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Centre Considering Plans to Waive Off Farmers’ Crop Insurance Premium

Many experts have pointed out a number of flaws in the programme, which have caused farmers, state governments, and insurance firms to express their dissatisfaction with the current approach.

Shivam Dwivedi
Farmer observing crop in his field
Farmer observing crop in his field

While many states have expressed their dissatisfaction with the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY), the Centre is considering various options, including "zero or token premium of Re 1" for the 12 crore small and marginal farmers under the scheme.

"We are open to any option that will improve the scheme. The working group has been set up for the purpose and they will draw up financial projections on various options,” said a senior official of the agriculture ministry. The state portion of premium subsidy, on the other hand, is a big source of concern, as it would increase with more farmer involvement, according to present norms, the official noted.

Two Premium Options:

Another alternative under consideration by the group is to charge a dual premium for the insured amount, easing the financial load on states and farmers alike, according to sources. "If the insurer's liability is set at 50% of the claim amount, the premium will drop dramatically, and the farmers' part can be fully waived off," an industry source familiar with the discussions said. However, he added, there will be a mechanism in place to pay the full amount of the claim.

Given that roughly 17% of agricultural land is leased out, with a high of 42% in Andhra Pradesh, the government may relax laws to allow tenant farmers to take advantage of crop insurance. Though they are allowed to enroll under PMFBY if they can show documentary proof of contract farming, many farmers prefer to do so without documentation.

After farmers pay a predetermined premium - 1.5 percent (of the sum insured) in Rabi season, 2% in kharif, and 5% for cash crops – the rest premium is distributed equally between the Centre and states under PMFBY. The premium is calculated using quotes from a group of insurance firms. The maximum premium has been set at 30% in non-irrigated areas and 25% in irrigated areas by the Centre.

Many experts have pointed out a number of flaws in the programme, which have caused farmers, state governments, and insurance firms to express their dissatisfaction with the current approach. In Uttarakhand, for example, the farmers' share of premium in Kharif 2019 was 6.04 crore, while the Centre and State share of subsidy was around 94 lakh, despite the government bearing 90% of the subsidy due to the state's hilly terrain.

"If PMFBY is to be accepted universally across all states, such micro issues cannot be ignored." According to a former Union Agriculture Secretary, "technology-driven yield evaluation should be made mandatory, and the Centre should conduct this effort from its own funds with the concurrence of the State government."

States Opted Out of PMFBY

Gujarat, Andhra Pradesh, Telangana, Bihar, Jharkhand, and West Bengal have already left the Central plan and established their own, while Maharashtra is debating the merits of leaving.

Crop insurance is necessary to mitigate risk for farmers, according to officials, but awareness is low, so many farmers assume that even if there is no crop loss, they will receive a return on their premium. An MP asked in the Lok Sabha in December if the government would hike rates in the event of a disaster, according to the official, who added that many people are unaware that premiums are determined through bids.

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