultural year. It cushions the shock of crop losses by providing farmers with a minimum amount of protection. It spreads the crop losses over space and time and helps farmers make more investments in agriculture. It forms an important component of safety-net program as is being experienced in many developed countries like USA and Canada as well as in the European Union.

However, one need to keep in mind that crop insurance should be part of overall risk management strategy. Insurance comes towards the end of risk management process. Insurance is redistribution of cost of losses of few among many and cannot prevent economic loss. There are two major categories of agricultural insurance: single and multi-peril coverage. Single peril coverage offers protection from single hazard while multiple peril provides protection from several hazards. In India, multi-peril crop insurance program is being implemented, considering the overwhelming impact of nature on agricultural output and its disastrous consequences on the society, in general, and farmers, in particular.

This article looks at the genesis of agricultural insurance in India, examines various agricultural insurance schemes launched in the country from time to time and the coverage provided by them. Major issues and problems faced in implementing agricultural insurance in the country are discussed in detail. Farmers are vulnerable to agricultural risks and thus need an insurance system. While India has had one since 1972, the system is rife with problems, such as lack of transparency, high premiums, and non-payment or delayed payment of claims. India’s first crop insurance scheme was based on the ‘individual farm approach,’ which was later dissolved for being unsustainable. The next insurance scheme was then based on the ‘homogeneous area approach.’

In 1985, the Comprehensive Crop Insurance Scheme was implemented for 15 years; improvements were made based on the area approach linked with short-term crop credit. Its successor, the National Agricultural Insurance Scheme, was implemented to increase the coverage of farmers, both those with existing loans and those without. However, despite the modifications, the scheme failed to cover all farmers, and in Kharif season 2016, the GOI formulated the Pradhan Mantri Fasal Bima Yojana (PMFBY) to weed out the issues in the previous crop insurance schemes.

2. PROGRESS AND PERFORMANCE OF AGRICULTURE INSURANCE POLICIES IN INDIA:

The question of introducing an agriculture insurance scheme was examined soon after the Independence in 1947. Following an assurance given in this regard by the then Ministry of Food and Agriculture (MOFA) in the Central Legislature to introduce crop and cattle insurance, a special study was commissioned during 1947-48 to consider whether insurance should follow an Individual approach or a Homogenous area approach. The study favored homogenous area approach even as various agro climatically homogenous areas are treated as a single unit and the individual farmers in such cases pay the same rate of premium and receive the same benefits, irrespective of their individual fortunes. In 1965, the Government introduced a Crop Insurance Bill and circulated a model scheme of crop insurance on a compulsory basis to State governments for their views. The bill provided for the Central government to frame a reinsurance scheme to cover indemnity obligations of the States. However, none of the States favored the scheme because of the financial obligations involved in it. On receiving the reactions of the State governments, the subject was referred to an Expert Committee headed by the then Chairman, Agricultural Price Commission, in July 1970 for full examination of the economic, administrative, financial and actuarial implications of the subject.

2.1 First Individual Approach Scheme 1972-1978:

Different forms of experiments on agricultural insurance on a limited, ad-hoc and scattered scale started from 1972-73 when the General Insurance Corporation (GIC) of India introduced a Crop Insurance Scheme on H-4 cotton. In the same year, general insurance business was nationalized and, General Insurance Corporation of India was set up by an Act of Parliament. The new corporation took over the experimental scheme in respect of H-4 cotton. This scheme was based on “Individual Approach” and later included groundnut, wheat and potato. The scheme was implemented in the states of Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu and West Bengal. It continued up to 1978-79 and covered only 3110 farmers for a premium of Rs.4.54 lakhs against claims of Rs.37.88 lakhs. 

2.2 Pilot Crop Insurance Scheme, 1979-1984:

In the background and experience of the aforesaid experimental scheme a study was commissioned by the General Insurance Corporation of India and entrusted to Prof. V.M. Dandekar to suggest a suitable approach to be followed in the scheme. The recommendations of the study were accepted, and a Pilot Crop Insurance Scheme was launched by the GIC in 1979, which was based on Area Approach or providing insurance cover against a decline in crop yield below the threshold level. The scheme covered cereals, millets, oilseeds, cotton, potato and chickpea and it was confined to loanee farmers of institutional sources on a voluntary basis. The premium paid was shared between the General Insurance Corporation of India and State Governments in the ratio of 2:1.

