When the then finance minister, P Chidambaram, observed in his 2007-08 Budget speech that weather-based insurance could be a promising risk mitigation scheme for farmers, he would not have known how events could turn out. The test has come with the Aila cyclone, which has caused large-scale devastation in West Bengal, one of the five states where weather-based insurance cover is available to farmers. Going by media reports, while the crop damage is reckoned at over Rs 500 crore, insurers may have to pay only around Rs 7 lakh by way of compensation. The catch lies in the technicalities — that the bulk of the crop damage was due to winds and tides and not rains, which at most places measured a tad lower than the threshold level after which the claim becomes due.
Weather insurance is not the only risk mitigation concept that has proved a failure in this context. All others modes of farm insurance, numbering over half a dozen, that have been tried out since the 1970s have met with a similar fate. The approaches adopted in these models ranged from provision of insurance cover to selected crops to comprehensive coverage of all crops and supplementary activities like livestock husbandry. An income insurance scheme, aimed at safeguarding farmers’ income from production as well as price-related risks, was also tried out and abandoned. The National Agriculture Insurance Scheme, the longest-lasting scheme in operation since 1999, has been found wanting in several respects and is set to be phased out to give way to a modified insurance scheme. No wonder then that, as revealed by the National Sample Survey, no more than 4 per cent of farm households have ever insured their crops; 57 per cent do not even know that such a facility is available.
Though the causes for the failure of different models have been several and wide-ranging, a common one among them has been the lack of economic viability regardless of liberal subsidy as the claims invariably turned out to be many times higher than the premium income. Besides, the lack of reliable past data on crop yield to serve as a benchmark for assessing production loss has also caused problems.
However, finding a workable insurance model that is commercially sound and yet protects the cultivator’s interest is a must if farmer distress of the kind that has led to a spate of suicides in recent years is to be mitigated. It is imperative also for ensuring sustainable agricultural growth. In the absence of reliable risk cover, farmers tend to become wary of investing in new technologies and yield-enhancing cash inputs, and settle for low-risk, even if only moderately productive, farming systems. Since several committees and expert groups have already gone into this issue and their reports and recommendations are with the government, it should not be impossible to synthesise a new model of agricultural insurance which builds on past experience.
