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New Crop Insurance Scheme: Will It Be A Game Changer For Farmers?

The Pradhan Mantri Fasal Bima Yojna aims to provide not only insurance coverage to farmers against natural calamities and pests, but also encourages them to adopt innovative modern agricultural practices

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The country has suffered from droughts consecutively for the past two years. In such circumstances, the farmers have been struggling to retain their income and in several places, they have also committed suicide. The Pradhan Mantri Fasal Bima Yojna, introduced in 14th January 2016, aims to provide not only insurance coverage to farmers against natural calamities and pests, but also encourages them to adopt innovative modern agricultural practices. In addition, the major objectives include stability in income for farmers and smooth flow of credit in the agricultural sector.

What are the premium rates under PMFBY? How do they differ from NAIS and MNAIS?


The PMFBY replaces two of the existing schemes National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS). Under the new scheme, the farmers have been approved to pay a premium between 1.5 to 2 per cent for food grains and oil seeds crops, and upto 5 per cent for horticultural and cotton crops.

In case of rabi food grains and oilseeds, the premium would be 1.5 per cent and for kharif food grains and oilseeds, the same would be 2 per cent. In case of horticultural and cotton crops, the premium would be upto 5 per cent in both seasons.

This is a reduction from the percentage of premiums under NAIS and MNAIS. Under the former schemes, the premium rates were 3.5% per cent (of sum insured) for bajra and oilseeds, 2.5% for other Kharif crops; 1.5% for wheat and 2% for other Rabi crops. In the case of commercial/horticultural crops, actuarial rates were being charged.

What are the other differences between the two schemes?

Earlier, there was a provision of capping the premium rate, which resulted in low claims being paid to farmers. This capping was done to limit Government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction.

Who is responsible for the implementation of the scheme?

The scheme is to be implemented through a multi-agency framework, where not only the Agricultural Insurance Company will be responsible but other private insurance companies like ICICI-Lombard General Insurance Company Ltd and HDFC-ERGO General Insurance Company Ltd have also been identified to implement the scheme. They will work under the guidance of not only the Department of Agriculture but also Cooperation & Farmers Welfare (DAC&FW), Ministry of Agriculture & Farmers Welfare (MoA&FW), Government of India (GOI) and the concerned State in co-ordination with various other agencies; viz Financial Institutions like Banks, their regulatory bodies, Government Departments viz. Agriculture, Co-operation, Horticulture, Statistics, Revenue, Information/Science & Technology, Panchayati Raj etc.

What is the unit of insurance to be used?

Unlike NAIS, which used both the 'Area Approach' and 'Individual Approach' as unit of Insurance, PMFBY is going to use only the Area Approach. Under this approach, the unit of insurance is defined area for each notified crop where it is assumed that the insured farmers incur similar costs and face similar risks.

What is the risk to be borne by the Implementing Agency?


The insurance companies are liable to bear the catastrophic losses which has been given an upper limit of 350% of total premium collected (farmer share plus Govt. subsidy) or 35% of total Sum Insured (SI) (all the Insurance Companies combined) whichever is higher. The losses at the National level in a crop season beyond this ceiling shall be met by equal contribution (i.e. on 50:50 basis) from the Central Government and the concerned State Governments.

According to the government, the scheme is expected to increase the insurance cover from 26-27 per cent of total crop area to about 50 per cent i.e. 19.40 million hectare. The expenditure is expected to be about Rs 9,500 crore.

The scheme concentrates on increasing the use of digital technology to improve yield-data and timeliness. For that, it outlines how pictures clicked at various stages of growth can be uploaded on a real-time basis using mobile technology to increase the reliability of such data.

What are the pros of the scheme?

The scheme is being seen as a step in the right direction. With the persisting climate change and consecutive droughts it has become very important that the farmers can fall back on the government. The previous schemes, NAIS and MNAIS, had failed to address the issues of high premium, linkage to crop loans and cap on claims. Due to the abysmal coverage they provided, most farmers were hesitant to subscribe to them. With the above mentioned provisions, PMFBY seeks to address most of these issues. Not to mention, how much of an encouragement it would provide the farmers to incorporate technology in agriculture.

What could be the disadvantages?

The scheme does not come without loopholes. One of the major concerns has been the ambiguity over unit of insurance, whether the notified area is village or block. Also, who is covered under the scheme is also not clear.

With the increasing harmful effects of man-made and industrial activities, the scheme falls short of protecting the farmers from them. The insurance covers only weather risks without taking into account other risks, which a farmer naturally has to take when crops fail.

What seems to be another issue is the claim that the scheme would increase the coverage area to 50 per cent. When one looks at the meager allocation of budget to agriculture by State Governments, it adds to the concern if the states would be able to hold their end of the deal to share 50 per cent of claims when the ceiling exceeds.

In the end, looking at the Pradhan Mantri Bima Yojna, a conclusion that can be drawn is that the new insurance scheme does address a lot of problems. However, in an age, where the man-made activities are also harmful, it fails to address many contemporary issues. To add to this is the concern over implementation of the scheme. In theory, the numbers seem glorious but given past records, the success is doubtful. Hopefully, this scheme touted as one of the flagships of the NDA government will see a fate same as the Pradhan Mantri Jan Dhan Yojna. The government will have to realize that farmers are the most important assets of the country and continues steps have to be taken for their betterment.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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insurance agriculture Crop insurance

Naval Goel

Naval Goel is Founder & CEO, PolicyX.com

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