The maximum sum insured was 100 per cent. The Insurance premium ranged from 5 to 10 per cent of the sum insured. Premium charges payable by small / marginal farmers were subsidized by 50 per cent shared equally between the state and central governments. Pilot Crop Insurance Scheme1979 was implemented in 12 states till 1984-85 and covered 6.23 lakh farmers for a premium of Rs.195.01 lakhs against claims of Rs.155.68 lakhs in the entire period. The overall claim to premium ratio was 79.83 per cent indicating that about 79.83 per cent of the total premium collections were used for the payment of claims or indemnities. The average premium collected for crop insurance declined from Rs.41.95 per hectare in 1979-80 to Rs.22.13 per hectare during 1982-83 and increased thereafter to Rs.28.95 per hectare in 1984-85. Incidentally, the average premium collected per hectare was the lowest and the average indemnity paid per insured crop hectare was the highest (Rs.52.76 per insured hectare) during 1982-83. Following were some of the shortcomings that impinged upon the coverage of the crop insurance scheme.

2.3 Comprehensive Crop Insurance Scheme (CCIS) 1985-99:

This scheme was linked to short term credit and implemented based on the homogenous area approach. Till Kharif 1999, the scheme was adopted in 15 states and 2 UT’s. Both PCIS and CCIS were confined only to farmers who borrowed seasonal agricultural loan from financial institutions. The main distinguishing feature of the two schemes was that PCIS was on voluntary basis whereas CCIS was compulsory for loanee farmers in the participating states/UTs. Main Features of the Scheme were:

1.    It covered farmers availing crop loans from Financial Institutions, for growing food crops and oilseeds, on compulsory basis. The coverage was restricted to 100 per cent of the crop loan subject to a maximum of Rs.10,000/- per farmer. The premium rates were 2 per cent for cereals and millets and 1 per cent for pulses and oilseeds. Farmers’ share of premium was collected at the time of disbursement of loan. Half of the premium payable by small and marginal farmers was subsidized equally by the Central and State Governments. Burden of Premium and Claims was shared by Central and State Governments in a 2:1 ratio. The scheme was a multi-agency effort, involving GOI, State Governments, Banking Institutions and GIC.

2.4 Experimental Crop Insurance Scheme (ECIS) 1997-98:

As demanded by various states from time-to-time attempts were made to modify the existing CCIS. During 1997, a new scheme, namely Experimental Crop Insurance Scheme was introduced during Rabi 1997-98 season with the intention to cover even those small and marginal farmers who do not borrow from institutional sources. This scheme was implemented in 14 districts of five states. The Scheme provided 100 per cent subsidy on premium. The premium and claims were shared by Central and State Governments in 4:1 ratio. The scheme covered 4.78 lakh farmers for a sum insured of Rs.172 crores and the claims paid were Rs.39.78 crores against a premium of Rs.2.86 crores. The scheme was discontinued after one season and based on its experience National Agricultural Insurance Scheme was started.

2.5 National Agricultural Insurance Scheme (NAIS) 1999:

The National Agricultural Insurance Scheme (NAIS) was introduced in the country from the rabi season of 1999-2000. Agricultural Insurance Company of India Ltd (AIC) which was incorporated in December 2002, and started operating from April 2003, took over the implementation of NAIS. This scheme is available to both loanees and non-loanees. It covers all food grains, oilseeds and annual horticultural / commercial crops for which past yield data are available for an adequate number of years. Among the annual commercial and horticultural crops, sugarcane, potato, cotton, ginger, onion, turmeric, chilies, coriander, cumin, jute, tapioca, banana and pineapple, are covered under the scheme. The scheme is operating on the basis of both area approach, for 10 widespread calamities, and individual approach, for localized calamities such as hailstorm, landslide, cyclone and floods. Initially, the premium in the case of small and marginal farmers was subsidized 50 per cent, which was shared equally by the Government of India and the concerned State/UT. The premium subsidy was to be phased out over a period of five years, at present 10 per cent subsidy was provided on the premium payable by small and marginal farmers.

