V Basil Hans*
Research Professor, Srinivas University, Mangalore, India
*Corresponding Author:V Basil Hans, Research Professor, Srinivas University, Mangalore, India.
Received: May 08, 2024; Published: August 19, 2024
Citation: V Basil Hans. “Impact of Crop Insurance on Indian Agriculture: Trends and Future Options". Acta Scientific Paediatrics 8.9 (2024):28-40.
The study examines the influence of crop insurance on the agricultural sector in India, focusing on current patterns and potential future alternatives. Crop insurance is crucial in reducing the risks that farmers in agrarian economies, such as India, face. This research investigates the influence of crop insurance policies on Indian agriculture, analyzing present patterns and investigating potential alternatives.
The paper begins by presenting a comprehensive account of the historical development of crop insurance in India, emphasizing the shift from conventional indemnity-based schemes to contemporary index-based insurance models. Subsequently, the text examines the present state of crop insurance in the nation, encompassing the extent of market penetration, levels of coverage, and the shared issues encountered by farmers and insurers.
Subsequently, the research assesses the influence of crop insurance on different participants within the agricultural ecosystem. The analysis focuses on the advantages gained by farmers in terms of risk reduction, revenue stability, and financing availability. Furthermore, it examines the impact of crop insurance on encouraging agricultural investments, strengthening the ability to adapt to climate change, and promoting sustainable farming methods.
In addition, the study discusses the constraints and deficiencies of current crop insurance programs in India, including limited farmer awareness, administrative inefficiencies, and adverse selection problems. The proposal suggests possible future alternatives and tactics to address these difficulties, such as utilizing technology to enhance risk evaluation, extending insurance coverage to regions and commodities that are currently underserved, and improving the financial knowledge of farmers.
To summarize, the research highlights the significance of crop insurance as a crucial instrument for guaranteeing the durability and long-term viability of Indian agriculture. The objective of this study is to analyze existing trends and provide future possibilities to improve the effectiveness and inclusivity of crop insurance policies in India.
Keywords: Agriculture; Crop Insurance; India; Risk; Programs
Agriculture plays a crucial role in India's economy, employing a big number of workers and making a significant contribution to its GDP. Nevertheless, the industry is intrinsically susceptible to a range of dangers, including as inclement weather, pest invasions, and market volatility. These risks frequently result in monetary losses for farmers, which weaken their means of living and impede the expansion of the agricultural industry as a whole.
Crop insurance is becoming increasingly important as a crucial tool for effectively managing these risks and protecting the financial interests of farmers. India has experienced a significant change in its approach to crop insurance throughout time, transitioning from traditional indemnity-based programs to more innovative and inclusive approaches. The shift has been motivated by the acknowledgment of the constraints of traditional insurance approaches and the necessity to strengthen the ability of farmers to withstand changing difficulties.
The implementation of crop insurance schemes in India has been characterized by a sequence of legislative measures, technological progress, and collaborations among the government, insurers, and other relevant parties. These programs have the objective of offering economic security to farmers in the event of losses caused by different risks, therefore fostering agricultural sustainability and rural development.
Although there has been progress in increasing the availability of crop insurance, there are still substantial obstacles to overcome. These include a lack of awareness among farmers, insufficient infrastructure, and complicated administrative processes. Furthermore, the effects of climate change are intensifying the weaknesses experienced by agricultural communities, requiring inventive measures to enhance resilience and adaptability.
In light of this context, the purpose of this research is to assess the influence of crop insurance on Indian agriculture by assessing present patterns and investigating potential alternatives. This study seeks to provide policymakers, practitioners, and researchers with valuable insights into the role of crop insurance in improving the resilience and sustainability of Indian agriculture. It will achieve this by carefully evaluating the strengths and shortcomings of current schemes and proposing potential areas for development.
An examination of the effects of crop insurance on Indian agriculture is crucial for multiple reasons:
The study aims to investigate the effects of crop insurance on Indian agriculture.
Evaluating the efficacy of current crop insurance plans introduced in India to determine their performance and effectiveness. This entails evaluating the extent of coverage, the affordability of premiums, the procedures for settling claims, and the general level of satisfaction among farmers.
Analyzing the Effects on Farmers' Welfare: Explore the influence of crop insurance on many aspects of farmers' well-being, such as income stability, risk reduction, loan accessibility, and overall welfare. Evaluate the extent to which crop insurance aids in reducing poverty and enhancing the livelihoods of farming communities.
Conduct an economic analysis to assess the effects of crop insurance on agricultural output, investment choices, and household incomes. Evaluate the extent to which insurance coverage motivates farmers to embrace contemporary farming methods, allocate resources towards boosting productivity, and broaden the range of crops they cultivate.
Examine the contribution of crop insurance to climate change adaptation in Indian agriculture to gain a better understanding of its role. Evaluate the effectiveness of insurance schemes in assisting farmers in managing the consequences of extreme weather events, diminishing susceptibility to climate hazards, and promoting the adoption of climate-resilient agricultural methods.
