Editorial: Key milestone in crop insurance

CHENNAI: Farmers face multiple vulnerabilities, and the government crop insurance scheme was designed to shield them from consequent distress. The scheme, titled Pradhan Mantri Fasal Bima Yojana (PMFBY), has had its share of challenges and successes since its launch in 2016. The government has now announced another milestone by making claim payments to the tune of Rs 3,200 crore to over 30 lakh farmers, said to be the largest insurance payout done on a single day through Direct Benefit Transfer or DBT. Madhya Pradesh and Rajasthan farmers get the lion’s share – Rs 1,156 crore and Rs 1,121 crore, respectively.

One of the highlights of the scheme is that 95 to 98.5% of the premium is subsidised by the central and state governments, so that the burden on the farmer is minimal, making it affordable and attractive. Secondly, it provides comprehensive coverage against loss of yield in the case of standing crops due to drought, floods and other natural disasters. It also covers losses incurred in individual farms after harvest or due to localised risks.

However, one of the major challenges faced by the scheme was the delay in claim payments, as state governments do not pay their share on time. Now the government has decided to make proportionate payments out of the central subsidy without waiting for the state’s contribution. This is a welcome improvement that provides some immediate relief to distressed farmers. The Centre will also penalise state governments and the insurance companies for payment delays.

While the success of the scheme could be seen in the states where it is being implemented, the challenges and problems are evident in states opting out. For instance, in 2023, as many as 10 states and five union territories were not implementing the scheme. The Centre is persuading them to join or return to the scheme. The main issue was the payout to farmers being much less than the premium collected by insurance companies, which were making windfall gains. Besides the public sector insurance companies, some private insurance companies also jumped on the bandwagon, given how lucrative the business was.

In defence of the scheme, the central government argued correctly that insurance companies make money during the years when claims are not made and use it to pay for the years when claims are made. Secondly, they have a recurring administrative cost of about 10-12%. Claiming a healthy rate of claim payment, it said that Rs. 1.83 lakh crore was paid to 22.7 crore farmers across the country since its inception. It is not clear how much total premium the insurance companies had collected during the same period.

There have been media reports about widespread dissatisfaction among farmers regarding the scheme. Besides delays in claim payments, a major problem relates to insurance companies declining or underpaying claims by using loopholes and adopting a mechanical approach. Moreover, the profit-oriented insurance companies often lack the intent to pay what’s due to the farmer in distress. This issue was recently flagged in a National Consumer Disputes Redressal Commission order.

Though many farmers benefited from the crop insurance scheme, dissatisfaction among many farmers indicates that it is not all hunky-dory, and the government needs to further simplify and streamline systems and processes to make it a truly pro-farmer scheme in letter and spirit.