Mar 11, 2015

Unseasonal rains: Let's insure each acre of farmers crop

Unseasonal rains and strong winds that lashed the entire north-western region have done immense damage to the standing crops. Ministry of Agriculture has estimated damage to standing crops in 50 lakh hectares in Punjab, Haryana, Uttar Pradesh, Jammu & Kashmir, Himachal Pradesh, Madhya Pradesh, Rajasthan and Maharashtra. Coming after an extended season of dry monsoon, the freak weather has played havoc with farm fortunes.

Reports of at least seven farmers committing suicide, and one farmer who suffered an instant heart attack on seeing his flattened wheat crop, have come from Uttar Pradesh.

In Punjab, Haryana and as far as Vidharbha in Maharashtra the situation is no better. Especially coming at a time when the standing crops gave an impression that the rabi season would perhaps offset the losses suffered on account of a shortfall in monsoon rains in the kharif season. According to the Directorate of Wheat Research in Karnal about 20 per cent of the standing wheat cop and 30 per cent of mustard crop has been damaged. That is why agriculture continues to be unpredictable and a highly risky proposition.

Punjab Chief Minister Prakash Singh Badal has sought a relief of Rs 700-crore for the damaged crop in at least 7 lakh hectares. He has also demanded the upper cap on the compensation limit of Rs 3,600 per acre to be increased to Rs 10,000 per acre. “Current amount does not even justify the money spent by a farmer on the seeds he sows per acre, let alone other input costs,” he wrote to the Minister of Agriculture. This certainly is an unfair compensation regime given the soaring input prices over the years.

And that brings me to an issue that continues to be discussed for over three decades now, but for all practical purposes remains a non-starter. I am talking of the need for effective crop insurance scheme for farmers. Successive governments have failed to work out a crop insurance model for farmers, especially small and marginal farmers who cannot pay the monthly premium, to save them from the tyranny of a hostile weather. I have always wondered why the governments have failed over the years to implement a fool-proof system of insuring every acre of cultivable land. The answer is simple: it lacks political will to bailout farmers in distress.

As far as I know there are a number of schemes introduced on crop insurance, including for weather-related crop insurance. But all these suffer from the basic fault – the insurance is done on an area basis where the average of a village or a taluka is what determines the losses suffered. If 10 acres of a village is lashed by hail and the crop is completely damaged, the farmer will still not be able to get adequately compensated for his loss. The reason is simple: the average of the village does not reflect the severe damage few farmers were inflicted with.

The insurance schemes have been prepared keeping drought in mind. But crop weather insurance goes beyond drought, and farmers need to be adequately covered to offset any as well as all damage.

This is the reason why Punjab has rejected the draft crop insurance scheme that the Ministry of Agriculture has come up with. The latest draft suggests an indemnity of 70 per cent for the sake of insurance compensation. Considering that the natural disasters do not operate on the basis of a village, and there are times when one portion of a village lands gets affected while the rest remains undamaged, the new insurance policy will be no different than what was existing all these years. Moreover, a premium of 10 per cent of the total crop value is too high. It needs to be replaced with a fixed premium on per acre basis depending on the agri-ecological regions the farm is located. For instance, the premium will be different for rainfed areas and the irrigated areas. . 

I have never understood why every farmer cannot be insured individually. At a time when technology is being used to determine and evaluate crop sowing and crop harvest, why can't the same technology be used for measuring the losses each farm household suffers? After all, if you are living in a city and your house catches fire, the insurance company is not going to determine the loss based on the average of the colony. It is always the individual loss that is insured for, and not an average of the colony or ward in a municipality.

Insurance companies have been reluctant to do so for the simple reason that it is too much work. They don't want to add on to their operational costs. And knowing that farmers are unorganised and are nowhere on the economic radar screen of the country, they have so far managed to stay out. This is grossly unfair. If only the government had made it obligatory for the private insurance company to at least devote 40 per cent of their turnover to agriculture, ensuring that the policy is farmer-centric, many farmers who took to the suicide route could have survived.

I have a suggestion. Since Narendra Modi's government has opened up for 49 per cent FDI in insurance why not make it mandatory for those companies entering the insurance sector in India to provide at least 40 per cent coverage to the farming sector on a household basis. Unless the government demonstrate that it means business and makes it mandatory for the insurance companies to work out an insurance plan for each farmer I don't think any foreign company would be interested in going rural. But if they are keen to have a chunk of the vast Indian market, it is also time to make the foreign companies deliver on the social needs of the country. There is no need to allow them into India unless they commit to provide crop insurance to farmers. They will initially hesitate and blackmail, but that has been the usual strategy.

What use is FDI in insurance if it fails to reach out to the largest section of India’s population – 600 million people engaged in farming? #


vijay said...

nice article,but i have one question in mind that government has tried to provide farmers insurance on individual basis under National Agriculture Insurance Scheme(NAIS) but still it is not helping why??

Aparna Tiwari said...

To answer the above question,
There are various reasons why NAIS and other weather based insurance schemes need to be re-worked:
1. The biggest issue perhaps is linking credit to insurance schemes. Only farmers who have taken a loan from formal sources are eligible and are compulsorily covered under weather base insurance.
That itself excludes 73% of our farmers who have no access to formal sources of credit.
2. Despite private players like ICICI & HDFC who have ventured into this field, as per procedure, have to tie up with the State govts. to provide this service. This makes it a complex and lengthy procedure that links loanees with this insurance scheme, is responsible for exclusion of farmers. E.g. A farmer who has applied for a loan in May, and owing to the time-taking procedure, could not get the loan approved before June, gets automatically excluded from the insurance scheme meant for the period of June to September.
3. Even for those of whom, weather insurance is available, the coverage as decided by the authorities is such that it is based on the distance from the weather station. A report by Ministry of Agriculture indicates that 77% of the farmers covered under a weather insurance scheme, were dissatisfied with the location of the weather station.
4. Finaly,It does not cover for unexpected weather disruptions like hailstorms. E.g. Farmers who suffered due to the recent hailstorm that hit parts of the country, destroying a sizeable proportion of the Rabi crop, have not benefitted from this particular scheme, despite being covered under it.