3. OTHER AGRICULTURAL INSURANCE SCHEMES:

Agriculture insurance in India till recently concentrated only on crop sector and confined to compensate yield loss. Recently some other insurance schemes have also come into operation in the country which goes beyond yield loss and also cover the non- crop sector. These include Farm Income Insurance Scheme, Rainfall Insurance Scheme and Livestock Insurance Scheme. All these schemes except rainfall insurance and various crop insurance schemes discussed above remained in the realm of public sector.

3.1 Farm Income Insurance:

The Farm Income Insurance Scheme was started on a pilot basis during 2003-04 to provide income protection to the farmers by integrating the mechanism of insuring yield as well as market risks. In this scheme the farmer’s income is ensured by providing minimum guaranteed income.

3.2 Livestock Insurance:

Livestock insurance is provided by public sector insurance companies and the insurance cover is available for almost all livestock species. Normally, an animal is insured up to 100 per cent of the market value. The premium is 4 per cent of the sum insured for general public and 2.25 per cent for Integrated Rural Development Program (IRDP) beneficiaries. The government subsidizes premium for IRDP beneficiaries. Progress in livestock insurance, however, has been slow and poor. In 2004-05 about 32.18 million heads were insured which comprised 6.58 percent of livestock population. The implementation of the livestock insurance as it obtains now, does not satisfy the farmers much. The procedure for verification of claims and their settlement is a source of constant irritation and subject of many jokes.

3.3 Weather Based Crop Insurance / Rainfall Insurance:

During the year 2003- 04 the private sector came out with some insurance products in agriculture based on weather 11 parameters. The insurance losses due to vagaries of weather, i.e., excess or deficit rainfall, aberrations in sunshine, temperature and humidity, etc. could be covered on the basis of weather index. If the actual index of a specific weather event is less than the threshold, the claim becomes payable as a percentage of deviation of actual index. One such product, namely Rainfall Insurance was developed by ICICI-Lombard General Insurance Company. This move was followed by IFFCO-Tokyo General Insurance Company and by public sector Agricultural Insurance Company of India (AIC). Under the scheme, coverage for deviation in the rainfall index is extended and compensations for economic losses due to less or more than normal rainfall are paid.

4. OBJECTIVES OF AGRICULTURAL INSURANCE SCHEME:

• To give financial support to farmers in the event of failure of any notified crops as an effect of any natural calamity, pests and diseases.
• To restore the creditworthiness of farmers, arise out of crops losses leading to non-payment of crops loan.
• To encourage the farmers to adopt progressive practices, high value inputs in Agriculture Crops.
• To stabilize farmers income, mainly in disaster years.

5. ROLE OF PRADHAN MANTRI FASAL BIMA YOJANA IN PROGESS OF AGRICULTURAL INSURANCE IN INDIA:

India is facing a farmer crisis. The agricultural sector, which contributes 16 per cent of India’s GDP, supports the livelihoods of 43.9 percent of the population. The population employed in this sector has decreased by 10 percentage points within a decade, from 53.1 percent in 2008 to 43.9 percent in 2018. The sector is facing manifold problems such as crop failures, non-remunerative prices for crops and poor returns on yield.

Agrarian distress is so severe, that it is pushing many farmers to despair; about 39 percent of the cases of farmer suicides in 2015 were attributed to bankruptcy and indebtedness. While the Government of India has made various efforts to address farmers grievances, the policies are insufficient, weighed down by their being merely ad hoc and subject to political wrangling. There is an imperative for a financial safety net that does not consist only of direct transfers and loan waivers short-term solutions that often prove to be counterproductive but a framework that is timely, consistent and improves agricultural productivity and, in turn, farmers’ quality of life. Farmers are vulnerable to agricultural risks and thus need an insurance system. While India has had one since 1972, the system is rife with problems, such as lack of transparency, high premiums, and non-payment or delayed payment of claims. India’s first crop insurance scheme was based on the ‘individual farm approach,’ which was later dissolved for being unsustainable.

