All you wanted to know about Pradhan Mantri Fasal Bima Yojana

Rural distress is cited as a big factor that slowed the BJP juggernaut in the Gujarat polls. And one reason for the rising farm distress is crop failures and yield losses triggered by the vagaries of climate. The Pradhan Mantri Fasal Bima Yojana is aimed at shielding farmers from these ups and downs through insurance.

The PMFBY, launched in April 2016, compensates farmers for any losses in crop yield. In the event of a crop loss, the farmer will be paid based on the difference between the threshold yield and actual yield. The threshold yield is calculated based on average yield for the last seven years and the extent of compensation is set according to the degree of risk for the notified crop. The scheme is compulsory for farmers who have availed of institutional loans.

The scheme insures farmers against a wide range of external risks — droughts, dry spells, floods, inundation, pests and diseases, landslides, natural fire and lightning, hailstorms, cyclones, typhoons, tempests, hurricanes and tornadoes. The scheme also covers post-harvest losses up to a period of 14 days.

While the idea of insuring farmers against crop losses isn’t new, the PMFBY is an attempt to plug the holes in the older crop insurance schemes — the National Agriculture Insurance scheme (NAIS) introduced in 1999 and the Modified NAIS (mNAIS) introduced in 2011.

These older schemes didn’t find too many takers among farmers, the main dampener being their limited risk coverage. In mNAIS, the premium was capped at 8 to 12 per cent of the sum insured to limit the government’s subsidy outgo. Thus, for crops where actuarial rates were higher (that is, the premiums were steeper), insurance companies proportionally reduced the sum insured. Many a time, the ‘compensation’ fell way short of even the farmer’s cost of production.

The Fasal Bima Yojana has done away with this cap on premium. The sum insured per hectare for a farmer is now decided by the District Level Technical Committee and is pre-declared and notified by the State Level Coordination Committee on Crop Insurance. The farmer also pays less — the premium he shells out is 2 per cent of the sum insured for all kharif crops and 1.5 per cent of it for all rabi crops. For horticulture and commercial crops, the premium is 5 per cent of sum covered. The remaining premium is paid by the government.

To secure India’s food security, it is essential that farmers earn reasonable rewards for the humongous risks they take on in agriculture. Agriculture directly contributes a 15 per cent slice of India’s GDP and indirectly makes up nearly half of its workforce. In the event of a monsoon failure or an extreme weather, the farmers’ losses inevitably boomerang on the economy and consumer confidence.

If you’re an investor, the prospects of the economy, companies that make agri-inputs such as fertilisers, farm equipment and agrochemicals and the entire consumption pack, hinge on how agriculture fares. If it works as it should, the crop insurance scheme can go a long way in ensuring more consistent income to farmers.

But there are problem areas to the scheme that farmers are dissatisfied with. Not all key crops are included in the list of notified crops eligible for insurance. Premium setting has been a contentious issue. Will the Centre address these in the upcoming Budget?.

The seeds have been sown. Whether farmers reap benefits remains to be seen.

A weekly column that puts the fun into learning