Identify the obstacles that prevent farmers from accessing and adopting crop insurance. These barriers may include lack of knowledge, inability to afford the insurance, difficulties in dealing with administrative procedures, and concerns over trust. Examine methods to enhance the accessibility and inclusiveness of insurance programs, specifically targeting marginalized and vulnerable populations.
Analyze the policy implications of the study findings and propose ideas for improving the efficacy and efficiency of crop insurance plans in India. Identify policy measures to rectify the deficiencies of current schemes, foster innovation in insurance products, and enhance institutional frameworks to improve risk management.
Exploring Future Options and Innovations: Investigate prospective future alternatives and advancements in the design and execution of crop insurance. This involves examining the practicality of using advanced technologies, such as remote sensing and satellite images, into insurance offerings, studying other methods of distributing risk, and improving collaborations between public and private sectors in insurance delivery.
The project seeks to achieve a thorough understanding of how crop insurance affects Indian agriculture, with the goals of informing policy decisions and promoting agricultural resilience, sustainability, and inclusion.
The examination of the influence of crop insurance on Indian agriculture is of great significance for various reasons:
The research of crop insurance's influence can provide valuable insights for developing and implementing agricultural policy. Policymakers can utilize evidence-based research to establish more efficient crop insurance programs, strategically focus interventions to tackle specific difficulties encountered by farmers, and allocate resources more effectively to bolster agricultural development.
Agricultural hazards, such as weather events, insect infestations, and market volatility, provide substantial obstacles for farmers. Crop insurance is a means of mitigating these risks and lessening the economic susceptibility of farmers. Gaining a comprehensive understanding of how crop insurance effectively reduces various types of risks is crucial for enhancing risk management approaches in the field of agriculture.
Climate change is causing changes in weather patterns and making extreme events happen more often and with greater intensity. This is creating new difficulties for agriculture. Crop insurance is essential for assisting farmers in adapting to these changes by offering financial assistance in case of crop losses caused by climate-related issues. Analyzing the impact of crop insurance on adapting to climate change can provide valuable insights for creating robust agricultural systems.
Access to crop insurance is crucial for fostering inclusive growth in rural areas. The study aims to analyze the accessibility and adoption of crop insurance among various demographic groups. By doing so, it can identify obstacles that hinder access and provide methods to enhance inclusivity and fairness in the distribution of insurance benefits.
Conclusively, examining the effects of crop insurance on Indian agriculture is crucial for enhancing the well-being of farmers, bolstering food security, fostering economic stability, guiding policy development, improving risk mitigation, facilitating adaptation to climate change, and promoting comprehensive growth in rural regions.
The study of the influence of crop insurance on Indian agriculture can be organized using various fundamental theoretical perspectives.
Financial insurance for catastrophic occurrences can have a significant impact on mitigating the consequences of climate change. This study utilizes an extensive estimating approach and a distinctive panel dataset to examine the impact of financial insurance on the well-being of farmers in the face of uncertainty. The data is collected from a comprehensive dataset of Italian farms. Our findings indicate that (i) there is a high probability of a rise in demand for insurance products due to climatic circumstances, and (ii) the utilization of insurance helps to mitigate the level of risk exposure. Additionally, our research reveals a negative correlation between the number of crops grown and the likelihood of farms adopting the insurance system. This corroborates the findings in the theoretical literature. Crop diversity can serve as an alternative to financial insurance in mitigating the negative effects of risk exposure on wellbeing [1].
Agricultural insurance premium subsidies influence agricultural acreage trends due to two factors. Initially, assuming insurance coverage remains the same, premium subsidies have a direct impact on increasing anticipated profit. This, in turn, incentivizes farmers to cultivate a larger area of insured crops, resulting in a direct effect on profit. Furthermore, premium subsidies incentivize farms to enhance their crop insurance coverage. Increased insurance coverage leads to higher subsidies for farms, resulting in less variability in farm revenue as indemnities compensate for revenue shortages. Consequently, it is expected that the area of insured crops will rise due to the indirect coverage effect. Using exogenous policy changes and analyzing over 180,000 county-crop-year observations, we calculate the combined impact of premium subsidies on the distribution of U.S. acreage for seven key field crops. Based on our analysis, we have determined that a 10% rise in the premium subsidy leads to a 0.43% increase in the amount of land used to grow a certain crop in a county, assuming that the premium subsidy for the rival crop remains unchanged. Considering the relatively low proportion of premium subsidies in projected crop revenue, the impact of this subsidy is comparable to an own-subsidy acreage elasticity of 1.24, which surpasses the estimates of own-price acreage elasticity found in existing research. According to Jisang Y., et al. [3], one possible reason for the increased acreage response to premium subsidies is that insurance leads to both a direct profit benefit and an indirect coverage effect.