The next insurance scheme was then based on the homogeneous area The PMFBY is a crop insurance scheme that improved upon its predecessors to provide national insurance and financial support to farmers in the event of crop failure: to stabilize income, ensure the flow of credit and encourage farmers to innovate and use modern agricultural practices. However, a close assessment of the scheme and its implementation shows that the PMFBY is afflicted by the same problems as the previous schemes. This brief attempt to assess the performance of the PMFBY. It offers recommendations to make the PMFBY a sustainable mechanism that will protect farmer incomes and reverse their risk-averse nature.

5.1. THE RATIONALE FOR CROP INSURANCE:

Pradhan Mantri Fasal Bima Yojana: An Assessment of India’s Crop Insurance Scheme percent of all farmers in India but own only 47.3 percent of the crop area. Semi-medium and medium landholding farmers who own two to 10 hectares of land, account for 13.2 percent but own 43.6 percent of the crop area, which supports the claim that the average landholding size has declined from 1.15 hectares in 2010–11 to 1.08 hectares in 2015 –16. To be sure, a small landholding is not automatically a deterrent to productive farming.

In China, for example, despite a small average land size of 0.6 hectare, farmers have achieved higher productivity due to efficient practices involving mechanization and R&D, in turn leading to increased surpluses. In India, such small average holdings do not allow for surpluses that can financially sustain families. India’s primary failure has been its inability to capitalize on technology and efficient agricultural practices, which can ensure surpluses despite small landholdings. India’s farmers need insurance for another reason: the commercialization of agriculture leads to an increase in credit needs, but most small and marginal farmers cannot avail credit from formal institutions due to the massive defaulting caused by repeated crop failure. Moneylenders, too, are apprehensive of loaning money, given the poor financial situation of most farmers.

According to the All-India Debt and Investment Survey, indebtedness is more widespread amongst cultivator households than their non cultivator counterparts. In 2014, 46 percent of the cultivator households were indebted, with an average amount of INR 70,580 in debt. Institutional agencies (commercial banks, regional rural banks or insurance companies) held 64 percent of agricultural debt in 2013, while non-institutional agencies.

The AIDIS 2013-14, also stated that non-institutional agencies advanced credit to 19 percent of the rural households and institutional agencies to 17 percent. This creates indebtedness amongst the farmers, leaving them disadvantaged to avail credit for further production. Farmers prefer informal loans as they are easier to obtain; however, they come with exorbitant interest rates. The lack of sufficient access to institutional capital for non-farm expenditure further drives farmers to meet these expenditures using credit from non-institutional sources. Additionally, those who lease land face more risk than those who own land, because certain regulations categories farmers who have land on lease as “landless.” Not owning land thus makes it difficult for farmers to get loans from banks, making informal credit institutions more lucrative.

A third reason is related to climate change: higher incidence of extreme weather events aggravates agrarian distress. Floods and droughts leave farmers in a period of flux. A lack of preparedness makes them vulnerable to harvest losses, especially given the money already paid for capital, e.g., seeds and fertilizers. This results in fluctuating incomes and unstable livelihoods. Around 52 percent of India’s total land under agriculture is still unirrigated, posing problems for farmers investing in production and cultivation. According to the Economic Survey 2017–18, extreme temperature shocks result in a four percent decline in agricultural yields during the Kharif season and a 4.7-percent decline during the Rabi season. Similarly, extreme rainfall shocks when the rain is below average lead to a 12.8-percent decline in Kharif yields and a smaller but not insignificant decline of 6.7 percent in Rabi yields. The agricultural productivity patterns as a result of climate change can reduce annual agricultural incomes between 15 percent and 18 percent on average, and between 20 percent and 25 percent for unirrigated areas.

The three factors discussed above, along with lackadaisical implementation of agricultural policies, render farmers highly vulnerable. Crop insurance schemes were formulated to tackle such issues that hinder the productivity of the agricultural sector and to reduce their negative financial impact on farmers. Such schemes attempt to not only stabilize farm income but also create investment, which can help initiate production after a bad agricultural year. The GOI has been updating its crop insurance schemes to keep up with the changing times. The most recent one was launched in 2016, a scheme that rectifies past errors and ensures increased farmer participation, which in turn promises increased agricultural productivity and a bigger share for agriculture in GDP. The PMFBY has made several improvements compared to its predecessors, the National Agricultural Insurance Scheme and the Modified National Agricultural Insurance Scheme. One of the highlights of the PMFBY is the absence of any upper limit on government.

