Discussed: PM Fasal Bima Yojana

What is PMFBY?

Pradhan Mantri Fasal Bima Yojana (PMFBY) is a crop insurance scheme that aims to provide insurance coverage and financial support to farmers in the event of failure of any of the notified crop, as a result of natural calamities, pests & diseases and/or post-harvest losses. Its main objective is to stabilize farmers’ income and ensure a steady flow of credit in agriculture. The scheme, which was launched in 2016, aggregated and replaced earlier schemes of similar nature, such as, National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS). PMFBY covers all Food & Oilseeds crops and Annual Commercial/Horticultural Crops and is implemented by general insurance companies through bidding organized by the state government. The scheme assumes that, in a notified area, all the farmers insured for a crop face similar risk exposure, have an identical cost of production per hectare, earn comparable farm income per hectare, and experience the similar extent of crop loss due to the operation of an insured peril. All procedures are done digitally right from registration of farmers to the settlement of claims and transfer of money to beneficiaries.

Who is eligible and how can they apply?

The scheme states that “all farmers growing notified crops in a notified area during the season who have an insurable interest in the crop are eligible”. Farmers who have taken loans from banks or co-operative societies can enrol through the same bank. And, farmers who have taken no loans can apply through banks, brokers, CSC e-Governance Services India Limited or directly through the website.

What do the farmers have to pay?

A bulk of the premium would be paid by the central and state governments, while the farmers would have to pay 2% of the sum insured for Kharif crops and 1.5% for Rabi crops. For annual commercial and horticultural crops, 5% of the sum insured is paid as premium by the farmers. Earlier, PMFBY was compulsory for all farmers who had ever taken a loan (this is nearly 58% of all farmers in the country) and the premium was directly deducted from their account irrespective of whether they wanted the insurance or not, but after a lot of criticism of forcible enrolment, it was recently made optional. 

What is the ground reality?

The scheme seems really good on paper. According to official reports, the scheme has benefitted millions of farmers. In the first three years, farmers paid Rs 13,000 crore as premium, while they received Rs 60,000 crore as claims. Over the four years since it was launched, it has been implemented in 27 states and UTs. The sum insured has almost doubled under this scheme from Rs 22,000 per hectare to Rs 39,000 per hectare.

But the ground reality seems to be different. To start with, the official numbers may not be as accurate as they claim to be, and the picture not as rosy as they paint it to be. A farmer from Gujarat, who we interviewed for the article, said that farmers in his village are tired of delays in claim settlement, rejections and paltry compensations. His family has simply stopped enrolling in the scheme as they paid premiums thrice but didn’t get even a penny of the claim. Farmers also seem to be unaware of what to do in the event of crop damage. There are no field offices set up for helping farmers through the process of filing claims. Lengthy delays in the evaluation of claims seem to be the norm. Once a farmer files a claim, the damage has to be assessed by the insurer, only after which the insured amount can be disbursed. But the dearth of staff in state governments and insurance companies makes this an incredibly delayed process. There have been several administrative errors as well. For example, in Harda, MP, 300 farmers were supposed to receive Rs 9,273 per acre in claims, per head. But, they have only received Rs 1,530 per acre. Another issue is that insurance contracts are not explained clearly to the farmers. They complain that in the initial 4 years of the scheme, the premium was forcibly deducted from their accounts without being given any receipt. Since many farmers ended up not getting the insured amount even after crop damages, they ended up suffering a lot financially. The scheme also seems to lack universal inclusiveness. Forest villages, which primarily engage tribal farmers, are excluded from the scheme.

Earnings of insurance companies have reached almost thousands of crores while claim settlement of Rs 3,001 crores remains unpaid. In MP, for example, not even one claim has been paid off according to an RTI. This makes us question who is really benefiting from this yojana? We studied the scheme in detail and it clearly mentions that claims need to be settled within two months of harvest but the ground reality shows that it is nowhere near true. In fact, several states have exited from the scheme while some states like Punjab have declined to even implement it.

Nothing showcases the rapidly declining popularity of the scheme than these two statistics: while 1.87 crore farmers enrolled for the scheme in 2019, the number was just 1.12 crore in 2020 – a decrease of 40%. The number of applications under single crop or multiple holdings scheme has also fallen from 3.81 crores in 2019 to 2.75 crore in 2020 after the scheme was made optional.

What next?

For an insurance company, which obviously has to make profits to survive just like any other business, crop insurance is not a great idea, to begin with. Think about it - to make profits, the amount paid in claims has to be much lesser compared to the premiums paid. If all the customers are claiming, and getting those claims paid, then the company would go bankrupt. Now in the context of agriculture, if one farmer is claiming insurance because of, let’s say uneven rains, many others would follow since her farm is not the only one affected. Insurance companies make money by betting on risk and given the fact that our agriculture is immensely rainfall dependent and most farmers don’t have access to proper infrastructure, the risk is very high.

The Pradhan Mantri Fasal Bima Yojana is truly an ambitious as well as much needed scheme which has the ability to provide a safety net to farmers. However, it does have some financial, structural and logistic flaws. It needs to go a massive makeover to truly benefit farmers. The revamped PMFBY is to start from Kharif 2020, and a lot of changes are thought to take place (To be covered in part 2). We think, a few improvements to the scheme could be changing the way historical yield data is used as a benchmark by incorporating weighted averages of recent years, selection of fields should be through insured plots rather than insured and uninsured both since all lands are very different and uninsured lands can logically be thought of like the ones which are less prone to fluctuations. Are there any more suggestions that you can think of? Do let us know in the comments.

Some news clippings: 


RTI Inquiry: https://thewire.in/agriculture/exclusive-farmers-pmfby-rs-3000-crore-crop-insurance-claims-deadline


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