Indian farmers have suffered from systematic neglect and lead a disadvantaged existence. Farmers face significant adversity and despair as a result of crop failure caused by natural disasters and unfavorable weather conditions, often leading to great despondency and suicides. This article is a summary of the crop insurance program, Pradhan Mantri Fasal Bima Yojana (PMFBY), which was introduced in India by Mr. Narendra Modi in 2016. The Pradhan Mantri Fasal Bima Yojana (PMFBY) lacks sufficient backing from state governments, has an unsustainable subsidy mechanism, experiences delays in settling claims, and exhibits an imbalanced distribution of benefits. An technique that utilizes technology to respond to demand is recommended. Political affiliation should not be a determining factor in the provision of crop insurance. The incorporation of velocity, diversity, and verifiability in the Pradhan Mantri Fasal Bima Yojana (PMFBY) will enhance the effectiveness of the crop insurance system for farmers, surpassing the benefits for insurers, administrators, and politicians [5].
Indian farmers face significant agricultural hazards as a result of unpredictable natural conditions. A comprehensive insurance system is one of the most effective tools for mitigating agricultural risks. Despite its presence in the country since 1972, crop insurance has faced numerous issues including a lack of transparency, excessive premiums, delays in executing crop cutting experiments, and non-payment or delayed payment of claims to farmers. A new crop insurance policy called Pradhan Mantri Fasal Bima Yojana (PMFBY) was inaugurated on Baisakhi day, starting from the Kharif season of 2016, in response to the recognized shortcomings of the old crop insurance system. While the overall insured area has grown by a modest 6.5 percent (from 53.7 million ha in 2015-16 to 57.2 million ha in 2016-17), the number of insured farmers has increased by 20.4 percent (from 47.5 million to 57.2 million). Additionally, the sum insured has risen by 74 percent (from Rs 115432.4 crore to 200618.9 crore), and the premium paid has surged by 298 percent (from Rs 5491.3 crore to Rs 21882 crore) during the same period. The scheme encountered various obstacles in its initial year of implementation. These included the need to extend registration deadlines, leading to increased premium rates. Additionally, there were delays in submitting yield data to evaluate damages, as the system relies on numerous Crop Cutting Experiments (CCE). The lack of confidence in the data's accuracy is due to the absence of video recordings. Furthermore, there were delays in state governments providing premium subsidies to insurance companies. The effectiveness of any crop insurance scheme is determined by the prompt evaluation of crop damages and immediate payment of claims into farmers' accounts. From this perspective, the initial year of implementing PMFBY has not achieved significant success. This article proposes the utilization of advanced technology and the integration of land records, Aadhaar cards, and bank accounts of farmers to expedite the evaluation and prompt resolution of claims. An immediate requirement is the establishment of a gateway that connects Core Banking Solution (CBS) and crop insurance, providing real-time information. India's expertise in Information Technology will be advantageous in achieving this goal [6].
The First Individual Approach Scheme, implemented from 1972-1978, involved various experimental initiatives in agricultural insurance. These experiments were conducted on a small and sporadic scale. The General Insurance Corporation (GIC) of India introduced a Crop Insurance Scheme for H-4 cotton in 1972-73, and later expanded it to include groundnut, wheat, and potato. The Scheme was executed in Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu, and West Bengal. It extended till the year 1978-79 and provided coverage for just 3,110 farmers. The premium paid was Rs.4.54 lakh, while the total claims amounted to Rs.37.88 lakh. ii) The Pilot Crop Insurance Scheme (PCIS) was initiated by the GIC in 1979. This scheme utilized the 'Area Approach' to offer insurance protection against a decrease in crop yield below a certain level. The Scheme encompassed cereals, millets, oilseeds, cotton, potato, and chickpea, and it was limited to farmers who borrowed from institutional sources on a voluntary basis. The PCIS 1979 was introduced in 12 states by 1984-85 and included the National Centre for Agricultural Economics and Policy Research (NCAEP). It also encompassed the Policy Brief on 'Problems and Progress in Agricultural Insurance in India' by S.S. Raju and Ramesh Chand (2009) reported that a total of 6.23 lakh farmers paid a premium of Rs.195.01 lakh and made claims of Rs.155.68 lakh over the entire time. iii) The Comprehensive Crop Insurance Scheme (CCIS) was introduced in 1985 and was the first nationwide scheme of its kind. Previous initiatives were either conducted as experiments or implemented as pilot projects, characterized by their limited scope and fragmented implementation. This strategy was associated with immediate financing and was founded on the concept of the 'homogenous area approach'. The CCIS was introduced by the Central Government in the fiscal year 1985-86. Until the Kharif season of 1999, the Scheme was implemented in 15 States and 2 Union Territories (UTs). Both PCIS and CCIS were limited exclusively to farmers who had obtained seasonal agricultural loans from financial organizations. The primary distinction between PCIS and CCIS was that PCIS operated on a voluntary basis, but CCIS was mandatory for farmers who had taken out loans. The CCIS provided insurance coverage to 763 lakh farmers, with a premium of Rs.404 crore, and received claims amounting to Rs.2303 crore. In 1999, the National Agricultural Insurance Scheme was introduced with the objective of providing coverage to all farmers, regardless of whether they have taken a loan or not.
