Can Modi government's crop insurance scheme really prevent farmer suicides?

Nivedita Khandekar
Nivedita KhandekarJul 24, 2017 | 14:01

Can Modi government's crop insurance scheme really prevent farmer suicides?

I met P Ayyakkannu, a septuagenarian farmer from Tamil Nadu, on Friday (July 21). He has been camping in Delhi’s Jantar Mantar since July 16 for the second time around along with 100 others. This time, they have planned a 100-day agitation to “prevent the suicide of farmers who feed the nation”.

Tamil Nadu is facing the worst drought in 140 years. Cauvery has gone dry, hundreds thousands of lakes (irrigation tanks) have either dried up or encroached; groundwater level is already 1,000 feet or more below. The worst problem: riding on almost 10 years of insufficient rains, this year, the rains have been more sporadic.


The situation is not very different across India. Despite prediction of satisfactory monsoon, the progress has not been up to the mark with several states staring at double sowing.

Among many demands by Ayyakkannu and his team – profitable price for agriculture products, writing off farmers’ loans taken from nationalised banks and formation of Cauvery River Management Board are few of them – a major demand is that of crop insurance scheme for individual farmers.

(Graphic: DailyO, photo: PTI)

In the 1980s, compensation for crop insurance was given to farmers only when there was crop damage at minimum 50 per cent taluk level, which changed to minimum 50 per cent damage at the panchayat level in 1990s. Post 2000, it came down to 50 per cent at block level.

The Pradhan Mantri Fasal Bima Yojana (PMFBY) initiated in 2016 is a step ahead, it is now up to village level.

“But tell me, if two people out of a bus load of 50 die in a road accident, do they say, "We will pay insurance amount only when 50 per cent die? So, why this discrimination when it comes to poor farmers?” asks Ayyakkannu, surrounded by other agitating farmers who sit along with skulls and bones, they claim, of farmers who died or committed suicide due to agrarian crisis.


“All that the Centre and the state are doing are passing the buck,” R Sellaperumal, Ayyakkannu’s colleague told me.

(Graphic: DailyO, photo: PTI)

Three significant things happened on the day I met Ayyakkannu, for farmers vis-à-vis agricultural crop insurance. The Comptroller and Auditor General (CAG) in its report on "Performance Audit of Agriculture Crop Insurance Schemes" laid in Parliament, lashed out at the faulty implementation of the scheme.

Among the various performance failures as pointed out by the CAG was that the Agriculture Insurance Company of India Limited failed to exercise due diligence in verification of claims by private insurance companies before releasing funds. An independent think tank, Centre for Science and Environment (CSE), came out with its own assessment of the PMFBY uncovering major implementation issues and loopholes in practice, not to mention profits pocketed by insurance companies. And on the same day, the government told the Rajya Sabha that of the 6,44,619 reported claims under the PMFBY in 2015-16, as many as 4,73,320 were paid while 1,71, 299 remained outstanding.

Not just Sellaperumal or Ayyakkannu, but farmers and farm leaders across India are disillusioned by the faulty implementation of the scheme. They already knew what the CAG and the CSE had to say or the Rajya Sabha was told.


The government, especially the Centre, should have seen it coming. Earlier in March 2017, the Parliamentary Standing Committee on Agriculture in its 35th report had evaluated the PMFBY threadbare.

“Even though the farmer’s premium was fixed at 2 per cent, 1.5 per cent and 5 per cent of Kharif, Rabi and annual commercial crops respectively, the actuarial/bidded premium rates quoted by insurance companies (lowest as per tender) are taken for implementation in that particular district/cluster. The premium over and above the fixed amount is paid 50:50 by the state and the central governments as subsidy. This average subsidy cost varies from crop to crop, from state to state and from season to season. For instance, the Maharashtra government paid a subsidy of Rs 3,375.68 crore for an area of 66.77 lakh hectare in Kharif 2016 under PMFBY (amounting to Rs 5,055 per hectare) while Uttar Pradesh paid a subsidy of Rs 403.32 crore for an area 35.04 lakh hectare  (amounting to Rs 1,151 per hectare) for the same season.”

Apart from its critical remarks about missing data on claim settlement (government reason – this is just the first season rollout), the committee said it was “aggrieved at the sordid state of affairs” vis-à-vis states not readily accepting and adopting the use of technology for assessment of yield loss even as the exercise of crop cutting experiments (CCE) for arriving at yield loss were not being carried out with due diligence.

