Flaws In Farm Insurance

Context: Response to Pradhan Mantri Fasal Bima Yojana (PMFBY) remains underwhelming.

Failure of PMFBY

• Failed to win the confidence of stakeholders: Including the farmers, insurance companies and state governments. Many states have opted out of it, and some others are reported to be considering so.
• While the key agricultural state Punjab did not join it, others like Bihar and West Bengal have evolved their own systems of recompensing the farmers for crop losses.
• Some insurance companies are finding it a non-profitable, if not actually loss-making, business despite hefty subsidies.
• Capping off the Central subsidy: the Centre had capped its own share of the premium subsidy at 30 per cent for unirrigated crops and 25% for irrigated ones.
• Delayed payments: The prime reason for the farmers’ disinterest in crop insurance is that they find the compensation too little and too late.
• Though the reworked PMFBY provides for penalising the states for any delay in releasing their share of premium subsidy, this provision is seldom enforced.
• Another factor that contributes to the delay in clearing the claims is the time taken in compiling crop damage data.
• Debtor- in-possession model, which is the model in the US, where the debtor remains in control.

Steps taken to rejuvenate PMFBY: Some welcome alterations included 

• Making it voluntary for farmers instead of being compulsory for those who take bank loans.
  • The banks earlier used to adjust whatever little compensation the farmers received from the insurers against their overdue loan payments. 
  • That amounted virtually to protecting the risk of the banks rather than of the farmers.
• Increasing the Centre’s share: In its present form, the premium subsidy is supposed to be shared by the Centre and state governments on a 50:50 basis; most states still find their share to be too high.
• Penalising the delays: The reworked PMFBY provides for penalising the states for any delay in releasing their share of the premium subsidy

Way Forward: The need is to first rid it of the remaining flaws that still deter the stakeholders from adopting it and then launching an intensive drive to promote it. That would be a step towards ensuring income security for farmers.