The National Agricultural Insurance Scheme (NAIS) was implemented in the country starting from Rabi 1999-2000 as a replacement for the Comprehensive Crop Insurance Scheme (CCIS). Its purpose is to expand the protection provided to farmers, crops, and risk exposure. The primary goal of the Scheme was to safeguard farmers from crop losses caused by natural disasters, such as drought, flood, hailstorm, cyclone, pests, and diseases. The implementation of the Scheme was carried out by the Agriculture Insurance Company of India Ltd. (AIC). The Scheme was accessible to all farmers, regardless of whether they were borrowers or non-borrowers, and regardless of the extent of their land holdings. The plan includes the inclusion of all food crops (such as grains, millets, and pulses), oilseeds, and yearly commercial/horticultural crops for which sufficient yield data from previous years is available. The Scheme was extended till the Kharif season of 2013. However, certain States were given permission to implement the NAIS throughout the Rabi season of 2013-14 as well. 2 Ibid. There are three cities in India. The Department of Agriculture & Cooperation's Annual Report for the year 2013-14, on page 88, mentions Rajya Sabha Unstarred Question No. 3214, dated 8.8.2014. The Scheme mentioned in the question was not mandatory for States/Union Territories (UTs), and it was adopted by 25 States and 2 Union Territories in one or more seasons. From the start of Scheme 2084.78, a total of 2084.78 lakh farmers were insured until 2012-13. The premium paid by these farmers amounted to Rs.8,67,121 lakh, while the total claim made was Rs.25,37,558 lakh. The total insured area over the same period was 3137.70 lakh hectares, valued at Rs.
The Modified National Agricultural Insurance Scheme (MNAIS) was proposed and approved by the Government of India to enhance and simplify the existing scheme. It was implemented on a pilot basis in 50 districts starting from the Rabi 2010-11 season. Over the course of five seasons, the MNAIS program was implemented in 17 states and provided coverage to 4.58 million farmers. The total premium paid was Rs. 1,088,000,000, while the claims made until Rabi 2012-13 amounted to Rs. 864,000,000. The insured area amounted to 46.79 lakh hectares during the same period7.
The Pilot Weather Based Crop Insurance Scheme (WBCIS) was introduced in 2007 with the aim of expanding the coverage of Crop Insurance to a larger number of farmers. It was implemented in 20 States. In addition to the Agriculture Insurance Company of India, certain private businesses have also been authorized to execute the Scheme. The WBCIS aims to offer insurance coverage to farmers against unfavorable weather events, such as insufficient or excessive rainfall, extreme temperatures, humidity, and other factors that are likely to have a negative influence on crop production. It has the benefit of resolving claims in the shortest amount of time feasible. The WBCIS is determined by actuarial premium rates, but it is also influenced by the 5th reference mentioned. The citation "Annual Report, 2013-14, p.89 6 op.cit." refers to a specific page (p.89) in the Annual Report for the fiscal year 2013-14. The abbreviation "op.cit." indicates that this citation is from the same source as the previous citation. The information can be found on page 90 of the Annual Report for the year 2013-14, specifically regarding India. The Department of Agriculture & Cooperation published a report in 2014 titled "Report of the Committee to Review the Implementation of Crop Insurance Schemes in India". On pages 39-40 of this report, it is mentioned that the scheme is appealing, but the premium levied from farmers is limited to the same level as the National Agricultural Insurance Scheme (NAIS). The Weather Based Crop Insurance Scheme (WBCIS) was introduced in 18 States, providing coverage to a total of 469.38 lakh farmers. The premium paid by these farmers amounted to Rs.7,51,920 million, while the claims made under the Scheme totaled Rs. 52,860 lakh. This data is for the period from 2007-08 to 2012-13. The insured area during the same period amounted to 632.01 lakh hectares.
