The unseasonal rain that has continued into May and the farmer suicides in the past few months, has called into question India’s crop insurance regime. But before I get into the reasons or any prescriptive suggestions, it will be prudent to describe the existing schemes and the evolution of the institutional thinking.
In India there are currently three crop insurance programs that are concurrently running under the umbrella of what is known as National Crop Insurance Programme (NCIP). These are the weather based crop insurance scheme (WBCIS), the national agriculture insurance scheme (NAIS) and the modified national insurance scheme (MNAIS). Collectively they cover approximately 30 million farmers, i.e. about 19% of the total farmer population.
WBCIS- Weather insurance, as the name suggests, mitigates the financial loss due to adverse weather conditions like floods droughts, frosts, gusts etc. These adverse weather events are mapped with monetary losses from nominal loss to total cost of cultivation.
The premium has three components - farmer’s share, state share and central share. Private insurance companies are allowed to participate. They collect the premium but bear full claim responsibility. Under this scheme, the insurance of loanee farmers (farmers who have been extended credit through Kisan credit cards) is mandatory and for non-loanee farmers (farmers who don’t have institutional credit), it is voluntary.
This is currently the second largest insurance scheme that covers approximately 13 million farmers with a total premium of 380 million; sum insured of USD 4 billion. Claims are settled on the base of weather observations.
Also read: Why crop insurance is a distant dream for Indian farmers
NAIS- This is the original big daddy of crop insurance. It has been functional since 1999-2000. This is a purely yield based scheme. And it is administered exclusively through the Agriculture Insurance Company of India Limited (AICIL). In this scheme, the claim is subsidized and in some cases the premium (there is a 10% premium subsidy for small and marginal farmers), for instance if the AICIL collected Rs. 100 crores of farmer’s premium in a season from a state, and if the claim for the season is Rs. 500 crores, Rs. 100 crores will be paid by AIC and rest Rs. 400 crores will be equally shared by state and central government. There is a huge uncertain burden on state and central government as they cannot plan the budget in advance as claims in particular season are uncertain, as in the AICIL and the concerned state and central government are liable to pay the full some insured. The yield is established by the state revenue or agriculture departments through crop cutting experiments (CCE). This is less insurance more dole. The National Agricultural Insurance Scheme (NAIS), which was based on yield only and currently insures about 15.5 million farmers by paying a premium of USD 250 million for a sum insured of USD 2.5 billion.
MNAIS- Modified NAIS was created to improve upon NAIS. Here the index is based on both weather and yield, where farmer can be compensated in between the crop cycle. The premium calculation is market based, it is open to insurance companies. The farmer, state and central governments pay the premiums and the full claims responsibility is borne by the insurance companies. Launched in 2010, there are currently 3 million farmers enrolled with a total annual premium of USD 125 million for a sum insured of USD 1.2 billion.
In light of the above given facts, you might ask why despite such well thought out and multiple programmes did we see such a high degree of rural distress in Rabi 2015 and why despite almost 30 years of experiments and innovation 81% of the farmers are uninsured?
The unseasonal rainfall of February , March and April exceeded the normal by well over 100%. This rainfall, hail and gust at the time of harvest proved detrimental to the Wheat and Mustard and to horticultural crops like Grapes, Pomegranates, Mango and Potatoes. Punjab, Haryana, Rajasthan, Uttar Pradesh, Bihar and Maharashtra have been adversely affected. But what happened in the last few months cannot be seen in isolation. The fact is that 2014 was a drought year. The monsoon rainfall for the months of June, July, August and September (JJAS) was 88% of the long period average, that qualifies for a mild meteorological drought, according to the Indian Meteorological Departments (IMD). There was a severe urea shortage in North India in the winter, commodities prices have come down globally. Over the past ten years Rabi output has been rivaling the Kharif output it can often exceed Kharif (02/03, 09/10, 13/14). 2015 is a statistical improbability, where you have seen back to back catastrophes. It is all these factors together that broke the back of the farmers. Crop insurance can limit losses (which they did) but not cover every loss.
It is not known but, Punjab and Haryana have no crop insurance schemes. Most parts of Uttar Pradesh are covered under MNAIS (a scheme that has weather but it is tilted towards yield). Bihar and Chhattisgarh during the Rabi season discontinued the WBCIS and opted for NAIS in Rabi 2014-15. Maharashtra implemented the WBCIS only for the horticultural crops in Rabi 2014-15. WBCIS has two major advantages over NAIS. Claims can be ascertained and paid within ten days of an adverse weather event, and the liability of governments (center and state) are limited to the premium subsidy. NAIS yield estimates and payouts can take a year or more. And the governments liability can be unlimited. Effectively if more farmers had been covered by the WBCIS in Winter and Spring this year, claim payments could have been made almost after every adverse rainfall, hail and gust event. In NAIS and MNAIS crop surveys need to be done and documented and this takes time. For instance Rajasthan, that is mostly covered by WBCIS will complete claims payouts in the next few days, where as UP that is mostly covered by MNAIS will take another three/four months.
The selective role back of WBCIS in some states and the absence of crop insurance in others coupled with successive weather calamities have contributed to the current situation.
