Friday, January 15, 2016

The Union cabinet on Wednesday signed off on a revamped crop insurance scheme designed to mitigate risks associated with contemporary Indian farming.

The farmer-friendly move comes at a time when the country is experiencing a protracted period of rural distress after below-average monsoon rainfall in 2014 and 2015.

How is it different from previous schemes ?
  • Under the previous crop insurance scheme, risks were only partially covered. 
  • The existing premium rates vary between 2.5% and 3.5% for kharif crops and 1.5% for rabi crops—but the coverage was capped, meaning farmers could, at best, recover a fraction of their losses. 
  • Also, the premium for commercial and horticulture crops was calculated on actuarial basis, meaning premiums could be as high as 25% depending on the risk factor involved.

How is it good ?
  • it provides for localized events and removes the cap.
  • will cover half of India’s cropped area in the next three years, up from the present level of 23%. 
  • centre has substantially increased the budget for crop insurance from Rs.2,823 crore in 2015-16 to Rs.7,750 crore in 2018-19.
  • There is no cap on subsidy on premium, meaning the government will bear the cost even if the balance premium is as high as 90%. In previous schemes, due to a cap on premiums, farmers did not get the full sum during claim settlement.
Some notable features ?
  • government liability on premium subsidy will be shared equally by the centre and states.
  • will cover local-level calamities such as hail storms and landslides and even cover farmers if they cannot sow crops due to inclement weather.
  • the scheme will cover post-harvest losses due to cyclonic and unseasonal rains.
  • smartphones will be used to capture and upload data on crop cutting (to estimate loss in yield) to reduce delays in settling claims
  • remote sensing will be used to reduce the number of crop-cutting experiments.
Expert opinion !
  • while the low premium will drive penetration and enrolment and make the insurance scheme viable for insurers, it remains to be seen if the unit for assessing crop loss has been reduced to the village level (in earlier schemes block and panchayats were taken as units, making it difficult for a farmer to claim compensation for events like hailstorms).
So above was the ROSY picture of the scheme....but in UPSC u also need to know the THORNY part of the story !

So let's assess the challenges which come in the way of the scheme !

  • For the success of such a scheme the main challenge will be spread of awareness so that farmers are made cognizant of the product which must have a simple design. As it is more of a market-oriented measure to cover volumetric risk, farmers have to be educated about the scheme in terms of how it will help them. There has to be wide-scale outreach programmes carried out to drive home the advantage of these products.
  • Second, the smaller farmers have to be targeted as this is particularly the vulnerable class. Presently the scheme does not distinguish between the large and small farmer as that does raise the issue of identification.
  • Third, the scheme has to work in the sense that the process has to be seamless so that all the claims are settled seamlessly. Further, given the volumes that may be involved, insurance companies have to be geared up to handle such transactions.
  • Fourth, as part of housekeeping, land records need to be in place for making assessment of the premium.
  • Fifth, we need to have access to weather data in various regions that is not captured by the IMD. Efforts by private players to create such weather stations like those by NCMSL (National Collateral Management Services Limited) have to increase as all decisions on premium as well as payouts would be contingent on this data.
  • Last, crop loan practices are weak which has to change as often banks do not insist on this when giving a loan.

Way forward!

  • Banks today do insist on farmers taking some insurance and would probably once again have to play a critical role in spreading the good word given that they are the first point of contact with the farmers. The new payments banks and small banks would also enable this process to proliferate.

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