Agriculture Policy Briefing

The Risks that Farmers Endure are Not Mitigated by Crop Insurance Despite Tall Advertising Claims

Crop insurance in reality fails to match up to the advertising. Farmers will be restive so long as steps are not taken to assure them of adequate income.

  • The much-touted Pradhan Mantri Fasal Bima Yojana, or the revamped crop insurance scheme, launched in January 2016 has failed to effectively address the shortcomings of earlier crop insurance schemes.
  • Sobhesh Kumar Aggarwala, a faculty member in finance and accounting at the Indian Institute of Management, Ahmedabad, and its former director, Samir K Barua have made these observations in an article in Mint.
  • The authors have concluded on the basis of crop insurance data gathered by the National Institute of Securities Markets (NISM) through a 2014 survey, that awareness of crop insurance varied among states and was low overall – just 38.8 percent and coverage was merely 6.7 percent.
  • Low awareness indicated that government had not made enough efforts to educate farmers.
  • Low usage indicated that farmers did not find it useful or they were denied access.
  • Since crop insurance is mandatory for availing crop loans, farmers were not aware that their crops were insured or they were not getting access to loans from the formal sector.
  • The authors also found that those who expected their crops to fail were more likely to insure their crops, and farmers in some states benefited much more than in others.
  • Insurance penetration was high in states where the claims-to-payout ratio was high, but there was no significant relationship between awareness and claims-to-payout ratio across states.
  • Overall there was a big gap between amount paid out and premiums received.
  • Crop insurance does not provide much-needed relief to farmers from destitution because governments do not subsidize it adequately. States and the centre also cannot agree on cost-sharing. There were also delays in paying the claims.
  • Compensation was not given in time because of delays in damage assessment and dispatch of cheques.
  • The compensation was meagre in relation to the damage suffered.
  • The current unrest in the farming community is their fight back for equity. They feel they have been short changed by society.
  • The unrest will aggravate unless agriculture is made profitable through education, the application of technology and equitable risk sharing.
  • The authors say that agriculture as an economic activity is unique in that the costs are borne upfront, but there is no certainty of income because of factors beyond the control of farmers: weather patterns, prices determined by global demand and supply,  and exchange risks.
  • Unlike industrial activity, farming does not stabilize over time; it is exposed to endemic risks in every cycle.

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