The agricultural sector is the most significant and broadest economic sector in India contributing a major part in the GDP, and hence been called “The backbone of the Indian Economy”. Approximately, 61.5% of the rural population relies heavily on agriculture as their primary source of livelihood.
The variation in the production of agricultural produce is directly affected by many unfavourable conditions such as pest attacks, variations in weather conditions such as rainfall, temperature, humidity, etc. Thus, there is a need to protect farmers from the losses due to those unfavourable events.
Hence, to protect farmers from those unfavourable conditions, “Crop Insurance” came into the picture. Crop Insurance, which is also known as Agriculture Insurance, is purchased by agricultural producers (farmers), and subsidized by the federal government, to protect against either the loss of their crops due to natural disasters, such as hail, drought and floods, or the loss of revenue due to declines in the prices of agricultural commodities.
One of the most important benefits of buying agriculture insurance is that farmers get peace of mind, as they know that if any unfavourable event occurs or in other words, if they face any loss, then that loss will be covered up by the insurance, only if they have purchased insurance!
Other benefits of crop insurance include:
- Stability in Income: It protects farmers against the losses caused by crop failure. It acts like a tool that allows farmers to manage their yield and price risks.
- Minimal Debts: Farmers are able to repay their loans even during the time of crop failure with the support of the right insurance partner.
- Technological Advancement: Insurance companies work along with Agri Platforms, who use the Internet of Things (IoT) (the use of sensors, cameras and other devices to turn every element and action involved in farming into data), to enhance agricultural practices and reduce farmers’ losses. This helps farmers to understand the latest technological advancement and improve their crop production.
- Yield Protection: Crop insurance protects farmers against the loss of production of crops. It also offers preventive planting and replants security.
- Provide Awareness: Insurance companies provide awareness campaigns to help farmers understand the effect of natural calamities and also protect their farms.
One of the major policy issued by the government of India in 2016, to protect farmers from losses due to unfavorable events, was the Pradhan Mantri Fasal Bima Yojana (PMFBY). It has replaced all the prevailing yield insurance schemes in India, with the objectives as follows:
- To provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crop as a result of natural calamities, pests, and diseases, i.e. unforeseen events.
- To stabilize the income of farmers to ensure their continuance in farming.
- To encourage farmers to adopt innovative and modern agricultural practices.
- To ensure the flow of credit to the agricultural sector, which will contribute to food security, crop diversification and enhancing growth and competitiveness of the agriculture sector besides protecting farmers from production risks.
Now, let me give you a brief about the PMFBY scheme by the following highlights:
- Eligibility: All farmers including sharecroppers and tenant farmers growing notified crops in the notified areas are eligible.
- Uniform Actuarial premium rate to be paid by farmers: 2% for Kharif crops, 1.5% for Rabi crops and 5% for annual Commercial and Horticulture crops.
- No upper limit on government subsidy. Even if the balance premium is 90%, it needs to be paid by farmers.
- Extensive use of technology (remote sensing, smartphones for uploading pictures of crop cutting, etc.) to have better applicability of the scheme.
- Exemption from Service Tax liability for the implementation of this scheme.
- Not only covers the losses suffered by farmers due to a reduction in crop yield, but it also covers pre-sowing losses, post-harvest losses due to cyclonic rains and losses due to unseasonal rainfall.
- Losses arising due to war and nuclear risks, malicious damage, and other preventable risks shall be excluded.
So PMFBY was one of the policies issued by the government. Before that, there were two major schemes launched by the government of India, which were:
- National Agriculture Insurance Scheme (NAIS), 1999
- Modified National Agriculture Insurance Scheme (MNAIS), 2010
There are many differences between the above two schemes and the PMFBY, of which the main differences are:
- Uniformity of Premiums: The uniform premium rates are specified in PMFBY, which was missing in the old schemes.
- Compensation in case of premium default: Under PMFBY, the government will pay the premium in case the farmer fails to pay the same. It was not possible under the old schemes.
- Premium Rate: It is lower in PMFBY than the old schemes.
- Insurance amount cover: Full amount of insurance is covered under PMFBY, which was not fully covered under MNAIS.
- Localized risk coverage: Inundation is also covered under PMFBY along with hail storm and landslide, which were covered under MNAIS.
- Use of technology: It is mandatory under PMFBY scheme to use technology.
- Post-harvest losses coverage: These losses are covered in all over India – for cyclonic as well as unseasonal rains under PMFBY, whereas only Coastal areas – for cyclonic rains are covered under MNAIS.
- Prevented sowing coverage: It is available under PMFBY and MNAIS, except NAIS.
- On account payment: It is provided under PMFBY and MNAIS, except NAIS.
- One season, one premium: In one season, only one premium is to be paid under PMFBY and NAIS but this facility was not available under MNAIS.
- Awareness: Under PMFBY, insurance companies provide awareness campaigns to help farmers understand the effect of natural calamities and also protect their farms as compared to the old schemes of crop insurance.
To sum up, there were two old schemes which were replaced by the new one, the Pradhan Mantri Fasal Bima Yojana. The new scheme has many objectives and is better than the old schemes of crop insurance.
I hope that I am able to brief you about the Crop Insurance and the PMFBY scheme.
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