The Coconut Palm Insurance Scheme (CPIS) was authorized for implementation as a pilot program for the years 2009-10 and 2010-11 in specific regions of Andhra Pradesh, Goa, Karnataka, Kerala, Maharashtra, Odisha, and Tamil Nadu. Subsequently, it was also expanded to include West Bengal. The pilot project was initiated in the years 2011-12 and 2012-13 and is still ongoing in the year 2013-14. The Government of India contributes 50% of the premium, the respective State Government contributes 25%, and the farmer contributes the remaining 25%. The administration of the CPIS is carried out by the Coconut Development Board (CDB). As of December 2013, a total of 51,108 farmers were included in the Scheme. They paid a premium of Rs.167.69 lakh, and the claims paid amounted to Rs.214.05 lakh. The entire area covered during the same period amounted to 25,938 hectares. The State-wise information regarding the coverage provided by the Pilot Coconut Palm Insurance Scheme (CPIS) may be found in Annexure-III. The National Crop Insurance Programme (NCIP) was implemented from Rabi 2013-14 to enhance the farmer-friendly nature of the Crop Insurance Schemes by restructuring the existing Central Sector Scheme. The MNAIS, WBCIS, and CPIS programs were consolidated under this initiative, incorporating several enhancements and modifications, as mentioned in reference 8. The reference "Annual Report, 2013-14, p.92 9 op.cit". is cited from the source mentioned. The report titled "Review of the Implementation of Crop Insurance Schemes in India" from 2014, pages 42 and 44, refers to the source cited as "op.cit". The implementation of the project was carried out nationwide, as stated on page 93 of the Annual Report for the year 2013-14. However, certain States have been granted permission to deploy NAIS for Rabi 2013-1411 based on the requests they have received. The National Crop Insurance Program (NCIP) aims to increase the number of farmers and the amount of land covered by insurance to 50 percent each by the end of the Twelfth Plan in 2016-17. Currently, the coverage stands at approximately 25 percent for farmers and 20 percent for the insured area. The estimated coverage under CPIS during 2013-14 is 25 percent of coconut growers, with an annual rise of 5 percent for the remaining years of the Twelfth Five Year Plan.
Agriculture in India has a wide range of diversity and is susceptible to several types of dangers. The majority of farmers are classified as small and marginal. Typically, agriculture relies on rainfall rather than irrigation, resulting in a higher level of fluctuation and uncertainty in crop production. Crop insurance, which seeks to mitigate yield risk, is susceptible to structural, design, and financial issues despite being essential for the majority of farmers. The issues of information asymmetry, including moral hazard and adverse selection, as well as co-variability, are more prominent in crop insurance compared to other types of insurance. As a result, crop insurance programs have numerous challenges. To address these issues, initiatives utilizing the area method were implemented in the 1980s. Newer insurance schemes utilize weather-based models and employ a regional strategy. Multiple agencies and organizations participate in crop insurance programs due to the country's wide size, numerous small and marginal farmers, and the implementation of area-based techniques. Therefore, it is crucial to have coordinated endeavors in order to successfully administer the crop insurance plan. In September 2013, a committee of four members, led by Dr. P. K. Mishra, former Secretary of the Department of Agriculture and Cooperation, was established to analyze the deficiencies in the execution of the Crop Insurance Schemes. The Committee analyzed the diverse aspects pertaining to Crop Insurance, including:
There is a discrepancy in the area that is covered by insurance.
There is a delay in getting data about crop cutting, as well as concerns about the quality and trustworthiness of this data.
Resolution of Claims. 11 Rajya Sabha Unstarred Question No. 1098, dated 18.7.2014, is referred to as "op.cit”.
The report titled "Review of the Implementation of Crop Insurance Schemes in India, 2014" discusses the involvement of banks and agricultural insurance companies in the operation of these schemes, as well as the level of awareness among farmers regarding the many elements of the programs.
The Committee has proposed several initiatives to enhance Crop Insurance, including the development of a web portal that would enable financial institutions to access land record data from all States. The premium rates for MNAIS will be reviewed. The Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD) should diligently oversee the adherence to their circulars addressing mandatory crop insurance for farmers who have taken loans. Insurance companies and banks should take an active and forward-thinking approach in ensuring the successful execution of crop insurance schemes. State Governments should ensure the utilization of GPRS-enabled and camera-equipped mobile phones, among other devices, during the process of performing crop cutting trials. A compendium of essential meteorological factors for various agro-climatic zones and the establishment of an Agricultural Insurance Act are necessary to address the unique requirements of crop insurance and agricultural insurance as a whole.
The transition from a social crop insurance policy, which relied on sporadic funding from the Government of India, to a market-oriented crop insurance program with premium rates and product design based on actuarial principles, represents a significant advancement. Anticipated advantages for farmers include expedited claims resolution, fairer distribution of subsidies, and reduced basis risk, thanks to the enhanced product and increased participation of private sector insurance markets. In order for the product to have a positive impact on poverty, it is necessary for small and marginal farmers to willingly acquire the MNAIS product. Additionally, insurers and the government should explore cost-effective methods to expand the reach of the product. 14 Ibid. Pages VII-VIII, 15, Ibid. The World Bank's Policy Research Working Paper, titled "Improving Farmers Access to Agricultural Insurance in India" by Olivier Mahul, Niraj Verma, and Daniel J. Clarke in 2012, suggests that the use of advanced technology, such as GPRS-enabled and camera-fitted mobile phones, can enhance the implementation of Crop Insurance Schemes. An extensive capacity building program should be planned to meet the specific needs of stakeholders, including state government officials, insurers, and central government organizations involved in Crop Insurance Schemes. Insurance companies and banks should collaborate with the relevant state governments to develop programs aimed at raising awareness and promoting insurance literacy among farmers. The information is sourced from the Lok Sabha Secretariat's note from 2014.
