Agricultural insurance in India
Agricultural insurance in India

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Agricultural Insurance in India

Agriculture in India faces significant vulnerability to natural disasters such as droughts and floods. It is imperative to shield farmers from these calamities and secure their access to credit for the upcoming seasons. To address this issue, the Indian government has implemented various agricultural social insurance programs nationwide, with the most significant among them being the Pradhan Mantri Fasal Bima Yojana.

The Pradhan Mantri Fasal Bima Yojana, also known as the Prime Minister’s Crop Insurance Scheme, was inaugurated by Prime Minister Narendra Modi on February 13, 2016. Agricultural Insurance in India

Current Insurance Schemes

The Pradhan Mantri Fasal Bima Yojana, also known as the Prime Minister’s Crop Insurance Scheme, was inaugurated by Prime Minister Narendra Modi on February 13, 2016.

Livestock Insurance Scheme

The Livestock Insurance Scheme in India serves as a protective mechanism for farmers and cattle rearers, offering coverage against potential losses of their animals due to death. Additionally, it aims to showcase the advantages of livestock insurance to the public and promote its adoption, all with the overarching objective of enhancing the quality of livestock and their products.

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The agricultural initiatives and schemes launched during the Modi administration include:

1. The 2020 Indian Agriculture Acts
2. Atal Bhujal Yojana
3. E-NAM (Electronic National Agriculture Market) for online agrimarketing
4. Gramin Bhandaran Yojana for local storage
5. Micro Irrigation Fund (MIF)
6. National Mission for Sustainable Agriculture (NMSA)
7. National Scheme on Fisheries Training and Extension
8. National Scheme on Welfare of Fishermen
9. Pradhan Mantri Kisan Samman Nidhi (PMKSN) for minimum support scheme
10. Pradhan Mantri Krishi Sinchai Yojana (PMKSY) for irrigation
11. Paramparagat Krishi Vikas Yojana (PKVY) for organic farming
12. Pradhan Mantri Fasal Bima Yojana (PMFBY) for crop insurance
13. Farmer Income Protection Scheme (PM AASHA)

Previous Schemes

Farm Income Insurance Scheme

In 2003-04, the Central Government introduced the Farm Income Insurance Scheme (FIIS) with a primary focus on the two pivotal components of a farmer’s income: yield and price. This innovative scheme aimed to address both aspects through a single insurance policy, thereby providing insured farmers with a guaranteed income.

FIIS played a crucial role in safeguarding farmers against production and market risks, ensuring a minimum guaranteed income, which was calculated as the average yield multiplied by the minimum support price. If a farmer’s actual income fell short of this guaranteed level, the Agriculture Insurance Company of India would compensate the farmer for the shortfall. Initially, FIIS covered only wheat and rice, and it was mandatory for farmers who availed crop loans. The National Agricultural Insurance Scheme (NAIS), which is explained in the section below, would no longer apply to crops covered under FIIS but would continue for other crops. Ultimately, FIIS was discontinued in 2004.

National Agriculture Insurance Scheme

The Government of India initially experimented with a comprehensive crop insurance scheme, which proved to be unsuccessful. Subsequently, in 1999-2000, a new scheme named the “National Agricultural Insurance Scheme” (NAIS), also known as “Rashtriya Krishi Bima Yojana” (RKBY), was introduced. NAIS aimed to provide coverage for all food crops, including cereals and pulses, as well as oilseeds, horticultural crops, and commercial crops. It extended its coverage to all farmers, both those who had taken loans and those who had not.

Premium rates for food crops ranged from 1.5 percent to 3.5 percent of the sum assured. For horticultural and commercial crops, actuarial rates were applied. Small and marginal farmers were eligible for a 50 percent subsidy on the premium, with the subsidy being equally shared by the Government of India and the respective states. This subsidy was planned to be phased out over a period of five years.

NAIS operated through two approaches:

1. Area approach: This approach was used for widespread calamities.
2. Individual basis: For localized disasters like hailstorms, landslides, cyclones, and floods.

Under the scheme, each state was required to implement insurance at the Gram Panchayat level within a maximum of three years. The Agriculture Insurance Corporation of India was responsible for implementing this scheme. It’s worth noting that NAIS has been replaced by the Pradhan Mantri Fasal Bima Yojana.

Economic interactions

The subsidy provided through the minimum support price (MSP) has a direct impact on the pricing of insurance. Insurable interest is typically calculated in the usual manner for crops without subsidies, but for subsidized crops, the MSP is employed. This creates a distortion in the functioning of the insurance market.

While this program is designed to enhance the income of individual farmers, a goal championed by Bhimrao Ramji Ambedkar, the establishment of an artificial price also interferes with decision-making processes within the crop insurance sector. This interference with pricing aligns with a significant policy focus for Ambedkar, who addressed this issue in many of his public speeches and academic writings.

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