Full attendance: President Ram Nath Kovind, Prime Minister Narendra Modi, Vice-President Venkaiah Naidu, Lok Sabha Speaker Om Birla and others on their way to the central hall of Parliament for the joint sitting. | Photo Credit: Sandeep Saxena
Addressing the joint sitting of both Houses of Parliament, the President said that a committee of Chief Ministers was being set up to look into structural reforms in the field of agriculture.
The Centre plans to invest ₹25 lakh crore in the farm sector in the coming years to boost agricultural productivity, President Ram Nath Kovind said on Thursday.
Addressing the joint sitting of both Houses of Parliament, the President said that a committee of Chief Ministers was being set up to look into structural reforms in the field of agriculture. With regards to drought-hit areas, Mr. Kovind said the government was aware of the crisis and was assisting farmers and tackling drinking water shortages with the support of State governments and village sarpanchs.ALSO READPresident Ram Nath Kovind terms simultaneous polls ‘development oriented’
Listing the BJP-led government’s decisions in its first 21 days, the President began by highlighting the expansion of the Pradhan Mantri Kisan Samman Nidhi, an income support scheme, to all landowning farm families. Earlier, the scheme was only open to small and marginal farm families owning less than two hectares of land. The expansion of the scheme in keeping with a BJP poll promise would increase its annual budget to ₹90,000 crore (from the previous ₹72,000 crore estimate), said Mr. Kovind, adding that ₹12,000 crore had already been disbursed in the past three months.
Other initiatives include the contributory pension scheme for farmers above the age of 60, a ₹13,000-crore scheme to fund treatment of common diseases in cattle, the Grameen Bhandaran Yojana to provide village-level storage facilities for farm produce and the plan to create 10,000 new farmer producer organisations. A new department for fisheries development is expected to usher in a new blue revolution, the President said.
With regard to higher education, the President said the government was “striving to increase the number of seats in the country’s Higher Education System by one-and-a-half times by 2024.” This would create two crore additional seats, he said.
Odisha government has allocated an additional Rs 3,234 crore for covering more farmers under the Kalia scheme during 2019-20, officials said on Friday.
Under the Krushak Assistance for Livelihood and Income Augmentation (Kalia) scheme, farmers get Rs 5,000 financial assistance per crop. A farm household is entitled to get Rs 10,000 per year for two crops (Kharif and Rabi), they said.
According to a notification issued by the Agriculture and Farmers Empowerment department, in accordance with the state Cabinet’s decision on May 29 to include 32.34 lakh additional beneficiaries under the scheme, more funds is being made available to ensure that all eligible beneficiaries get benefit.
“It has been now been decided that a further additional 32.34 lakh small farmers/marginal farmers/actual cultivators (share croppers)/ landless agricultural households be included in the Kalia scheme during 2019-20, apart from the farm families already assisted in 2018-19, so that no one who is eligible will be left out,” the notification said.
Out of a total of 75 lakh farm families to be included in the Kalia scheme, 50 lakh will be small and marginal farmers and sharecroppers while the remaining 25 lakh will be landless agricultural households.
This can be modified between the categories by the state government subject to the overall target under these two components of 75 lakh farm families, it said adding that the funds required for 2019-20 is estimated to be Rs 3,234 crore excluding the administrative cost, for 32.34 lakh farmers/landless agricultural households.
Earlier, the state government has made provision of Rs 10,000 crore for implementation of the Kalia scheme. Now after inclusion of more farmers, the total funds requirement for the scheme would be around Rs 13,234 crore for the 2019-20 fiscal.
BENGALURU: In a major relief to the state government — which has spent most of its first year warding off daily political dangers — the number of farmer suicides in Karnataka has dipped by 45% for year ending March 31, even as one farmer killed himself every 12 hours on average. In 2018-19, 572 farmer suicides have been accepted as those relating to agriculture, while another 128 are under review. In 2017-18, there were 1,050 accepted cases, which is 45.5% more than the 572. Now, if the 128 cases too are considered as farmer suicides taking the total number to 700, the decline would still be 33%.
