Crop Insurance in India

India has a large and diverse agriculture sector and the farm output is one of the highest, making India rank second in the world. States like Punjab, Uttar Pradesh, Madhya Pradesh, Haryana, Bihar, Andhra Pradesh, Maharashtra and West Bengal have contributed significantly in agriculture. However, agriculture sector in India is facing several issues and there is a need for focused policies to mitigate some. Literacy level of the farmers is not significant and there is a need to educate the farmers about new technology of irrigation, crop sowing, high quality seeds etc. Again agriculture in India is heavily dependent on the unreliable rainfall/monsoon. The improper and inadequate irrigation facilities have created a havoc, as a result of which states such as Jharkhand have suffered from drought. Lack of modern agricultural practices and high cost of modernization is again a hindrance to the growth. Small and fragmented land holdings have led to burden and conflicts.

Types of Risk Mitigations

• Spreading of Risk- Rainfall pattern in India is variable and fluctuating. Many states have frequent occurrences of droughts and many states experience heavy rainfall which destroys the crops. Thus there is a need to spread/diversify the risks associated with crops. It is said “risk diversification is risk minimization”. A farmer has to act judiciously and spread his crop production in a pattern that he is not inflicted with heavy losses. Spreading of risks may be done through mixed cropping. Risks can be spread into other areas including livestock breeding and non-agriculture activities.
• Transfer of risk- One of the most common ways of transferring risk in agriculture is through insurances. Farmers pay premiums to get insurances. In case of farm losses due to weather conditions or conditions beyond farmers reach, insurance companies are expected to pay for the losses.
• Sharing of risk- If a crop fails the risk can be shared or minimized by deriving a minimum guaranteed income from the insurers.

Read India’s Agriculture Policy a Big Mess as Hundreds & Millions Malnourished, as Farm Exports Grow by 88%.

Crop Insurance

The population of India is majorly dependent on agriculture and majority of the population is involved in the agriculture practices. Farmers are affected by loss in production and farm income because of certain disasters which includes natural disasters like floods, cyclones, droughts, storms, landslides, earthquakes. Crop insurance is used to mitigate the risk and it helps in protecting the cultivators against financial loss occurring due to factors beyond their control such as natural fire, weather, floods, pests, diseases etc.

Crop insurances in India can be traced back to post independence era. Agriculture is the backbone of Indian economy and people engaged in the profession (mainly farmers) are generally poor. Government has various schemes to increase agricultural yield, providing minimum support price and buying surplus crops. This helps in accessing higher quality seeds and fertilizers due to availability of loans.

Basic Principles of Crop Insurance

• The insured farmers pay a premium. The Government of India contributes 10% of the premium (in a equal shared basis by the Central and State Government). Rest 90% is paid by the farmers
• Claims are shared by the State and Centre Government on a 50-50 basis
• Homogeneous approach using area as the basic unit was used. The approach is used because of inadequate data of individual farmers
• Over production:  There is no insurance on over production in India

Crop Insurance Schemes in India

1. Comprehensive Crop Insurance Scheme

• Introduced in 1985
• Homogeneous area approach was used
• Coverage was restricted to 100%of the crop loan subject to a maximum of Rs10,000 per farmer
• Premium was fixed at 2% for cereals and millets and 1% for pulses and oilseeds
• Small and marginal farmers were eligible for a premium subsidy of 50%
• It was financially non-viable.

1. 2. National Agriculture Insurance Scheme

• National Agriculture Insurance Scheme (NAIS) also known as Rashtriya Krishi Bima Yoana was implemented in 1999 in all states and union territories
• Covered loaned farmers and initiated voluntary participation of non-loaned farmers
• Premium rates that vary from 1.5 to 3.5% for food-grain.