The new crop insurance scheme

On January 13th 2016, the Union Cabinet approved the Pradhan Mantri Fasal Bima Yojana (PMFBY). This is the latest crop insurance scheme in the country. It replaces the existing schemes viz. the National Agricultural Insurance Scheme (NAIS) and the Modified National Agricultural Insurance Scheme (MNAIS). The scheme will come into effect on 1st April 2016.

This scheme promises the farmer who takes the insurance, lower premiums and higher sums insured (SI). The stated aim of this scheme is to increase the cover from 22% in 2014 to 50% of the gross cropped area across the country. The announcement made with much fanfare promises that this new insurance scheme will end all the problems hitherto experienced by farmers. It is yet another magic wand waved by the Prime Minister to solve the problems of the farmers!

According to the Commission for Agricultural Costs and Prices, the average sum insured per hectare under the existing crop insurance scheme was just Rs.18,464 (Rs 19,141 in Kharif and Rs.16,927 in Rabi) in 2013-14. This is way below the gross value of output for most crops. The reason for this is that under the existing crop insurance scheme, the premium to be paid by the farmer was capped at about 8-9% of the sum insured for rabi food grains and oilseeds and 12-13% for commercial and horticultural crops. In order that the premiums do not go much higher, the sum insured was set much lower than the gross value of output. Farmers could at best expect to recover less than half the value of their crops sown, in case their crops suffered heavy damage. This clearly shows why farmers have not been rushing to take insurance protection so far. It also explains the poor spread of crop insurance in a country that has experienced five full-fledged drought years between 2002 and 2015.

The new crop insurance scheme promises to increase the insurance cover in terms of the sum insured or the maximum amount that insurance company would pay the farmer in the event of crop damage. It also promises to keep the annual premium to be paid by the farmer at a low rate. No doubt these are alluring promises.

However, farmers must keep in mind the most significant issue that has not been addressed by the new crop insurance scheme. This is the demand for comprehensive relief-cum-insurance scheme that is universal in its coverage (all farmers, all crops, all forms of damage and at every stage of crop cycle), affordable for the farmers, offers adequate amount of compensation, has quick and simple ways of assessing crop damage and is free of corruption and hassle in the delivery of the insurance amount. There is no plan to change the complicated way of assessing damage and very slow payments which has been typical of the existing schemes. Crop-loss compensation paid by most state governments tends to be too little, too late, totally arbitrary, discriminatory and full of corruption.

The new scheme does not address the problem of tenant farmers who bear the risk of crop failure but are not entitled for compensation and insurance payments. The new crop insurance scheme has nothing concrete for identification of cultivators and bringing them under crop insurance cover.

Also significant is the lack of cover for spurious inputs and wildly fluctuating output prices. Small and marginal holdings (less than 2.0 hectares) account for nearly 86% of the total number of holdings, but this is only 42% of the total area of operational holdings. Major problems of small and marginal farmers include spurious input supply, inadequate and costly institutional credit, production and marketing risks which make them highly vulnerable to shocks.

The recent and widespread distress in the cotton belt of Punjab revealed the extent of the havoc caused by the white-fly pest that the pesticides could not control. This is because the pesticides sprayed turned out to be spurious. There is no insurance against spurious inputs. The orientation of the Indian economy is driven by the need to maximize profits of insurance companies, and pesticide and seed monopolies — not the interests of the peasant producer.

Any insurance that is truly protective of farmers’ interests must also address the issue of fluctuations in output prices of farm produce. It is not at all enough to insure the peasantry from just crop damage, when even standing crops and a good harvest can push him to indebtedness and ruination.

With increasing withdrawal by the state agencies from procurement at fixed prices, with increasing domination of agricultural trading multinationals over agriculture, increasing vulnerability of output prices to global prices and supply-demand fluctuations, Indian farmers have increased acreage and production of a crop only to face plummeting prices of their produce. They then resort to distress sales and get deeply indebted. There are countless examples of these – from pineapple growers in West Bengal to pomegranate producers in Rajasthan; potato and onion growers, sugarcane and cotton farmers – all of them face alternative high and low prices which make them vulnerable to severe indebtedness and poverty every few years.

The economy needs a new orientation which will put fulfilling the needs of the workers and peasants at the center.  Agricultural production must be planned according to the needs of the working population in the country and not left to anarchy that alternatively imposes scarcity and gluts. Under the present orientation which is aimed at maximizing profits for the agricultural trading monopolies, the working people are increasingly unable to afford necessary nutritional inputs like dal and vegetables, while a majority of the producers are driven to poverty and destitution.

The working class and peasantry must demand that the state must guarantee all agricultural inputs at affordable prices, and set the procurement prices for all agricultural commodities to ensure that the peasant family can prosper. A universal procurement system for all agricultural produce accompanied with a universal public distribution system, and protection for the farmers from natural calamities like drought, floods, pest attacks etc are necessary steps that any state that is seriously interested in ensuring prosperity and security for the peasantry must implement.

The peasantry must have no illusions that the bourgeoisie has any concern about their well being. It forces the peasantry to fend for itself in a market increasingly dominated by giant capitalist monopolies trading in agricultural produce. The course it is pursuing will inevitably lead to the ruin of the vast masses of peasants. Given such an orientation, the claims of the Narendra Modi government about what the new crop insurance scheme would achieve for the farmers must not be believed.


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crop insurance    Feb 16-29 2016    Political-Economy    Economy    

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