Successive governments of free India have undoubtedly been trying to free farmers from the perils of crop loss and the bondage of indebtedness that results from it. Unfortunately, the very similar efforts in that direction started in the initial years after Independence. The fact that such efforts are still being made points to the failure of measures that have been talen to address the fundamental factors behind the farm crisis. None of the crop insurance schemes, nor their revisions, though continuous, have yielded the desired results.
Now there are indications to reform the ongoing Prime Minister’s Fasal Bima Yojana (PMFBY) as well. But tinkering without learning the lessons of history will lead the country nowhere. The history of crop insurance history goes back to 1915 when JS Chakravarthi Finance Secretary of the princely Mysore State proposed a rain insurance scheme. Also, in the 1920s, some other princely states, notably Madras, Dewas, and Baroda, experimented with crop insurance, though without much success. After Iindependence in 1947 the government commissioned a study in response to the demand in Parliament for crop insurance.
The first major dilemma of the study group was on the mode of crop insurance, whether it should be an i ndividual approach or an area based one? The first method seeks to indemnify the individual farmer to the full extent of the losses. But its implementation requires the reliable and accurate data of crop yields of individual farmers. The real issue was the fear of ‘moral hazard’, which simply means the fear of farmers making wrong claims if the individual based insurance is adopted. The ‘area’ approach, on the other hand, entailed the selection of a homogenous agroclimatic area as a crop insurance unit; farmers get benefit only if the entire area suffers losses under this model.
Eventually, the study report recommended the ‘homogenous area’ approach and the government accepted the same. It sent a model scheme to the states which they did not accept due to financial constraints.
The same fate befell the 1965 Crop Insurance Bill and another model scheme. The bill was later vetted in 1970 by the Dr Dharm Narain Committee which opposed the feasibility of crop insurance in India.
However, at last, the first-ever Crop Insurance scheme was put in place in 1972; it was an individual based scheme. General Insurance Department of the LIC implemented it, limiting it only to H4 cotton in Gujarat. Later, the newly set up General Insurance Corporation (GIC) added groundnut, wheat and potato and extended it to four more states ~ Andhra Pradesh, Maharashtra, Tamil Nadu, Karnataka and West Bengal. This experimental scheme continued up to 1978-79 and covered 3,110 farmers.
Against a premium of Rs. 4.54 lakh, claims worth Rs.37.88 lakh were paid. That means the claim amount was eight times higher than the premium collected; to be exact, the premium claims ratio was 1:8.34. This was a good plea for the government to discard the individual approach.
In 1979, the GIC introduced another Pilot Crop Insurance Scheme (PCIS), an area-based scheme as recommended by Prof V.M Dandekar. Later several other schemes, including Comprehensive Crop Insurance Scheme (CCIS 1985), National Agriculture Insurance Scheme (NAIS 1999), Modified National Agriculture Insurance Scheme (MNAIS 2010), Weather Based Crop Insurance Scheme (WBCIS 2007), National Crop Insurance Programme (NCIP 2013) were experimented before introducing the PMFBY in 2016. The CAG Report 7 of 2017 has focused on the serious flaws in the crop insurance scheme from 2011 to 2015-16. The most important of its findings was the insignificant crop insurance coverage. During the five kharif seasons in these five years, only between 14 and 22 per cent of the total farmers were covered under insurance, which means 78 to 86 per cent were outside insurance protection. The small and marginal farmers’ case was worse with only 5.75 to 13.32 per cent coverage, meaning 86.86 to 94.25 per cent of them were uninsured during the five kharif seasons.
During the five Rabi seasons, 88 to 92 percent of the total farmer and 94.38 to 97.28 of the small and marginal farmers did not have the crop insurance coverage. This also means that those many people could not access bank credit; if they got the loans they would have been compulsorily insured as per the rules of the crop insurance scheme. Other disturbing facts CAG found were: i) two-thirds of the farmers surveyed by it did not even have the knowledge of crop insurance; ii) 97 percent of the insured limited their insurance cover only to the extent of bank loan, although they were entitled to higher sums and iii) the insurance companies did not stick to the 45 days limit for settling the claims. The CAG observed abnormal delay, even up to 1,069 days, in the nine states it studied.
Another noteworthy failure is the neglect of tenants who account for 40 percent of the actual farmers. As for the PMFBY, the government’s reply to an RTI question revealed that eleven insurance firms paid claims worth Rs.31,612.72 crore against the gross premiums of Rs.47,407.98 crore they had received in two years 2016-17 and 2017-18. Thus, they have reaped a whopping profit of Rs 15,795.26 crore from fasal bima. This means a payout of Rs. 50 to the insurance companies for every benefit worth Rs 100 to the farmer.
Now the government wants to bring in reforms but it has given no hint of reducing the role of private insurance. The actuarial private insurance can never alleviate farmers’ woes. What is needed is a scheme which makes the public expenditure efficacious, which increases the farmers’ incomes. A mechanism to compensate farmers in the event of loss due to crop failure, bad weather, pests or any other reason and more so from adverse market conditions is imperative. This calls for the government’s will and a vision to ensure the income and employment security of the farmers and food security of the people.
The writer is a development economist and commentator on economic and social affairs.