CROP INSURANCE SCHEME

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1. AN ASSIGNMENT ON “ CROP INSURANCE SCHEME ” COURSE TITLE :- AGRICULTURE FINANCE AND PROJECT MANAGEMENT COURSE NO. :- AG ECON – 509 CREDIT NO. :- 3 (2+1) SUBMITTED TO SUBMITTED BY DR. A.K. GAURAHA OM KUMAR NETAM (ASST.PROF.) M.Sc.(Ag.)PREVIOUS DEPT. OF AGRIL. ECONOMICS DEPT. OF AGRIL. ‘ECONOMICS’

2. HISTORY OF CROP INSURANCE SCHEME IN INDIA The recent history of crop insurance scheme in India is chronicled by Dandekar (1976) and Dandekar (1985). In 1965 , the central government proposed a model crop insurance scheme. In 1971 , expert committee was formed to evaluate the model scheme. In 1972 , an experimental crop insurance scheme was established to promote first time hybrid cotton production in the selected areas of Gujrat . A crop insurance scheme linking institutional credit ( crop loan based on area approach ) was suggested by Prof. Dandekar in 1978 and his scheme called as CCIS (comprehensive crop insurance scheme).

3. On June 23, 1999 the prime minister launched a new crop insurance called Rashtriya Krishi Bima Yojna (RKBY) Under the National Agriculture Insurance Scheme (NAIS). Participation in RKBY was compulsory for farmers growing notified crops and availing crop loans from formal credit institutions. A farmer may also insure his crop beyond the value of threshold yield level up to 150 per cent of average yield of notified area on payment of premium at commercial rates. Under NAIS premium rates are - Crop Premium rates (%) Bajra and oilseed 3.5 Other Kharif Crops 2.5 Wheat 1.5 Other Rabi Crops 2

4. Small and marginal farmers are entitled to a premium discount of 10 per cent. In these case of commercial/horticultural crops, actuarial rater are being charged. NAIS is being implemented by 23 states and two union territories.

5. INTRODUCTION OF CROP INSURANCE SCHEME Crop insurance is a means of protecting farmers against the variations in yield resulting from uncertainty of practically all natural factors beyond their control such as rainfall (drought or excess rainfall), flood, hails, other weather variables (temperature, sunlight, wind), pest infestation, etc. Crop insurance is a financial mechanism to minimize the impact of loss in farm income by factoring in a large number of uncertainties which affect the crop yield. There are two approaches to crop insurance, namely, individual approach where yield loss on individual farms forms the basis for indemnity payment, and homogeneous area approach where a homogeneous crop area is taken as a unit for assessment of yield and payment of indemnity.

6. Evolution of Crop Insurance J S Chakravarthi proposed ‘Drought Insurance’ based on rainfall index in 1920 First ever crop insurance started in 1972 for H-4 cotton based on ‘individual farm’ In 1979 a pilot insurance was introduced based on ‘homogenous area’ based yield index (Pilot Crop Insurance Scheme – PCIS) In 1985 the PCIS was converted into a country-wide ‘yield index’ based crop insurance covering cereals, millets, pulses and oilseeds (Comprehensive Crop Insurance Scheme – CCIS)

7. Scope of CCIS expanded in 1999 as National Agricultural Insurance Scheme – NAIS Pilot Farm Income Insurance Scheme(FIIS) Weather Based Crop Insurance Scheme – WBCIS was introduced from 2007 Modified NAIS as pilot in 50 Districts from Rabi 2010-11 season

8. OBJECTIVES OF CROP INSURANCE To provide insurance coverage and financial support to the farmers in the event of prevented sowing & failure of any of the notified crop as a result of natural calamities, pests & diseases. To encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in Agriculture. To help stabilize farm incomes, particularly in disaster years.

9. Key Features Of Crop Insurance Credit linkage, and mandatory for borrowing farmers Risk covered is based on production cost (safety-net) Credit institutions also finance the premium (in addition to crop loan) Insurance acts as collateral, and lending agencies have the first lien on claim Minimal distribution costs Claims process is automated Yield estimation is done by the provincial government agencies , and based on ‘single series’

10. Weather product uses crop modeling inputs Weather data comes from both public as well as private data providers Extension activities and awareness programs are also organized By the government Private insurance providers are allowed for actuarially priced programs, and enjoy same level of support as AIC Government provides for about 2/3 rd cot of the program

11. Existing Crop Insurance Schemes NAIS : yield based; non-actuarial premium except horticultural crops / annual commercial crops; underwriting of losses by Central & State Govt. on 50:50 ratio WBCIS : weather based ; actuarial premium with premium subsidy shared equally by Central & State Govt. CCIS : Crop based; actuarial premium MNAIS : yield based; actuarial premium with premium subsidy shared equally by Central & State Govt.

