Pradhan Mantri Fasal Bima Yojana is a good scheme with flawed implementation, says CSE’s latest report

On Friday, Centre for Science and Environment (CSE) released its first detailed independent evaluation and analysis of the Pradhan Mantri Fasal Bima Yojana.

Across the world, agriculture insurance is recognised as an important part of the safety net for farmers to deal with the impacts of extreme and unseasonal weather due to climate change.

According to Chandra Bhushan, “The Pradhan Mantri Fasal Bima Yojana is a far superior scheme than the previous agricultural insurance schemes. However, at the state level, its vision is diluted and at the district level, its implementation is seriously compromised. PMFBY.”

“This assessment is based on our field study in Haryana, Tamil Nadu and Uttar Pradesh, as well as national level engagement with various stakeholders including farmer and farmers organisations, insurance companies and government departments,” Bhushan added.

The Central government launched the PMFBY in the kharif season of 2016 to help farmers cope with crop losses due to unseasonal and extreme weather.

The scheme came into operation from April 1, 2016.

It replaced the National Agricultural Insurance Scheme (NAIS) and the Modified National Agricultural Insurance Scheme (MNAIS).

Although the Weather-Based Crop Insurance Scheme (WBCIS) remains in place, its premium rates have been made the same as in PMFBY. A state can decide whether it wants PMFBY or WBCIS or both.

PMFBY has more farmer-friendly provisions than NAIS and MNAIS, said CSE. It has reduced the burden of premium on farmers significantly and has expanded the coverage of risks. It also promotes use of advanced technologies for accurate estimation of losses and quick payments to farmers.

What has the CSE assessment found?

The positives:
At the all-India level, coverage of agricultural insurance has significantly increased in kharif 2016 compared to kharif 2015. The number of farmers insured reached a little over 4 crore during kharif 2016; during kharif 2015, this number was about 3.09 crore.
The sum insured is now closer to the cost of production than before. On an average, during kharif 2015, the sum insured per hectare of land was about Rs 20,500; during kharif 2016, it had gone up to Rs 34,370. This means that in case of losses, farmers should theoretically get significantly higher compensation than before. However, in some states like Rajasthan, the sum insured remains very low – about one-third of the cost of production.

The negatives:
Gaps in assessment of crop loss: Assessment of crop loss remains a major concern because the sample sizes in each village are not large enough to capture the scale and diversity of crop losses. In many cases, district or block level agricultural department officials do not conduct such sampling on ground and complete the formalities only on paper. CSE also noted other issues such as lack of trained outsourced agencies, huge scope of corruption during implementation as well as non-utilisation of technologies like smart phones and drones to improve the speed and reliability of such sampling.
Inadequate and delayed claim payment: Insurance companies, in many cases, did not investigate losses due to a localised calamity and, therefore, did not pay claims. For kharif 2016, the claim payment to farmers was inordinately delayed – till April 2017; claims for kharif 2016 were not paid or were partly paid in 14 out of 21 states. Only 32 per cent of the reported claims were paid out by insurance companies, even when in many states the governments had paid their part of premium.
High actuarial premium rates: Insurance companies charged high actuarial premium rates during kharif 2016 – the all-India rate was approximately 12.6 per cent, which was highest ever. Much higher rates were charged in some states and regions. The average actuarial rate in Gujarat was 20.5 per cent, in Rajasthan 19.9 per cent, and in Maharashtra 18.9 per cent.
Massive profits for insurance companies: CSE’s analysis indicates that during kharif 2016, companies made close to Rs 10,000 crore as ‘gross profits’.
Coverage only for loanee farmers: PMFBY remains a scheme for loanee farmers – farmers who take loans from banks are mandatorily required to take insurance. The percentage of non-loanee farmers availing insurance remained less than 5 per cent during kharif 2016 and 2015. Like previous crop insurance schemes, PMFBY fails to cover sharecropper and tenant farmers.
Poor capacity to deliver: There has been no concerted effort by the state government and insurance companies to build awareness of farmers on PMFBY. Insurance companies have failed to set-up infrastructure for proper implementation of PMFBY. There is still no direct linkage between insurance companies and farmers. Insured farmers receive no insurance policy document or receipt.

The CSE report has also identified issues like delayed notification by state governments, less number of notified crops than can avail insurance, problem with threshold yield estimation etc. that has diluted the usefulness of PMFBY.

One of the key conclusions of the report is that PMBY is not beneficial for farmers in vulnerable regions.