The primary aim of the National Agricultural Insurance Scheme (NAIS) is to safeguard farmers from agricultural losses caused by natural disasters, including drought, flood, hailstorm, cyclone, pests, and diseases. The implementation of the Scheme was carried out by the Agriculture Insurance Company of India Ltd.
There are two primary categories of crop insurance: yield-based plans and revenue insurance policies.
Professor V. M. Dandekar is commonly recognized as the pioneer of crop insurance in India.
The inaugural crop insurance scheme was implemented in 1972-73 by the 'General Insurance' Department of Life Insurance Corporation of India, specifically targeting H-4 cotton in Gujarat.
The Comprehensive Crop Insurance Scheme (CCIS) was established in 1985.
The Comprehensive Crop Insurance Scheme (CCIS) was implemented by the Government of India, in collaboration with State Governments, starting from 1st April 1985, using the knowledge gained from PCIS. The implementation of the Scheme was discretionary for the State Governments. The CCIS was introduced using the Homogeneous Area concept and was connected to short-term crop credit. This means that all crop loans granted for specified crops in specified areas were required to be included in the CCIS.
The prominent characteristics of the Scheme were:
A total of 15 states and 2 union territories (UTs) took part in the Comprehensive Crop Insurance Scheme (CCIS) from the Kharif season of 1985 to the Kharif season of 1999. The following states and union territories were included: Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Meghalaya, Orissa, Tamil Nadu, Tripura, West Bengal, Andaman & Nicobar Islands, and Pondicherry. The states of Rajasthan, Uttar Pradesh, Jammu & Kashmir, Manipur, and Delhi first participated in the Scheme but later withdrew after a few years.
Throughout this duration, the Scheme provided coverage to a total of 7.63 crore farmers, including an area of 12.76 crore hectares. The Sum Insured amounted to 24,949 crore, with a premium of 403.56 crore.
Similarly, the total amount of claims paid out was 2303.45 crore, resulting in a Claim Ratio of 1 : 5.71. A total of 59.78 lakh farmers received benefits, with the largest amount of claims being paid in the following states: Gujarat - 1086 crore (47%), Andhra Pradesh - 482 Crores (21%), Maharashtra - 213 Crores (9%), and Orissa - 181 Crores (8%).
The CCIS program was ultimately terminated after the Kharif season of 1999 and was replaced with the enhanced and extended "National Agriculture Insurance Scheme" (NAIS), which is still in use today.
The Experimental Crop Insurance Scheme (ECIS) was introduced in 1997.
During the implementation of the CCIS, efforts were made periodically to change the current system in response to the requests of the States. During the Rabi season of 1997-98, a new strategy was introduced, namely. The Experimental Crop Insurance Scheme (ECIS) was implemented in 14 districts across 5 states. The Scheme bore resemblance to CCIS, with the distinction that it only targeted small and marginal farmers, offering them a full subsidy of 100% on the premium. The Premium subsidies and Claims were divided between the Central and relevant State Governments at a ratio of 4:1. The Scheme was terminated during its inaugural season due to numerous administrative and financial challenges.
Throughout its single season, the ECIS provided coverage to a total of 454,555 farmers, with a sum insured amounting to 168.11 crore and a premium of 2.84 crore. The claims paid out during this period amounted to 37.80 crore.
The Pilot Scheme on Seed Crop Insurance (PSSCI) was implemented in the year 2000.
The Pilot Scheme on Seed Crop Insurance (PSSCI) was implemented during the Kharif 2000 season in 11 States. Its purpose was to offer financial protection and ensure a stable income for Seed Growers in case their seed crops failed.
Additionally, the goal was to ensure stability for the infrastructure created by the Seed Corporations and State Farms owned by the government, and to enhance the modern seed business by implementing scientific principles.
All government-affiliated seed-producing organizations. Private control is responsible for producing certain classes of seed for qualified Crops/States/Areas. Only farmers who were registered with the relevant Certification Agency and had given their seed crops for certification were eligible for coverage. This applied to farmers cultivating Foundation & Certified seed crops in the specified States/Areas.
The Farm Income Insurance Scheme (FIIS) was introduced in 2003.
The primary purpose of NAIS is to safeguard farmers from variations in crop production. The price variations are beyond the scope of this program. The income of farmers is determined by the combined effect of crop yield and market pricing. Put simply, a plentiful harvest typically leads to a decrease in grain prices, and conversely.
Consequently, farmers frequently struggle to sustain their revenue level as a result of the volatility in market prices, despite their regular production. In order to address fluctuations in both crop production and market prices, the government implemented a pilot project, namely. The Farm Income Insurance Scheme (FIIS) was implemented during the Rabi season of 2003-04.
The system aimed to safeguard both the farmer's income and minimize government spending on purchase at the Minimum Support Price (MSP).
