India’s agriculture sector, which provides employment to more than 50% of the labour force and contributes about 17% of the gross domestic product, currently faces multiple challenges. Smaller land holdings, unfavourable climate changes events, dismal public and private investment, low monthly incomes, a high proportion of indebted farmers and unfavourable terms of trade between farmers and non-farmers are just a few of the major problems.Against this backdrop, the Pradhan Mantri Fasal Bima Yojana (PMFBY) was announced in the Kharif 2016 season to strengthen the agriculture insurance scheme and increase farmers’ income by reducing non-preventable agriculture risk and indebtedness of farmers.It was available for all farmers, including sharecroppers and tenant farmers who cultivate the notified crops in the notified areas. The total notified crops for PMFBY was higher than previous crop insurance schemes. However, like other schemes that had come before it, it was initially compulsory for those farmers who had taken institutional credit (loanee farmers). It was protecting agriculture from non-preventable risks such as drought, floods, and pests from the sowing period to the harvesting period until Kharif 2020.By 2020 though, through a revamping of guidelines, the enrollment of loanee farmers became voluntary, and the coverage of risk has increased from pre-sowing to post-harvest losses.Insurance companies in PMFBY charge an actuarial premium rate without any ceiling. However, farmers have to pay a fixed percentage of the sum insured as a premium. The difference between the actuarial premium rate and the premium rate paid by farmers, i.e., premium subsidy, is equally shared between the state and central governments. Despite having a fixed rate of premium for farmers, the premium amount paid by farmers and premium subsidy increases with an increase in the sum insured of farmers. The premium subsidy also increases when total insured farmers, total area insured, and the number of crops notified by the states for crop insurance increase.Also read: A Grim Future: What Happened to the Promise of Doubling Farmers’ Income by 2022?Effect of improvement in coverage on premium subsidyThe total number of insured farmers in the Kharif season increased from 40.8 million to 42.4 million and in the Rabi season, it increased from 17.8 million to 19.8 million between 2016-17 to 2019-2020, respectively.According to the Situation Assessment of Agriculture Households (SAAH) report for 2018-19, the total agriculture households in the country are about 93 million. It shows that less than 50% of farmers are covered under this scheme. Out of total insured farmers, the share of loanee farmers is more than 90%. The share of non-loanee farmers is low and concentrated in some states like Maharashtra and West Bengal. The total insured area in Kharif 2016-17 was 386 lakh hectares, which declined to 324 hectares in Kharif 2018-19. However, the total insured area in the same period in the Rabi season was 191 lakh hectares. The Standing Committee on Agriculture (chair: P.C. Gaddigoudar) in its report on PMFBY, highlighted that the insured area as a percentage of the sown area has declined from 29% to 25% between 2016-17 to 2019-20.As per 2016-17 budgetary estimates, the central government allocated Rs 5,500 crore for effective implementation of PMFBY, which was 3% of the budget estimate of agriculture and allied sectors of 2016-17. The actual expenditure on PMFBY as a percentage of actual agriculture and allied sector expenditure in 2016-17 was about 7%. The allocated budget estimates to PMFBY increased to Rs 16,000 crore in 2021-22, which came down to Rs 15,500 crore in the recent budget (2022-23). The budget estimate and actual expenditure on PMFBY continuously increased between 2016-17 to 2020-21 (Figure 1). The actual expenditure on PMFBY as a percentage of actual agriculture and allied sector expenditure is greater than estimated budgetary expenditure on PMFBY as a percentage of the budgetary estimate of agriculture and allied sector between 2016-17 to 2019-20 (Figure II).It shows that the central government systematically underestimates the overall expenditure on the scheme, which could be one of the reasons for the delay in claim settlement. Added to this, the government budget runs on accrual accounting rather than cash accounting, increasing the delay in payment further. Despite a decline in the insured area as a per cent of the total sown area and a low proportion of insured farmers of total agriculture households in PMFBY, the government budget estimates and actual expenditure on PMFBY have continuously increased in both absolute and relative to overall expenditure on the agriculture and allied sectors between 2016-17 to 2019-20.Also read: Beyond State Control and Free Market, Shaping a New Model for Agricultural ReformsIncrease in government expenditure and benefit to insurance companiesHaving observed benefit statistics for insured farmers between 2016-17 to 2019-20, the benefit received by insured farmers has actually deteriorated. The benefited farmers as a per cent of total insured farmers between 2016-17 to 2018-19 are less than 40% in both Kharif and Rabi season. Before 2016-17, the claim to premium ratio was greater than one. Claim to premium ratio declined after 2016-17, and it became lower than one.Over time, PMFBY has become a costly scheme for the government and is not providing adequate and timely financial support to agriculture households. Due to this reason, some states have already discontinued offering PMFBY and assisting their farmers with other crop insurance schemes. States like Andhra Pradesh, Bihar, Gujarat, Jharkhand, Telangana, and West Bengal have discontinued the scheme in their respective states after implementing it for some seasons/years due to financial considerations.PMFBY, in its present structure, is a good profit-making policy for insurance companies. The average sum insured has increased from Rs 15,100 during the pre-PMFBY schemes to Rs 40,700 under PMFBY due to an increase in the minimum support price of insured crops.Despite having a fixed premium rate for farmers, the premium paid by farmers has increased due to an increase in the sum insured. The mean value of the premium paid by farmers between 2010-11 to 2015-16 was Rs 1,452 crore in the Kharif season and Rs 732 crore in the Rabi season. The mean value of the premium paid by farmers between 2016-17 to 2019-20 increased to Rs 3,004 crore in the Kharif season and Rs 1,492 crore in the Rabi season. The actuarial premium rate of the total sum insured in the Kharif season has increased from 12% to 15% in the Kharif season and 8% to 10% in the Rabi season between 2016-17 to 2019-20. The mean value of gross margin (difference between gross premium and claim paid by insurance companies) between 2016-17 and 2019-20 was Rs 3,844 crore in Kharif season and 1519 crore in Rabi season. The mean value of gross margin in Kharif season was Rs 253 crore and in the Rabi season was Rs 93 crore between 2010-11 to 2015-16.Need a structural change in design to achieve its objective?Despite increasing allocated funds to the crop insurance scheme in the subsequent budget, it is unable to improve penetration of crop insurance in terms of enrolled farmers and insured areas. However, private crop insurance companies are improving their gross margin by paying a low claim amount and increasing the premium rate. It shows that the crop insurance scheme in the present framework is ineffective in improving farmers’ income. Agriculture is a state subject, and the state government can offer better crop insurance policies for their respective geographical areas.State governments should design crop insurance frameworks for their farmers based on weather conditions and cropping patterns, and the Union government provides financial and intellectual support to respective states. One size fits all policy will not be an effective policy for improving the condition of farmers and agriculture in India.Baikunth Roy is assistant professor of economics at Patliputra University. Satyendra Kumar is a research scholar at the Centre for Economic Studies and Planning, JNU.