Said Chandra Bhushan, “For farmers in vulnerable regions such as Bundelkhand and Marathwada, factors like low indemnity levels, low threshold yields, low sum insured and default on loans make PMFBY a poor scheme to safeguard against extreme weather events. Our analysis shows that farmers in these areas might not get any claim even if more than half of their crops are damaged."

After looking into the scheme's intention and the implementation, CSE has come out with a series of recommendations to improve implementation:
Coverage of tenant and sharecropper farmers should increase.
All important crops should be covered under crop insurance. Diversification of crops and mixed farming should be promoted.
Instead of threshold yield, ‘Potential yield’ should be used for crops for which historical average yield data is not available.
Damage caused by wild animals, fire, cold waves and frost to crops should also be considered at the individual level. Damage caused by unforeseen weather events like hailstorms should also be included in the category of post-harvest losses.
Farmers must be informed before deducting crop insurance premium. They must be given a proper insurance policy document, with all relevant details.
Panchayati Raj Institutions and farmers need to be involved at different stages of implementation.
The insurance unit (IU) must be reduced over a period of time. In any case, it should not be more than village level. If the IU cannot be at the individual level and is kept at village panchayat level, premium should also be collected at the village panchayat level.
Incentivise groups of small farmers or women farmers and promote group insurance.
Sum insured should not be less than scale of finance and/or cost of production.
PMFBY timelines from insurance coverage to claim payment should be strictly adhered to.
Robust assessment of crop loss should be done through capacity building of state governments, involvement of PRIs and farmers in loss assessment, auditing and multi-level checking to ensure credibility of data and testing incorporating technology such as remote sensing, drones and online transmission of data.
All PMFBY related data related to farmers must be available in the public domain and shared openly with farmers.
The clause addressing prevented sowing and post-harvest losses must be implemented appropriately by issuing state notifications prior to sowing.
Robust scheme monitoring and grievance redressal mechanism should be in place.

Bhushan said, “In an era of climate change, a universal, subsidised agriculture insurance is crucial to safeguard the lives and livelihoods of farmers. But we need a farmer-friendly, fair and transparent agriculture insurance. An agriculture insurance driven by profit-motives will do more harm than good. Our hope is that the recommendations of this report will help government improve the provisions and implementation of PMFBY and make it a truly effective scheme”.

The CSE report pointed out that Pradhan Mantri Fasal Bima Yojana (PMFBY) keeps Bihar in the same conundrum as previous insurance schemes. The premium rates charged by insurance companies in Bihar have remained higher than that in other states and the all-India average in PMFBY.

Said Bhushan, “This trend, however, is not limited to PMFBY, but has been visible over previous crop loss insurance schemes too. The CSE analysis shows that insurance companies have charged a relatively higher actuarial premium rate in Bihar compared to other states, even though the claims paid in Bihar have been historically low.”

The all-India average actuarial premium rates have been in the range of 9-11.5 per cent under the Modified National Agricultural Insurance Scheme (MNAIS). But in Bihar, the actuarial premium rates charged in MNAIS during kharif 2011 to kharif 2013 had been in the range of 18.5-23.1 per cent.

Key highlights of this trend
In kharif 2016 under PMFBY, the premium rates charged amounted to 17.2 per cent against the all-India average of 12.6 per cent.
Claim payouts, however, amounted to only 20.6 per cent of the gross premium, as compared to the 37.5 per cent all-India average.
In kharif 2013 under MNAIS, the premium rate was 18.5 per cent against an all-India average of 11.2 per cent. For the same period, the claim payouts for Bihar were 80.7 per cent, while the all-India average was 131.7 per cent.
In kharif 2012 (MNAIS), the premium rates for Bihar were as high as 23.1 per cent against the all-India average of 11.5 per cent, while claim payouts were only 24.1 per cent against the all-India average of 110.5 per cent.
For kharif 2011 (MNAIS), the premium rate for Bihar was 22.9 per cent against the all-India average of 9 per cent. Claim payouts, however, were 19.8 per cent for Bihar as against the all-India rate of 78.9 per cent.

“Actuarial premium rates under previous crop insurance schemes in Bihar have been higher despite the fact that claim payouts have been relatively lower than other states, indicating lower risk profile. Similar has been the case during kharif, 2016 under PMFBY. Insurance companies however, have charged a high premium rate of 17 per cent in Bihar compared to the all-India average rate of 12.6 per cent for kharif 2016. This makes the risk profile of Bihar similar to states such as Maharashtra,” added Bhushan.