The implementation of FIIS was based on the 'homogeneous area' concept, specifically for rice and wheat crops. The system was mandatory for farmers who had taken loans, while it was optional for farmers who had not taken loans. The premium rates were calculated based on actuarial principles and were established at the district level for each state. The government provided subsidies to cover a portion of the premium costs. India.
Claims may be made if the real income, calculated by multiplying the current yield by the current market price, is less than the guaranteed income, which is determined by multiplying the average yield over a period of 7 years by the level of indemnity (either 80% or 90%) and the minimum support price (MSP).
The Scheme was applied for only 2 seasons, namely. The Rabi season of 2003-04 was observed in 18 districts across 11 states for the cultivation of wheat and rice. The Kharif season of 2004 was observed in 19 districts across 4 states just for the cultivation of rice. The scheme provided coverage for a total of 415,000 farmers, encompassing an area of 402,000 hectares. The guaranteed income, or sum insured, amounted to 420 crore, with a premium collected.
A dataset including information about crop insurance.
Analysis of the scenario from a government perspective.
The annual gross premium for the example cluster is USD 65.35 million, based on the crop insurance premium rates for the 2020-2021 year. The government provides a subsidy of USD 64.17 million, while the remaining amount is paid by farmers. The cumulative government expenditure on premiums for the cluster, if the PMFBY model is implemented consistently over the course of three years, amounts to USD 192.5 million. This analysis assumes that the sum insured and premium rates remain constant during this scenario, as shown in Table 1.
Table 1 presents the government expenditure for five different scenarios comparing the cup and cap strategy with the Pradhan Mantri Fasal Bima Yojana (PMFBY). The source of this information is AIR.
Table 1: Government expenditure for five scenarios for the cup and cap approach vs. PMFBY. (Source: AIR).
For this cluster, the government expenditure fell by 21% in the best-case scenario (Scenario 1) with three back to back good years. And in Scenario 2 net government expenditure fell 12% because the “refunded” premium amount in years 1 and 2 outweighed the extra costs to the government caused by the 117% loss ratio in Year 3. Conversely, state expenditure increased 18.7% in Scenario 5 with one moderate, one poor, and one extremely poor crop yield year during the three-year analysis period.
In Scenario 3, when all three years experienced moderate crop yield losses, the burden to the government is unchanged. Similarly, Scenario 4 saw only a 2.3% increase in government expenditure under cup and cap with the overall loss ratio for the three-year period at 92%. The small increase resulted from modest state expenditures to cover losses above the 110% loss ratio threshold in the third year.
For the five scenarios analyzed, insurance claims paid and net premium for the cup and cap approach vs. PMFBY are provided in Table 2.
In the best-case scenario (Scenario 1) with three consecutive prosperous years, the government expenditure for this cluster decreased by 21%. In Scenario 2, the net government expenditure decreased by 12% due to the fact that the amount reimbursed in years 1 and 2 was greater than the additional expenditures incurred by the government as a result of the 117% loss ratio in Year 3. In contrast, state expenditure experienced a significant 18.7% increase in Scenario 5, which occurred when there were one average, one low, and one severely poor agricultural output year within the three-year analysis period.
In Scenario 3, when there were moderate crop yield losses in all three years, the government's burden remains the same. In a similar vein, Scenario 4 had a mere 2.3% rise in government spending under the cup and cap policy, resulting in an overall loss ratio of 92% over the span of three years. The little rise was a consequence of conservative state spending to compensate for losses exceeding the 110% loss ratio limit in the third year.
For the five scenarios analyzed, insurance claims paid and net premium for the cup and cap approach vs. PMFBY are provided in Table 2.
Source: Jeff Amthor, Kazi Farzan Ahmed, Sriram Iyer | Date: July 1, 2021 [8].
In scenarios 1 and 2, the insurance company's earnings decrease by 20.8% and 11.5% in the cup and cap model, respectively (Table 2). This reduction is attributed to the refunding of premiums, which occurs when the loss ratio is 59% in a profitable year. In scenarios 4 and 5, where there are years of low and very low crop yields, the insurance business profits from the cup and cap system. This means that the government covers the claims that exceed the loss, up to a maximum of 110%. In scenario 4, the insurance firm sees a 2.3% gain in earnings, while in scenario 5, the rise is 18.3%.
Evaluating the risk associated with PMFBY and Cup and Cap.
Insurers and reinsurers must take into account the loss correlation within a portfolio of clusters when assessing the overall impact of a cup and cap method. The spatial and temporal correlations among clusters in a portfolio are crucial for risk management as they form the foundation for risk protection provided by a well-diversified crop insurance portfolio. It is crucial to comprehend the potential for extreme events, known as tail risk, as it is essential to consider the loss ratio above the predetermined threshold. States should evaluate the factors that might lead to higher costs due to elevated crop insurance loss ratios, as well as the likelihood of such factors occurring for their insured crops.
