It won't work

Agriculture Minister Sharad Pawar's announcement in Parliament on the formulation of a new agricultural insurance scheme is neither the first of its kind, nor will it be the last. More than half a dozen farm insurance schemes have been tried out in the past two and a half decades, but not one has worked. Successive insurance models proved unsustainable because they were neither economically viable, nor suited to cover the varied risks that beset crop farming. The implementing insurance companies have invariably ended up paying compensation several times the premium collected. The existing National Agricultural Insurance Scheme (NAIS), which is now sought to be replaced with its fresh avatar, has had to cope with claims of over Rs 5,730 crore, more than three times the premium income of Rs 1,700 crore. The parallel farm "income insurance" scheme, aimed at covering risks ranging from a drop in yield to poor prices, tried out on a pilot basis in the last few crop seasons, has also not worked.

What needs to be realised is that agricultural insurance is an inherently complicated business because of the many risks involved in farming. The formidable functional and practical problems that ensue relate to the extent of area that should constitute the unit for assessing damage, and the benchmark for assessing the loss incurred, on the basis of the income that might have accrued to the farmer in the absence of yield-reducing factors like adverse weather, pest, disease, or natural disasters. Besides these intrinsic problems, there have been issues concerning prompt settlements of insurance claims. Though the government had appointed a joint group to look into the past experience and suggest the improvements required to be incorporated in a new insurance model, the group has not found the magic key. If the proposed new scheme is going to be based on this report (which has been circulated to the states), the fate of the new model will be no better than that of its predecessors.

This pessimism is based on several factors. For one, it is going to have the village panchayat as the unit area for its operation, and a threshold or guaranteed yield level based on the best five of the last seven years' actual yield for calculating the compensation to be paid. This is bound to create problems in the absence of reliable (read untampered) panchayat-level yield data of the past so many years. Besides, the group says in its report that the new insurance products must have add-ons like insurance cover against personal accident, and animal health. Moreover, it also proposes to cover pre-sowing risks and post-harvest losses as well. Such measures will render any insurance model unviable. What is even worse is that even as it proposes that the modified scheme be subjected to actuarial valuation, it stipulates that the premium to be paid by the farmers should be suitably subsidised. Since no viable programme can be put in place on the basis of the wisdom accumulated so far within the country, no new insurance scheme should be introduced in haste. Instead, the wiser recourse would be to study the experience with crop insurance in other countries, in order to see whether there is a successful experiment in some other country which can be modified and adapted to suit Indian realities.