12. NATIAONAL AGRICULTURAL INSURANCE SCHEME (NAIS) For improving the scope and content of CCIS a broad based NAIS was introduced from Rabi 1999-2000. NAIS provides for greater coverage of farmers, crops and risk commitment. Premium-structure has been rationalized and the scheme is required to operate at smaller unit area of insurance.

13. Subsidy to Small and Marginal farmers. It is presently being implemented by 25 States & 2 Union Territories In last 22 Crop Season: Farmers Covered : 17.01 crore ( Av. not more than 15% farmers) Premium Collected: Rs. 6213.41 crore Claims Paid : Rs. 20437.21 crore Claim ratio : 3.29 Loss cost : 9.86%

14. State-wise farmers benefited under NAIS (in lakhs )

15. Performance of NAIS during XIth Plan Particulars 2007-08 2008-09 2009-10 2010-11 ( kharif only) Claims (Rs. in Crore ) 1724 3880 4936 Under process Farmers Covered (in lakh ) 184 192 239 114 Farmers Benifited (in lakh ) 32 62 88 Under process

16. Limitations of NAIS Large insurance unit are Delay in payment of claims due to late submission of yield data & availability of Govt. funds Pre-sowing/ planting Risk is not covered Unattractive basis of calculation of threshold yield, Low indemnity level,

17. Localised calamities are not covered Post Harvest Losses are not covered Different seasonality discipline for loanee & non- loanee farmers Lack of competition

18. Main Recommendations of JG Report Actuarial premium regime with suitable subsidy Reduction in insurance unit area to Gram Panchayat Basis of calculation of threshold yield –best 5 of 7 years’ yield Higher indemnity levels of 80% & 90% Coverage of: Pre-sowing & post-harvest losses Perennial crops Personal accident Package insurance policies covering other assets of farmers, including Animal Husbandry Private insurers to be encouraged, Exemption from Income Tax & Service Tax so that an adequate Catastrophic Reserve Fund can be built

19. SI. NO. Actuarial Premiu m (% of SI) Subsidy to farmers (equally shared by central and state Govt.) Premium payable by farmer 1 Upto 2 % NILL Upto 2 % 2 > 2-5 % 40 % subject to minimum net premium of 2 % of SI 2-3 % 3 > 5-10 % 50% subject to minimum net premium of 3% of SI 3-5 % 4 > 10-15 % 60% subject to net premium of 5% of SI 5-6 % 5 > 15 % 17% subject to minimum net premium of 6% of SI = > 6 % Subsidy & Net Premium for Farmers under MNAIS

20. MNAIS- Present Status Implemented in 34 districts covering 22 States during Rabi 2010-11 season The scheme would be on actuarial regime in which insurance company will receive premium on commercial basis and will be responsible for all claims GOI & State Govts . will provide premium subsidy upto a max. of 75% at different slabs of actuarial premium to make the scheme affordable for farmers The coverage in Pilot MNAIS is expected to 25% of total farmers of 50 districts.

21. Area Yield Index and Weather Index: Advantage and Challenges Area Index Weather Based Index All peril covers (drought, excess rainfall, flood, pest, & disease) resulted yield Single or sometimes multiple perils cover rainfall-(excess & deficit), temperature, relative humidity. Easy design Technical challenges in index design (peril,crop, farming practices, agro-meteorological zone etc.) Lower start-up costs High start-up cost High loss assessment cost Lower loss assessment cost Slow claims sttelment

22. ADVANTAGE OF CROP INSURANCE It stabilizes the farm business during the period of crop failure, The farmer can act much more confidently in farm business as there is protection against hazards of farming, The necessary payment of premium inculcates a habit of thrift among the farmers, It prevents the farmers to approach non-institutional agencies during the periods of crop failure, It enhances the use of modern inputs to boost the productivity in agriculture, In high-risk areas crop insurance serves as a catalyst I bringing areas under cultivation which otherwise remained un cultivation.

23. SUGGESTIONS OF IMPROVING CROP INSURANCE SCHEME All crops and all farmers should be brought under the purview of the scheme, The premium rates should vary with the nature and index of crop production in different areas, The defined unit area for paying indemnity should be a village or group of village as against block , as is being considering at present, Threshold yield should be worked out by considering indices of crop production over a 10-year priod as against five-year period, etc.

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