The non-clearance of insurance claims can render any risk mitigation product worthless. It is worse when the victims are hapless farmers who, having lost their crops, are deprived of compensation despite having insurance cover under the government-supported National Agricultural Insurance Scheme (NAIS). Unpaid insurance claims are reckoned to have mounted to over Rs 920 crore, owing largely to the failure of state governments to put in their share of the money for running the scheme. This is not the only problem with NAIS, which was evolved after decades of experimentation with over half-a-dozen models of farm insurance products since the 1980s. As the findings of some studies, including the National Sample Survey, have revealed, a large proportion of farmers are either unaware of the available risk management scheme, or are not opting for it because it offers little by way of gain. Inappropriate procedures for assessing crop yield in order to determine the compensation that has to be paid, invariably leave the farmers dismayed. Several other irksome issues have also remained unaddressed, including those concerning the unit area for the operation of the scheme, benchmarks for assessing crop losses, the extent of risk coverage and the amount of premium to be charged.
The fundamental problem with all the agricultural insurance models that have been tried out and discarded till now, is the lack of economic viability despite the government’s financial support. In the case of NAIS, too, the premium-claims ratio is a hopeless 1:3.3. The scheme, therefore, requires heavy subsidisation by governments at the Centre and in the states, which becomes fiscally difficult to sustain. Surprisingly, though the government is in possession of the reports of the joint group that went into the changes required in the agricultural insurance scheme, as well as of the working group that vetted the joint group’s report, a modified NAIS based on the recommendations of these two bodies is yet to be unveiled. It does not help, of course, that many of the suggestions mooted by these panels are either impractical or ill-conceived. For instance, they have suggested that the unit area for operating the scheme be reduced to the jurisdiction of a village panchayat, little realising that this administrative area may not be agriculturally homogeneous. Similarly, their recommendation to move to an actuarial regime for premium calculation may sound good on paper but is bound to pose operational problems for a national-level programme, as the actuarial premium would vary from state to state, and even from one region to another within a state. Moreover, the plea that any insurance scheme involving government subsidy should not cover high-risk crops is absurd as that defeats the very purpose of providing farm insurance.
Considering the very patchy record of trying to make agricultural insurance work, it may be a good idea to opt for weather-based crop insurance which, as stated in the 2007-08 Budget, appears to be a more promising method of risk mitigation. Some weather-related insurance products are being tried out on a pilot scale by public as well as private sector insurance companies in select states, with encouraging results. Though weather-based insurance, too, may not provide solutions for all the predicaments involved in managing hazard in an inherently risky agricultural business, it has been found to be more practical in almost all the countries where it has been put to the test. There is no reason to believe that India will be an exception.