5.2. PRADHAN MANTRI FASAL BIMA YOJANA (PMFBY): AN OVERVIEW:

The scheme was implemented in February 2016 and was allocated an initial central-government budget of INR 5,500 crore for 2016–17. It has increased a good percentage, as announced in the Interim Budget of 2019. This massive increase in the outlay for the scheme shows that it is 15 important for the government to ensure all farmers and guarantee financial support and flow of credit to them in the event of crop-yield loss.

Features of the PMFBY

1.    

Coverage of Farmers: The scheme covers loanee farmers (those who have taken a loan), non-loanee farmers (on a voluntary basis), tenant farmers, and sharecroppers.

2.     Coverage of Crops: Every state has notified crops (major crops) for the Rabi and Kharif seasons. The premium rates differ across seasons.

3.     Premium Rates: The PMFBY fixes a uniform premium of two percent of the sum insured, to be paid by farmers for all Kharif crops, 1.5 percent of the sum insured for all Rabi crops, and five percent of sum insured for annual commercial and horticultural crops or actuarial rate, whichever is less, with no limit on government premium subsidy.

4.   Area-based Insurance Unit: The PMFBY operates on an area approach. Thus, all farmers in a particular area must pay the same premium and have the same claim payments. The area approach reduces the risk of moral hazard and adverse selection.

5.     Coverage of Risks: It aims to prevent sowing/planting risks, loss to standing crop, post-harvest losses and localized calamities. The sum insured is equal to the cost of cultivation per hectare, multiplied by the area of the notified crop proposed by the farmer for insurance.

6.     Innovative Technology Use: It recommends the use of technology in agriculture. For example, using drones to reduce the use of crop cutting experiments (CCEs), which are traditionally used to estimate crop loss; and using mobile phones to reduce delays in claim settlements by uploading crop cutting data on apps/online.

7.     Cluster Approach for Insurance Companies: It encourages L1 bidding amongst insurance companies before being allocated to a district to ensure fair competition. A functional insurance office will be established at the local level for grievance redressal, in addition to a crop insurance portal for all online administration processes.

5.3. AN ASSESSMENT OF PMFBY PERFORMANCE:

1. Since states choose to voluntarily implement the PMFBY, it is their responsibility to notify crops. However, it is unclear how states should choose the major crops during a season for different districts, which results in the exclusion from insurance coverage of farmers who grow non-notified crops. Further, state governments use their discretionary powers to decide how much land will be insured and the sum insured, to reduce their burden of subsidy premiums. Thus, farmers often find it pointless to buy the insurance if the sum insured is less than their cost of cultivation. During Kharif 2016, Rajasthan decided to minimize the landholding insured to save themselves INR 60 lakh.

2. An article in Down to Earth noted that in a village in Sonipat, farmers were coerced to pay the premium amount with a condition that they would have to pay seven percent interest subsidy on a loan. This is unfair if the farmers have not received their claims, and it prevents small farmers from taking new loans. Vulnerable farmers under debt and in need of new loans are unable to avail this insurance unless all dues are paid, putting them in a vicious cycle of debt.

3. Farmers are apprehensive about the scheme because of a trust deficit, which is a result of the mandatory credit-linked insurance. The premium is deducted from a farmer who has taken a loan from any banking institution without their consent and, sometimes, even without their knowledge. Loanee farmers do not have the choice to opt out of this scheme and find it unfair to pay the premium each season without being compensated for the losses in the previous year. Further, the insured farmers do not receive any policy documents or receipts of premium charges from the banks or insurance companies. Thus, there has been a 20percent drop in loanee farmers in 2017 as compared to the first year. Few farmers now take loans or credit, harming future yield production.

4. Sometimes, a farmer is insured for the wrong crop, or the bank may be late in paying premiums to the insurance companies, leaving the farmer in a lurch and unable to claim payments. In Rajasthan, when the SBI did not pay the premium on time, farmers had to cultivate the next season without receiving their claim payments.