Table 2: Claims paid and net premium in cup and cap vs. PMFBY model over 3-year period (values in USD millions). (Source: AIR).
Both states and (re)insurers must analyze potential losses and anticipated net premiums in all possible scenarios to determine the long-term advantages or disadvantages of the insurance programs PMFBY or cup and cap.
Although crop insurance in India is an important measure for reducing the risks encountered by farmers, it does have certain limitations:
Insufficient Coverage: Crop insurance plans in India frequently provide coverage for only a fraction of the crops cultivated, resulting in several farmers being left without insurance for certain crops or locations. This constraint diminishes the efficacy of the insurance in delivering complete coverage to all farmers.
Delayed Payouts: A often voiced concern is the prolonged wait for insurance payouts following crop loss. The postponement might worsen the economic burden on farmers who depend on prompt aid to recoup from losses and reinvest in the subsequent agricultural cycle.
Insufficient Evaluation of Crop Loss: Accurately evaluating crop loss can be difficult due to variables such as imprecise estimation of yield, subjective evaluations, and inadequate monitoring infrastructure. This might result in conflicts between farmers and insurance companies on the magnitude of the damage and the amount of reimbursement.
Administrative Challenges: The administrative tasks involved in signing up for crop insurance programs can be burdensome for farmers, particularly those residing in isolated rural regions with restricted technology access or financial knowledge. The complexity of paperwork and governmental procedures can discourage farmers from engaging in these programs.
Insufficient knowledge: Numerous farmers, particularly small-scale farmers and those in disadvantaged communities, may lack awareness of the presence or advantages of crop insurance programs. Their lack of information hinders their ability to utilize this risk management tool effectively and exposes them to the possibility of crop losses.
Insurance premium cost is a major challenge for small and marginal farmers who have limited financial resources. The farmers face difficulties in participating in crop insurance plans due to the high premium rates in proportion to their income.
Instances of corruption, fraud, and malpractice have been recorded in the crop insurance market. These encompass instances of fraudulent assertions, data manipulation, and coordination among farmers, insurance agents, and authorities to manipulate the system for individual benefit.
Despite being used in the country since 1972, crop insurance has faced numerous issues including a lack of transparency, excessive premiums, delays in executing crop cutting trials, and non-payment or delayed payment of claims to farmers. An inherent characteristic that heightens the likelihood of a loss occurring, such as in the context of crop insurance, is when a disease is insured, the presence of a meteorological hazard, such persistent rainfall, may amplify the likelihood of the illness occurring, much like how hot and dry weather intensifies the danger of fire in a forest. Farmers encounter a range of hazards such as flooding, drought, and plant ailments. These not only impact the financial and social well-being of farmers and their families, but also have repercussions for the Indian economy, given that agriculture is a prominent sector. An efficiently organized agricultural system is essential for optimal development and expansion.
To overcome these constraints, policymakers, insurance providers, and agricultural stakeholders must collaborate to develop crop insurance plans that are more comprehensive, effective, and clear, and that cater to the varied requirements of India's farming community.
Ultimately, crop insurance has had a substantial effect on Indian agriculture by effectively reducing the risks encountered by farmers and establishing a more consistent level of revenue for them. Nevertheless, it is crucial to take into account various trends and potential options in order to improve the efficiency and inclusiveness of crop insurance systems in India.
First and foremost, it is imperative to broaden the scope of crop insurance to encompass a wider range of crops and geographical areas. This would guarantee that all farmers, particularly those who are small-scale and from marginalized communities, have sufficient access to protective measures against potential crop losses.
Furthermore, it is imperative to optimize administrative procedures and minimize bureaucratic obstacles related to the registration process for crop insurance programs. To address this issue, it is beneficial to streamline administrative tasks, utilize advanced technologies for gathering and evaluating data, and improve communication and education initiatives.
Furthermore, it is essential to consider the cost of insurance rates for small and marginalized farmers. This may entail providing financial assistance for insurance rates, providing adaptable payment choices, and investigating inventive funding methods to enhance the accessibility of crop insurance for those who require it the most.
Furthermore, it is crucial to enhance the precision and clarity of techniques used to evaluate crop loss in order to establish confidence among farmers and insurance providers. To achieve this goal, it is advisable to invest in improved monitoring infrastructure, utilize satellite images and remote sensing technology, and establish effective grievance redressal systems.
Furthermore, it is crucial to address concerns regarding corruption, fraud, and malpractice in the crop insurance industry in order to maintain the trustworthiness and reliability of these programs. Enhancing regulatory supervision, implementing severe sanctions for fraudulent actions, and advocating for transparency in the claims process are crucial measures in achieving this objective.
In summary, India has the opportunity to construct stronger and more inclusive crop insurance systems that empower farmers to successfully manage risks, improve agricultural output, and contribute to the sustainable growth of the rural economy by addressing current trends and embracing future alternatives.
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Copyright: © 2024 V Basil Hans. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
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