Centre’s flagship farm insurance scheme hit or flop?

Information obtained under RTI ACT reveals sharp rise in gross premiums, drop in farmers enrolled in 201718 under PMFBY

NEWDELHI: Is the Centre’s flagship farm-insurance scheme – Pradhan Mantri Fasal Bima Yojana (PMFBY) – flying or failing? The scheme has faced much criticism after data obtained under Right to Information ACT revealed a sharp rise in gross premiums and a drop in farmers enrolled in 2017-18. A deeper HT investigation of data shows these trends may well be signs of a scheme maturing and becoming efficient.

To be sure, the scheme – crucial in a country, where half the population depends on a farmbased livelihood – still faces many hurdles, notably delay in paying off claims promptly. The scheme, which became operational in 2016-17 and is now in its third year, has drawn flak on three main indicators.

First, compared to 2014-15 and 2015-16 (the immediate preceding years when two older crop-insurance schemes were in force), premiums shot up nearly 348% – from about ~10,560 crore to about ~47,408 crore.

The second issue is that farmers are reportedly exiting the scheme. The number of those enrolled in 2016-17 was 57 million, but in 2017-18, it fell to 48 million.

Third, the total crop area insured, too, fell 15% in these years. The fourth issue: higher premiums meant private firms were grabbing a bigger pie of the insurance business.

The second issue – of farmers exiting – is a more serious area of concern because this can mean the scheme is really faltering. However, the reasons behind the drop may not be about the scheme’s popularity at all.

The fall in numbers of farmers enrolled in 2017-18 was partly driven by farm-loan waivers by Maharashtra, Rajasthan and Uttar Pradesh. Because farmers saw loan waivers coming, they saw no incentive in paying off remaining loan instalments. This default immediately rendered them ineligible for insurance under applicable rules. Crop insurance is mandatory for any farmer with a farm loan.

In 2017-18, nearly 8.7 million farmers dropped out of PMFBY. Of these, about 6.7 million farmers were those who had defaulted on their loans, official data show.

On the other hand, the number of “non-loanee” farmers -- those who voluntarily choose PMFBY -- has remained constant at 13.6 million. “If the scheme was unpopular, voluntary farmers should have been the first ones to opt out,” an official said, requesting anonymity. The percentage of voluntary farmers has, in fact, gone up from 5% (before PMFBY) to 28% in 2017-18.

In 2017-18, Aadhaar was made mandatory for farm insurance. This is another reason for the fall. Farmers often take more than one agricultural loan for the same plot of land, which also makes them eligible for two insurance policies. This is illegal.

Aadhaar eliminated those farmers with multiple loans, a process called de-duplication. In Rajasthan alone that year, nearly 2.5 million farmers did not take insurance when Aadhaar was insisted upon. This naturally shrunk the total area insured. Rajasthan’s additional chief secretary, Neelkamal Darbari, said Aadhaar linking has indeed led to “de-duplication”.

PREMIUMS

Total premiums have gone up because PMFBY, by very design, has eliminated capping of premiums and enlarged the risks covered, including localised calamity and mid-season disasters. Farmers under PMFBY have to pay between 1-2% of the total premium. The rest is shared between Centre and states equally. In earlier schemes, premiums were capped at 9-11% but the sum insured was also reduced to limit the government’s liability.

In 2015-16, the total sum insured was ~1.15 lakh crore. In 2016-17, it was ~2.03 lakh crore and in 2017-18, ~1.92 lakh crore.

Finally, 18 companies are currently empanelled to offer farm insurance. Of these, five are stateowned. The share of insurance business with state-owned firms is 52%. “Whoever will bid the lowest, will get the contract. So there is no incentive to choose a government company if a private company makes a lower bid,” the official said.

Rajeev Chaudhary, chief risk officer of Agriculture Insurance Company of India Ltd, said the bottleneck now is that payouts get delayed if banks do not process data or states do not release their share of subsidy in time.