5. non-loanee farmer participation has been low because they might not own the required provision documents such as an Aadhaar card. While the overall no loanee farmer enrolment rate has fallen by five percent in 2017, there has been a 3.6-times increase in the number of non-loanee farmers than loanee farmers in Maharashtra. This is because Maharashtra changed the rules of mandatory credit-linked insurance, giving one the choice to opt out of the PMFBY.

6. Leasing agricultural land is prohibited in Kerala and J&K, while states such as Bihar, MP, UP and Telangana have conditions on who can lease out land, which prevents many tenant farmers from buying insurance. In Haryana and Maharashtra, tenants acquire the right to purchase land a after a period of time, but without land lease certificates, sharecroppers and tenant farmers cannot be part of the scheme.

7. Being only a yield-protection insurance, this scheme is not holistic and fails to take into account revenue protection. Without revenue protection, farmers do not benefit from the insurance scheme since, irrespective of the harvest at the end of the season, a negative Wholesale Price Index (WPI) for primary food articles leaves farmers under-compensated. According to data released by the Ministry of Commerce and Industry, the WPI for primary food articles has seen several fluctuations, with a 2.1-percent increase in July 2018 to a 1.4-percent decline in December 2018 to a further decline of 0.2 percent in February 2019.

Lower wholesale prices of food articles render farmers unable to breakeven their investment for crop production, leaving them with little income security for the next season. For instance, even if a farmer were to reach the targeted harvest, low wholesale prices will prevent the compensation of their production costs. What is missing is a revenue-protection insurance to protect farmers from a ‘yield and price’ risk.

8. Concerns regarding the ability of the state to conduct reliable CCEs must be addressed by involving village and district-level institutions and/or farmers in different stages of PMFBY implementation. There is a lack of trained professionals to handle the CCEs, and the current technology is not reliable. This has led to delays in assessment and settlement of claims, further eroding trust in the scheme.

9. Insurers still face problems in reaching farmers to convey to them the benefits of insurance, due to the lack of rural infrastructure. According to the Comptroller and Auditor General of India in 2017, out of 5,993 farmers surveyed, only 37% were aware of the schemes and knew the rates of premium, risk covered, claims, loss suffered, etc., and the remaining 63 percent farmers had no knowledge of insurance schemes highlighting the fact that publicity of the schemes was not adequate or effective. Without proper information regarding credit, insurance, premium deduction, yield-loss assessment and non-payment of claims, farmers are treated as outsiders in a scheme that is meant for their welfare.

10. The PMFBY guidelines contain provisions on bidding/notification of the PMFBY by states for three years, to allow the concerned insurance companies to create infrastructure and manpower in the clusters allocated to them. Thus, every cluster or IU has a specific insurance company selling insurances, with no provision for competitive pricing that could benefit farmers. The lack of competition also serves as a disincentive for insurance companies to improve or upgrade their products and pricing and creates a monopoly over a scheme that requires competitive pricing.

6. ISSUES AND CHALLENGES RELATING TO THE AGRICULTURAL INSURANCE IN INDIA:

Issues and challenges relating to agricultural insurance in India has been summarized below:

6.1. Threshold/guaranteed yield:

Presently, Guaranteed Yield, based on which indemnities are calculated, is the moving average yield of the preceding three years for rice and wheat, and preceding five years for other crops, multiplied by the level of indemnity. The concept does not provide adequate protection to farmers, especially in areas with consecutive adverse seasonal conditions, pulling down the average yield. It is proposed to consider the best 5, out of the preceding 10-years yield.

6.2. Levels of indemnity:

At present, the levels of indemnity are 60 per cent, 80 per cent and 90 per cent corresponding to high, medium and low risk areas. It is perceived that the 60 per cent indemnity level, does not adequately cover the risk, especially in the case of small/ medium intensity adversities, since losses get covered only if and when, the loss exceeds 40 per cent. Consequently, suggestion was made that instead of three levels of indemnity there should be only two levels of indemnity, viz. 80 per cent and 90 per cent. But, these higher levels of indemnity may escalate the premium rates, and would, increase the subsidy burden of the government. Therefore, it may be wise, to continue with the three levels, with up gradation of 60 per cent to 70 per cent. Since, the majority of crops are being covered presently in the 60 per cent level category, it’s up-gradation to 70 per cent level would be a reasonable improvement.

