Should govt's PMFBY crop insurance scheme be voluntary for farmers?

Some experts say voluntary Pradhan Mantri Fasal Bima Yojana may hit farmer enrolments, unless the scheme is made more attractive

Simran Sandhu is a farmer in Haryana who alternately grows paddy and wheat in kharif and rabi seasons. Like thousands others, being a loanee farmer, he got enrolled to the Pradhan Mantri Fasal Bima Yojana (PMFBY) and his premium got deducted automatically by July 10.
 
Paddy crop on around 34 per cent of his land got damaged in the latest bout of rains. But Sandhu has little hope of getting any compensation from the insurance company. According to the government’s revised PMFBY guidelines for kharif 2019, inundation of paddy crops is not one of the calamities for which insurance can be claimed. Worried, Sandhu dialled the local district agriculture officer and also the insurance company. But he was given a curt reply that he could get a claim only if the government changed its guidelines.
 
“I had invested a lot of money this year in growing paddy. Now the insurance company says I am not eligible for a compensation. If I am not eligible, why is premium deducted from my account. Given a chance, I would surely opt out of PMFBY; it isn’t helping me,” Sandhu said. 

He said several farmers from his village in Haryana’s Kurukshetra district felt the same way and did not want PMFBY premiums deducted from their accounts. For several farmers like Sandhu, the Centre’s latest move to make the scheme voluntary could come as a reprieve, but experts said making PMFBY voluntary could virtually kill the scheme and diminish farmers’ interest in it.
 
It is up to states to decide whether they want to implement PMFBY — West Bengal is the latest state to have opted out of the scheme — but once they (states) agree to implement, the scheme becomes compulsory for loanee farmers, according to the rules.

“I feel states are not maintaining the requisite fiscal discipline in PMFBY, and Crop Cutting Experiments (CCEs) are not being followed. Now, if the scheme is made voluntary for loanee farmers, it would not only impact farmer enrolments but also push up actuarial premium rates, since there would be fewer targeted farmers,” said former agriculture secretary Shiraz Hussain.
 
Hussain, a principal architect of the insurance scheme during his tenure as agriculture secretary, said one could not run crop insurance as a political scheme. And that, he said, had been one of the biggest drawbacks of PMFBY.
 
Though still at a discussion stage, making PMFBY voluntary for all farmers (not just non-loanee ones) was first mentioned in the 2019 election manifesto of the ruling Bharatiya Janata Party (BJP). “Our scheme, PMFBY, has ensured risk mitigation and provided insurance cover to all farmers. We will make enrolment of farmers under the scheme voluntary,” the manifesto said.
 
The prime reason for the proposal to make the scheme voluntary, according to sources, was a complaint from farmers in western Uttar Pradesh that they were paying a high premium for PMFBY and very little was coming their way in the form of claims. The new government, therefore, said in a statement in Parliament on July 16 that views had been solicited from all states governments on voluntary coverage of all farmers under PMFBY.
 
“If PMFBY is made voluntary in the present form, it will not work, and the scheme would actually get killed. But if some crucial changes are made — for instance, making the premium nil for farmers, or a cap on the premium — PMFBY could still survive and garner farmer interest. There is not really an insurance product anywhere in the world that could hedge their risks at such a low cost,” said a senior official of a state-run crop insurance company.
 
He added that the government was also working on creating a corpus or pool to remove the perception among members of the public that insurance companies were making huge profits from PMFBY.
 
The current issues surrounding PMFBY are not new. In fact, it has been mired in one or other controversy ever since it was launched in kharif 2016. From a delay in claim settlement to low compensation and allegation of private insurers making super-normal profits at the expense of farmers, PMFBY has hardly had a smooth run in the past six seasons.
 
Touted as one of the biggest and cheapest crop insurance schemes, PMFBY promised dirt-cheap premiums for farmers. The premium was two per cent of sum insured for the kharif crop, 1.5 per cent for the rabi crop, and 5 per cent for horticulture crops. If the actuarial premium was lower than this rate, the lower of the two would apply. The difference between the actuarial premium rate and the premium paid by farmers was the subsidy shared equally between the Centre and states.
 
However, quite early in its operation, the Centre for Science and Environment (CSE) said in a report released in July 2017 that insurance companies raked in a huge profit of around Rs 10,000 crore as on April 2017, thanks to few claims reported in relation to premium charged.
 
The central government, for its part, denied the findings of the CSE and said higher profits needed to be visualised in a situation that saw normal crop seasons, both kharif and rabi, in 2016-17.
 
“The crop insurance companies could make savings in a good year and utilise those for payouts in bad seasons. It would be statistically more robust to undertake a comprehensive evaluation of both the framework and quality of implementation of the scheme over data sets garnered from at least 2-3 kharif and rabi seasons each. The central government will be doing this,” an official statement released by the government had said.
 
Complaints kept coming, off and on, afterwards too. Farmers complained they were not getting their claims on time or the actual claim was much less than the damage because of incorrect estimation. 
 
The number of enrolled farmers also dropped in some seasons. That was attributed to weeding out of multiple claimants through making Aadhaar mandatory for registration.
 
Accurate, swift and scalable crop-cutting experiment is the cornerstone of a good insurance scheme, and PMFBY requires states to carry out a minimum of four crop-wise CCEs in every gram panchayat for submission of yield data to insurance companies within 30 days of harvest.
 
Also, states were slow to clear their share of premium subsidy on time for early claim settlement. To correct this, the Centre in September 2018 imposed a 12 per cent penalty for delayed settlement of claims on insurance companies and also on state governments for delay in releasing their share of subsidy.
 
The penalty was imposed on insurance companies if the settlement took more than two months, and the provision kicked in for state governments if they delayed settling their share of premiums beyond three months of the due date.
 
“The changes made in the scheme so far and the latest tweaks clearly show that the government is well aware of the problems faced by farmers, and it is taking all necessary steps to make PMFBY more friendly to them,” the official said.
 
The sternest test for PMFBY will come in the days to come when claims increase due to insufficient monsoon in almost half of India so far.