Initially, all the reports of farmer suicides as claimed by families are counted. Then a committee examines whether they are farm-related or not. Only those deaths caused by agricultural issues are finally accepted. “The decline shows farmers are gaining confidence… although we have several initiatives, I can’t claim sole credit; I’d be happy if there was no suicide. Government has taken farmers into confidence while forming programmes,” chief minister HD Kumaraswamy told TOI. Promise and hope Farmer leaders, however, say while there has been some revival of hope, there is a lot that’s desired on ground. “The waiver is yet to reach everybody, and there’s nothing done about the sugarcane issue. But there’s some hope after the CM himself took on the banks, we hope he fulfils the promises,” said KS Sudheer Kumar, Mandya district president, Karnataka Rajya Raitha Sangha. Claiming the government sincerely tried to boost farmers’ morale, Kumaraswamy said the crop loan waiver — 15.5 lakh farmers have benefited so far — was only one such initiative. Prof MG Chandrakanth, director, Institute for Social and Economic Change (Isec), said: “There are two issues: One, the government must have long-term strategies that include marketplace intervention. There must be a direct link between buyers and sellers. Two, farmers must not over-depend on field crops and must embrace integrated farming and even look at millets that are changing the game.” Cauvery belt most hit Overall, 3,737 farmers committed suicide in Karnataka in four years between 2015-16 and 2018-19, which means more than two farmers killed themselves every day. A region-wise analysis of these deaths shows the five districts in the Cauvery belt — Mandya, Mysuru, Hassan, Chamarajanagar and Ramanagara — are the worst affected collectively. While they make up only 16% of the districts in the state, they account for 24% of the suicides.TOP COMMENTUNDOUBTEDLY, THE CREDIT MUST GO TO THE BRILLIANT CHIEF MINISTER OF KARNATAKA, WITHOUT ANY CORRUPTION ISSUES HE IS HANDLING THE ADMINISTRATION OF STATE SO EFFECTIVELY, HATS OFF KUMARASWAMY… GREAT AND BRILLIANT…William IndiaSEE ALL COMMENTSADD COMMENT Comparatively, six districts in the Mumbai-Karnataka region — Belagavi, Vijayapura, Bagalkot, Haveri, Dharwad and Gadag — account for 28% of the suicides, while six other districts in Hyderabad-Karnataka —Bidar, Kalaburagi, Raichur, Ballari, Koppal and Yadgir — account for 23% of the suicides. “We’re trying to bring in significant changes in farming methods and make agriculture profitable. We’ve allocated more than Rs 46,000 crore for agriculture and allied activities and irrigation, energy subsidy and marketing support. We’ve also announced programmes that support farmers at every stage — sowing to marketing his produces,” said Kumaraswamy.
Agriculture remains the primary sector of the Indian economy. While it accounts for merely 16 percent of the country’s GDP, approximately 43.9 percent of the population depends on it for their livelihood. In recent years, indebtedness, crop failures, non-remunerative prices and poor returns have led to agrarian distress in many parts of the country. The government has come up with various mechanisms to address these issues: insurance, direct transfers and loan waivers, among them. However, these mechanisms are ad hoc, poorly implemented and hobbled by political dissension. In February 2016 the government launched the crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY) to reverse the risk-averse nature of farmers. While the PMFBY has improved upon its predecessors, it faces structural, logistical and financial obstacles. This paper makes an assessment of the performance of the PMFBY in terms of adaptability and the achievement of the objective of “one nation, one scheme.”
Attribution: Ruchbah Rai, “Pradhan Mantri Fasal Bima Yojana: An Assessment of India’s Crop Insurance Scheme”, ORF Issue Brief No. 296, May 2019, Observer Research Foundation.
Introduction
India’s agricultural sector, which contributed 16 percent[1] of the country’s GDP in 2017, supports the livelihoods of 43.9 percent of the population.[2] Employment in this sector has decreased by 10 percentage points within a decade, from 53.1 percent in 2008 to 43.9 percent in 2018.[3] The sector is facing manifold problems such as crop failures, non-remunerative prices for crops, and poor returns on yield. Agrarian distress is so severe, that it is pushing many farmers to despair; about 39 percent of the cases of farmer suicides in 2015 were attributed to bankruptcy and indebtedness.[4]
While the Government of India (GoI) has made various efforts to address farmers’ grievances, the policies are insufficient, weighed down by their being merely ad hoc and subject to political wrangling. There is an imperative for a financial safety net that does not consist only of direct transfers and loan waivers—short-term solutions that often prove to be counterproductive—but a framework that is timely, consistent and improves agricultural productivity and, in turn, farmers’ quality of life.