6.3. seasonal conditions:

The NAIS under the existing mode covers risk only from sowing to harvesting. Many a times sowing / planting is prevented due to adverse seasonal conditions and the farmer loses not only his initial investment, but also the opportunity value of the crop. A situation where the farmer is prevented from even sowing the field, is a case of extreme hardship and this risk must be covered. Pre-sowing risk, particularly prevented I failed sowing / reseeding on account of adverse seasonal conditions, should be covered, wherein up to 25 per cent of the sum insured could be paid as compensation, covering the input cost incurred till that stage.

6.4. Coverage of post-harvest losses:

In some states, crops like paddy are left in the field for drying after harvesting. Quite often, this „cut and spread‟ crop gets damaged by cyclones, floods, etc., especially in the coastal areas. Since, the existing scheme covers risk only up to the harvesting, these post-harvest risks are outside the purview of insurance cover. This issue was examined in the light of difficulties in assessing such losses at the individual level. One of the suggestions to address this could be to extend the insurance cover for two weeks after harvest.

6.5. On-account settlement of claims:

The processing of claims in NAIS begins only after the harvesting of the crop. Further, claim payments have to wait for the results of Crop Cutting Experiments (CCEs) and also for the release of requisite funds from the central and state governments. Consequently, there is a gap of 8-10 months between the occurrence of loss and actual claim payment. To expedite the settlement of claims in the case of adverse seasonal conditions, and to ensure that at least part payment of the likely claims is paid to the farmer, before the end of the season, it is suggested to introduce 'on-account' settlement of claims, without waiting for the receipt of yield data, to the extent of 50 per cent of likely claims, subject to adjustment against the claims assessed on the yield basis.

6.6. Service to non-loanee farmers:

The awareness about the scheme is poor, partly due to lack of adequate localized interactions and substantially due to the lack of effective image building and awareness campaigns. For loanee farmers, with premia being deducted at the time of loan disbursement and claim settlements being credited to the farmer's loan account, the illiterate or poorly educated farmer is hardly aware of the scheme's existence, let alone its benefits. The poor participation of non-loanee farmers is even worse. Hence, major pilot studies, to build effective communication models, in this regard need to be conducted, as an integral aspect of policy planning.

6.7. General Issues:

Even several years after the initiation of first agriculture insurance project in 1972, the coverage and scope of agriculture insurance remains far from adequate, even though the need for various forms of insurance for agriculture sector has been widely expressed. Some of the issues related to expansion of agriculture insurance and improving its effectiveness are discussed below.

7. CONCLUSION:

It is necessary to resolve the problems affecting the banking system. Bank credit to agriculture has decelerated during 2017-18, partly reflecting the pervasive risk averse nature of and debt waivers by various state governments, which may be the primary cause for disincentivizing lending. While the RBI has issued a directive to banks to invest a fixed part of their loans in agriculture, small and marginal farmers are unable to avail this credit as short-term loans, thus turning towards informal sources and, in turn, becoming indebted. A better communication strategy is required to educate farmers about the risks of informal loans. Banks must use the combined advantages of better technology, such as the Aadhaar and financial inclusion schemes, to ensure that farmers can access the credit available to them and receive their claims on time. Only with newer forms of credit assessment and risk management, along with faster modernization of rural banks, will the agricultural sector be able to counter the digital divide with urban financial markets.

Finally, insurance companies and regulators need to take a hard look at the efficacy of the PMFBY scheme. Claims are not being honored   and insurance companies are making high profits without the benefits trickling down to the farmers. Left unchecked, this will erode the credibility of the financial sector. Without a credible financial sector, the solvency positions of rural banks will be at stake. This, in turn, will impact rural-lending and can lead to a further decline in agricultural productivity. If modern insurance must reach the last farmer, the current issues have to be addressed to ensure that the subsequent scheme improves upon the PMFBY. The substantial income allocated to this scheme calls for better enforcement and transparency. By riding on an insurance model backed by private and public partnership along with technological advancements, the PMFBY scheme can include and protect the vulnerable farming population, by not only acting as an insurance scheme but also leading to the financialization and formalization of the economy.