PM Fasal Bima Yojna may lose sheen if BJP fulfills promise on scheme

Crop insurance scheme is facing challenges in implementation. Between FY16 and FY17, number of farmers enrolled declined by 15% from about 57.3 min to 48.5 mn

If the BJP-led government sticks to its election promise of making Pradhan Mantri Fasal Bima Yojana (PMFBY) voluntary, it might take away much sheen from the scheme, say experts.

At present, the scheme is compulsory for loanee farmers, who constitute about 80 per cent of the total enrolments. So, as soon as a farmer takes a bank loan, the premium for the scheme gets auto-deducted. For the rest, enrolment is optional. According to insurers, this would lead to risk selection, leading to rise in premium and reduction in the volumes.

“Currently there is no selection involved in the scheme. If the scheme is made voluntary for the farmers, there will be huge adverse selection against the insurance companies. As a result, the portfolio will shrink and the premiums would increase,” according to a senior official in the general insurance company.

The BJP manifesto reads, “Our scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY) has ensured risk mitigation and provided insurance cover for all farmers. We will make enrolment of farmers under the scheme voluntary.”

“If PMFBY is made voluntary, it will be a risky business to do. Certainly the premium rates would increase and the size of the scheme will shrink,” said another executive of a public sector general insurance company.

The crop insurance scheme is itself facing challenges in its implementation. Between FY16 and FY17, the number of farmers enrolled in the scheme declined from about 57.3 million to about 48.5 million, a fall of around 15 per cent.

Data discrepancy, leading to high claim ratios in certain states, has been a major concern, often resulting in delay of settlement. According to insurers, crop cutting experiments (CCE) in the previous years were not properly conducted in several states.

The CCE data at harvest helps assess yield loss. But collecting the data requires substantial manpower. At present, state governments have the responsibility to conduct these experiments. In many cases, the test has not been conducted on the date mentioned to insurers, while in others, the data provided by state governments did not match ground realities.

The PMFBY is based on actuarial calculations, and rates are based on risk perception. Thus, premiums differ, based on crops and regions.  Thus, in drought-prone areas the premiums are generally higher, and the payouts are also high. However, the insurance companies get the benefit of volumes, by getting premium from other regions where cropping pattern is generally stable.

A farmer pays only a flat 2 per cent premium, the rest is provided by the central and state governments. On average, the premium comes to 12-15 per cent, with the state and central governments bearing 5 per cent each.