The Pradhan Mantri Fasal Bima Yojana (PMFBY), a governmental crop insurance policy designed to protect Indian farmers from crop losses, has recently been met with concern by several states. These states are threatening to withdraw from the scheme due to issues of low claim ratio and financial constraints. Here’s a detailed look at the PMFBY scheme, its challenges, and proposed changes.
Understanding the Pradhan Mantri Fasal Bima Yojana Scheme
Launched in the 2016-17 kharif season, the PMFBY is a joint initiative of the central and state governments aimed at providing financial cushioning for Indian farmers against crop loss. The governments collectively shoulder over 95% of the premium, leaving a bare minimum of 1.5-5% to be paid by the farmer. To streamline claim settlement processes, a significant use of technology is leveraged, requiring farmers to fill online loss reports that are subsequently validated by insurance companies before compensation is transferred to their accounts.
Interestingly, until 2020, this scheme was mandatory only for farmers who availed institutional finance, but it has since been made optional for all farmers.
Identifying Challenges in the PMFBY Scheme
Despite its noble intention, various barriers plague the effective implementation of the PMFBY scheme.
Financial constraints pose a significant issue where states are unable to cope when insurance companies compensate less than the collected premiums from farmers and the Centre. This situation is worsened when state governments fail to release funds on time, causing delays in insurance compensation and defeating the scheme’s purpose.
Farmers have voiced their dissatisfaction over compensation levels and late settlements. The power that insurance companies wield in this context is pivotal. In numerous instances, these companies have refrained from investigating localized calamity-induced losses and, consequently, have not settled the concerned claims.
Insurance companies have also shown a disinterest in bidding for clusters that are prone to crop loss, considering the nature of their business model depends on profit-making during low crop failure periods.
Another challenge lies in identifying and distinguishing between large and small farmers. The current PMFBY scheme doesn’t consider this difference, making the smaller, more vulnerable farmers even more disadvantaged.
Suggestions Proposed by Maharashtra Government
In a bid to improve the PMFBY scheme, the Maharashtra government has proposed several changes.
A key suggestion includes having insurance companies share their premium collected during non-payout or normal years. The state has also called for implementing the Beed model, first experimented with during kharif 2020. Under this model, insurers provide cover for 110% of the collected premium. When compensation exceeds this amount, the state government steps in to bridge the gap. However, if compensation is less than the collected premium, 80% of the funds are returned to the state by the company, with the remaining 20% reserved for administrative expenses.
Maharashtra also seeks greater accountability from insurance companies. For increased transparency and effectiveness, farm leaders have advocated for setting up necessary infrastructures and employing technology to limit manual interference in the implementation process.
Way Forward With the PMFBY Scheme
Realistically, insurance companies should commit to a cluster for approximately three years, thereby managing both good and bad years deftly. It’s also recommended that the bids be concluded before each kharif/rabi season begins.
Instead of paying subsidies under the existing scheme, state governments could invest those resources into developing a new insurance model. While the Beed model appears promising in mitigating states’ subsidy burdens, its true effectiveness in benefitting farmers needs thorough evaluation.
While the PMFBY scheme is a step forward in securing farmers from unpredictable crop losses, a thorough reevaluation and restructuring of the scheme is crucial. This will ensure its effective functioning while truly achieving its purpose- the financial security and wellbeing of India’s farmers.