The committee further said it desired that use of satellite imagery for CCE be also adopted on large scale.

This was exactly what the Prime Minister had announced and tweeted on January 13, 2016, about the benefits of the Pradhan Mantri Fasal Bima Yojana calling it as a pioneer scheme, raising people’s expectations.

“Use of simple and smart technology through phones and remote sensing for quick estimation and early settlement of claims” was proudly announced as one of the highlights in the accompanying graphic in the tweet.

And that was few months after the soundbite and spectacle loving prime minister had announced from the ramparts of the Red Fort on August 15, 2015, to rename the seven-decade-old agriculture ministry’s name with "Ministry of Agriculture and Farmers’ Welfare" even as he emphasised that "rural and agriculture development can only be complete when welfare of the farmer is also ensured". 

More than 18 months down the line, the farmers are no longer excited.

Problems galore with PMFBY

Kedar Sirohi, a farmer leader of Aam Kisan Union, Madhya Pradesh, pointed out how there is no proper modus operandi for crop cutting experiment (essential to determine the yield).

“Use of technology – drones for surveys or mobiles for pictures and real-time data transmission – is not happening. The states simply do not have ample manpower to do this. On their part, the insurance companies have not deployed their men at block levels too.”

He further asks, why are only "notified" crops insured and not all? (Usually more than two crops will be notified per district depending on the spread of sowing and historical pattern, and it will not be a cash crop.)

Ayyakkannu (centre, wearing spectacles) with his fellow farmers from Tamil Nadu at Jantar Mantar (Credit: Nivedita Khandekar)

Pointing out that the coverage of farmers under the scheme was very low compared to the population of farmers as per Census 2011, the CAG report further said the coverage of small and marginal farmers was even lower. Although the scheme envisages insurance for sharecroppers and tenant farmers, the CAG found out that there were no records maintained.

The CAG report also drew attention to a major financial issue: “It was noticed that 97 per cent of the farmers had opted for sum insured equivalent to loan amount under the NAIS indicating that either the loanee farmers were intent on covering the loan amount only (in which case, the scheme acted more as loan insurance than as crop insurance) or were not aware or were not informed appropriately by loan disbursing bank/FIs about the full provisions."

Similar things that CSE assessment report of PMFBY pointed out. The percentage of non-loanee farmers availing insurance remained less than 5 per cent during Kharif 2016 and Kharif 2015; there were issues with state tenancy laws which resulted in negligible coverage of share-cropper or tenant farmers, the most vulnerable section along with small land holding farmers and the insurance companies lacked manpower and infrastructure in rural areas, the CSE report said. There was no direct linkage of farmers with insurance companies and at several instances, cases of wrong or double premium deductions apart from scores of loopholes in CCEs.

But, perhaps the most glaring of the problem that the CSE pointed out in PMFBY was the humongous profit that the insurance companies – Agriculture Insurance Company (AIC), a public-sector company, and 17 private companies – pocketed at the cost of the exchequer without passing on the benefits to the farmers.

“Data released by the Insurance Regulatory and Development Authority (IRDA) indicates that PMFBY played a significant role in the growth of non-life insurance industry in 2016-17. The gross premium of general insurance companies grew by 32 per cent, from Rs 96,376 crore in 2015-16 to Rs 1.27 lakh crore in 2016-17. Nearly half of this growth came from crop insurance.”

“During Kharif 2016, companies made close to Rs 10,000 crore as ‘gross profits’. Under the PMFBY, profit is private but liability is public. The government provides protection to the insurance companies,” CSE report mentioned.

As per this news report earlier this month, "despite the farmers’ contribution being just 1.5 per cent -2 per cent of the insured value, the scheme’s claims-to-premium ratio was 86.5 per cent in 2016-17. With the government announcing the increase in coverage for farmers under the scheme, the insurance industry is hopeful that this financial year’s crop insurance premiums would touch Rs 28,000-30,000 crore".

“The question is, how long can the exchequer bear the huge cost?” the report asked.

This was exactly what the CAG’s performance audit report said “The guidelines were silent on the utilisation of savings, if any, due to difference between premium collected and claims payable by the AIC under the earlier scheme. The AIC retained the savings. The AIC failed to exercise due diligence in verification of claims by private insurance companies before releasing funds to them,” were some of the financial mismanagement pointed out.

