The topic of domestic general insurance companies gradually reducing their exposure to the Pradhan Mantri Fasal Bima Yojana (PMFBY) has been in the news. This reduction mainly occurs because of the high claims that these companies are facing, which is leading to financial losses. Furthermore, the government has made participation in the scheme optional and reduced its contributory level.
Understanding Pradhan Mantri Fasal Bima Yojana (PMFBY)
PMFBY was launched by the Ministry of Agriculture and Farmers Welfare in 2016 to replace the National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS). The scheme intends to provide comprehensive insurance coverage to farmers against unexpected crop failure, helping stabilize their income.
A broad scope covers all food, oilseed crops, and annual commercial/horticultural crops for which past yield data is available. Farmers pay a prescribed premium of 2% for all Kharif crops and 1.5% for all rabi crops. In the case of annual commercial and horticultural crops, the premium is 5%. Premium costs over the farmer’s share were equally subsidized by States and the Government of India (GoI), with GoI sharing 90% of the premium subsidy for the North Eastern States.
Revamped PMFBY or PMFBY 2.0
PMFBY was revamped in 2020 and introduced multiple updates. One significant change was making the scheme voluntary for all farmers. Earlier, it was mandatory for loanee farmers availing Crop Loan/Kisan Credit Card (KCC) account for notified crops. To promote crop insurance and ensure a wider reach, the central government decided to limit the PMFBY premium rates to a maximum of 30% in un-irrigated and 25% in irrigated areas.
Restructured Weather Based Crop Insurance Scheme (RWBCIS)
Just like PMFBY, RWBCIS was also launched in 2016 by the Ministry of Agriculture and Farmers Welfare. The main aim of this scheme is to help farmers mitigate financial loss on account of anticipated crop losses due to adverse weather conditions. WBCIS uses weather parameters as a proxy for crop yields when compensating cultivators for deemed crop losses.
Challenges in Implementations
Insurance markets need low risk and low correlation in risk amongst buyers for them to function properly. But as this programme is aimed at mitigating risks of drought and floods, these prerequisites are likely to be false. Uninvestigated losses from localized calamities, delay in funds release from State governments, lack of awareness among farmers, and absence of a decent grievance redressal system are some of the critical challenges in the scheme’s implementation.
Path Ahead
To ensure the smooth functioning of this scheme, generating awareness among stakeholders, particularly states and insurance companies, is crucial. Implementing insurance companies should conduct awareness programs in rural areas to educate farmers about crop insurance schemes.
A change in behaviour regarding viewing the cost of insurance as a necessary input rather than an investment promising returns is also required. It’s also important to rationalise loan waiver schemes announced by state governments and mandatory Aadhar linkage to enable PMFBY of more extensive coverage.
Role of Technology and Beed Model
Technological advancements can play a significant role in predicting localized weather conditions, drought risk, disease risk, and conducting soil analysis. This data can help farmers plan better and reduce losses. Furthermore, insurance companies can use this data to deal with premiums and settlements more effectively. Another solution can be adopting the ‘Beed model’ of the crop insurance scheme that restricts the insurer’s potential losses.