Securing farmers financially

Earlier this month, the Union Cabinet passed the new crop insurance scheme (PMFBY) in a bid to “transform” the lives of farmers. Launched by the Prime Minister with a tweet on the eve of auspicious harvest celebrations, the scheme aims to put an end to financial instability that has been suffocating the sector. An intended upgrade on the NDA and UPA scheme of 1999 and 2004 respectively, the new crop insurance has the lowest uniform premiums of 1.5 percent on Rabi and 2 percent on Kharif crops and goes a step further to remove the cap on the upper limit of subsidy by the government. 

These policy initiatives definitely make the scheme alluring to farmers who, with a more government-incentivised approach can hope for better and risk-free businesses. The PMFBY in effect also replaces the National Agriculture Insurance Scheme (NAIS) and allows states to budget insurance premium subsidies in advance instead of making provisions for unlimited liabilities. It makes several analysts wonder how the states will be able generate the required funds for financing their share of premium subsidy.

Alleviating the sector from uncertainty is a priority. This is championed by the scheme as it continues to embrace technological data to tackle crop damage. First, the government plans to spread awareness among farmers in weather risk management and set up a system of insurance and compensations based on gathered agricultural and meteorological data. Second, the scheme widens its horizons on the definitions of weather-related disasters affecting crops by including natural calamities like unseasonal rains and damage due to rains after harvest under its umbrella. However, the policy remains silent on how all the data for settling claims will be collected when under the existing scheme, the states find it difficult to conduct their share of crop cutting experiments.

The scheme projects to cover more than 50 percent farmers across India. This would directly benefit banks and financial institutions who already favour damage coverage among farmers on an area basis to cover their own systemic risks. So the coverage of farmers taking credit from banks will increase. But another crucial aspect of the insurance scheme will be reaching the poorer and less aware farmers in many parts of the country, who do not have access to credit from the banking system (non-loanee farmers). Private agricultural companies, NGOs providing awareness and security against weather risks and natural disasters have been substantially instrumental in such tasks. However, the scheme neither provides any incentive for farmers using better package of practices, neither does it provide farm level settlements, and thus, provides less incentive for private companies and NGOs to promote this scheme among its farmers. Rural finance companies will, however, be incentivised to sell these policies to non-loanee farmers.

The coverage of claims from banks will also be based on data collected from weather stations and unmanned aerial vehicles (UAVs). The Indian Meteorological Department undertakes the task of installing such devices and the DGCA only permits government institutions to fly UAVs. With large parts of the land to be covered, widespread weather station installation and aerial vehicle survey will have to be done by private agencies. However, there are still no practical and uniform guidelines in place for putting up such stations.

With points like exemption from an upper limit cap on government aid and low premiums, the government aims to safeguard the life of the Indian farmer shielding him from financial insecurities. Hopefully, this would go a long way in curtailing the recent alarming number of suicides in the farming fraternity. The success of the Centre’s crop insurance scheme depends on collaborations and thorough ground work on many different levels. The real impact of the scheme can only be known with time . But one sure thing is the positive impact that technology is set to have on the sector. Leaving aside the financial aspect, the ability to study patterns of nature and structure efficient plans to tackle weather risks will go a long way in transforming the agricultural sector and the lives of Indian farmers.