Bankers seek cess-like structure for agriculture insurance

Less than 20% of Indian farmers are insured, vast majority is exposed to vagaries of weather, forcing them to taking extreme steps

Bankers have sought a cess-like structure for agriculture insurance. In a proposal discussed with the Indian Banks' Association during an interaction, the bankers said there should be a compulsory, low-premium National Agriculture Insurance Policy with contribution from Central and state governments.

Currently, only about 20 per cent of farmers in India are insured. This means a large majority of the farming community are exposed to the vagaries of weather, resulting in some of them taking desperate steps, according to a joint study by Associated Chambers of Commerce and Industry (Assocham) and Skymet Weather Services.

The study notes that only 19  per cent of farmers, at the all-India level,  reported ever having insured their crops. As many as 81 per cent were unaware of the practice of crop insurance. Of the un-insured, 46 per cent were found to be aware but not interested, while 24 per cent said the facility was not available to them. Only 11 per cent felt they could not afford to pay the insurance premium, the study noted.

According to the bankers, since agriculture insurance market is not well developed, the government should ensure insurance premium be affordable and subsidised from sources such as cess as done in education loans.

According to the Assocham-Skymet study, 32 million farmers have been enrolled in various crop insurance schemes across India. However, issues in design, particularly related to delays in claims settlement, have led to farmers not being covered, despite significant government subsidy.

The government is planning a modified National Agricultural Insurance Scheme, a market-based scheme with involvement from the private sector, since only agriculture insurance companies operate in this space.

Compared with the existing scheme, the Assocham-Skymet study said the new programme would have a design that might offer more timely claim settlement, less distortion in the allocation of government subsidies and cross-subsidies between farmer groups, and reduced basis risk.

Crop insurance is one of the mechanisms to cope with natural risks by mitigating loss. In this context, many crop insurance schemes have been developed, such as national agricultural insurance scheme and weather-based crop insurance scheme. The former is a yield-based scheme, while under the latter, claim is announced on the basis of weather data.

According to bankers, the claim of insurance should be on unit-loss basis instead of loss evaluated at block level. Also, they have said share croppers/tenants farmers and women should also be covered.

Weather-based insurance scheme aims to mitigate the hardship of the insured farmers against the likelihood of financial loss on account of anticipated crop loss resulting from incidence of adverse conditions of weather parameters like rainfall, temperature, frost, etc.

At present, restructuring in agricultural loans in case of natural calamity is done when crop loss/damage is more than 50 per cent. During the inauguration of Pradhan Mantri MUDRA Yojana, Prime Minister Narendra Modi had announced the criteria of 50 per cent crop damage for providing compensation to affected farmers has been reduced to 33 per cent.

According to the Assocham-Skymet study, weather-based insurance products are better than yield-based insurance products in terms of time taken for claim settlement and transparency in settlement of claims, reveals the joint study.