Explaining the logic behind how premium rates are calculated, Ajay Singhal, deputy general manager of Agriculture Insurance Company (AIC), the company with 36 per cent of market share, said, “There are 18 players in the market. Average rate of losses is taken into consideration based on last 10 years data.” His company also enjoys high – almost 80 per cent - share in actuarial premium collected across India.

He agreed to the gap in implementation, saying there was quantitative and qualitative deterioration in CCE and that “moral hazard” was a big issue from both sides.

Indirectly, he said, the insurance companies and farmers were both to be blamed at places for being hand in glove. Groundnut growing farmers’ claims in Rajkot in Gujarat despite good crop is one example.

But then, if a political functionary or district collector is efficient enough, then that state or district have benefitted from the PMFBY.

Dhananjay Yelgatte from Lingdhal village in Latur district, part of the high-risk, drought-prone Marathwada region, tells of how the PMFBY has been functioning smoothly in his area.

“To start with, the farmers are aware. We paid very less premium and the state paid its dues on time. And when things did not go well due to inclement weather last year, the whole district was declared for crop damage, each of us insured got the compensation.”

This time, Yelgatte said, more farmers are opting for insurance under the PMFBY.

In case of Ayyakkannu’s Tiruchilapalli district, Tamil Nadu government had not notified any villages for Kharif 2016, but a slight improvement in 2017 is that a little above 400 villages are now notified. In fact, Tamil Nadu figures in the list of states that have not paid either full premium for several areas or no premium at all.

Can states afford such high insurance?

One of the major problems in faulty implementation as pointed out by the CSE is state governments not being able to pay subsidy on time. This is one of the reasons for delay in claim payments by insurance companies.

"State budgetary constraints seem to be a factor in not providing timely premium subsidies. In many states, the PMFBY takes a significant part of the state budget for agriculture. In Bihar for example, the premium subsidy paid by state government during Kharif 2016 was Rs 650 crore, one-fourth of the total annual agriculture budget. In Madhya Pradesh, expected premium subsidy in 2016-17 was Rs 1,485 crore, which is 60 per cent of total agriculture budget of Rs 2,448 crore,” the assessment report said.

Ayyakkannu and his fellow farmers from Tamil Nadu with a visitor at Jantar Mantar (Credit: Nivedita Khandekar)

Several smaller states, including the northeastern states of Tripura and Meghalaya, had not even paid premium subsidy as on April 2017.

Come to think of it, what will the states do if 50 per cent or more of its agriculture budget is exhausted in paying the crop insurance premium. Although most expenditures under agriculture have been carried out by the Centre, there is very little that the government needs to spend on.

“That the states’ budget will be disturbed because of insurance premium is a flawed argument. If the states want to reduce their expenditure in agriculture, let them first call off power subsidy. With no free power, the farmer will be more disciplined in exploiting water from the ground. In such cases, the onus will lie with states to ensure that there are enough de-centralised water conservancy programmes,” said Bhavdeep Kang, a senior journalist and analyst of agriculture issues.

“The states can cut down on hundred other unnecessary expenses, but budget constraint can be a reason to say no to crop insurance.”

Rs 5,000 crore was the central government’s budget allocation for 2016-17 premium payments. The PMFBY plans to cover 40 per cent of the agriculture area in 2017-18 and has made provision of roughly Rs 9,000 crore for the same. The states will have to come up with a matching monetary provision.

The latest government data  for Kharif crop sowing shows that the total sown area as on July 21, 2017 – as per data received from various states – stands at 685.31 lakh hectare as compared with 673.41 lakh hectare last year.    

But will that mean, all is going to be well? Not really.

As Chandra Bhushan, CSE’s deputy director general said, “Weather data for 117 years shows that there has been a steady increase in extreme weather events. Our farmers need to be ready to face it. A robust irrigation network, ample rural/farm related infrastructure, crop diversification, multi-cropping, assured, but reasonable minimum support price, guaranteed purchase and fair value to the farmer for his produce. All these need to be taken care of first. Then comes the crop insurance. But agriculture insurance cannot run with profit motive.”

"Crop insurance is the last resort. Not the first option," he added.

Last updated: July 25, 2017 | 12:04
Please log in
I agree with DailyO's privacy policy