Farmers are vulnerable to agricultural risks and thus need an insurance system. While India has had one since 1972, the system is rife with problems, such as lack of transparency, high premiums, and non-payment or delayed payment of claims. India’s first crop insurance scheme was based on the “individual farm approach,” which was later dissolved for being unsustainable. The next insurance scheme was then based on the “homogeneous area approach.” In 1985, the Comprehensive Crop Insurance Scheme was implemented for 15 years; improvements were made based on the area approach linked with short-term crop credit. Its successor, the National Agricultural Insurance Scheme, was implemented to increase the coverage of farmers, both those with existing loans and those without. However, despite the modifications, the scheme failed to cover all farmers, and in Kharif season 2016, the GoI formulated the Pradhan Mantri Fasal Bima Yojana (PMFBY) to weed out the issues in the previous crop insurance schemes.
The PMFBY is a crop insurance scheme that improved upon its predecessors to provide national insurance and financial support to farmers in the event of crop failure: to stabilise income, ensure the flow of credit and encourage farmers to innovate and use modern agricultural practices. However, a close assessment of the scheme and its implementation shows that the PMFBY is afflicted by the same problems as the previous schemes. This brief attempts to assess the performance of the PMFBY. It offers recommendations to make the PMFBY a sustainable mechanism that will protect farmer incomes and reverse their risk-averse nature.
The Rationale for Crop Insurance
Indian agriculture has been progressively acquiring a ‘small farm’ character. The total number of operational holdings in the country increased from 138 million in 2010–11 to 146 million in 2015–16, i.e. an increase of 5.33 percent.[5] Small and marginal farmers with less than two hectares of land account for 86.2 percent of all farmers in India but own only 47.3 percent of the crop area.[6] Semi-medium and medium landholding farmers who own two to 10 hectares of land, account for 13.2 percent but own 43.6 percent of the crop area, which supports the claim that the average landholding size has declined from 1.15 hectares in 2010–11 to 1.08 hectares in 2015–16.[7] To be sure, a small landholding is not automatically a deterrent to productive farming. In China, for example, despite a small average land size of 0.6 hectare, farmers have achieved higher productivity due to efficient practices involving mechanisation and R&D, in turn leading to increased surpluses.[8] In India, such small average holdings do not allow for surpluses that can financially sustain families. India’s primary failure has been its inability to capitalise on technology and efficient agricultural practices, which can ensure surpluses despite small landholdings.
India’s farmers need insurance for another reason: the commercialisation of agriculture leads to an increase in credit needs, but most small and marginal farmers cannot avail credit from formal institutions due to the massive defaulting caused by repeated crop failure. Moneylenders, too, are apprehensive of loaning money, given the poor financial situation of most farmers.[9] According to the All India Debt and Investment Survey (AIDIS) 2013–14,[10] indebtedness is more widespread amongst cultivator households than their non-cultivator counterparts. In 2014, 46 percent of the cultivator households were indebted, with an average amount of INR 70,580 in debt.[11] Institutional agencies (commercial banks, regional rural banks or insurance companies) held 64 percent of agricultural debt in 2013, while non-institutional agencies (moneylenders, family or friends) held the remaining 36 percent.[12] Professional moneylenders held the maximum share of agricultural debt (29.6 percent),[13] indicating that rural households still depend on them for easy credit. The AIDIS[14] 2013-14, also stated that non-institutional agencies advanced credit to 19 percent of the rural households and institutional agencies to 17 percent. This creates indebtedness amongst the farmers, leaving them disadvantaged to avail credit for further production. Farmers prefer informal loans as they are easier to obtain; however, they come with exorbitant interest rates. The lack of sufficient access to institutional capital for non-farm expenditure further drives farmers to meet these expenditures using credit from non-institutional sources. Additionally, those who lease land face more risk than those who own land, because certain regulations categorise farmers who have land on lease as “landless.” Not owning land thus makes it difficult for farmers to get loans from banks, making informal credit institutions more lucrative.
A third reason is related to climate change: higher incidence of extreme weather events aggravates agrarian distress. Floods and droughts leave farmers in a period of flux. A lack of preparedness makes them vulnerable to harvest losses, especially given the money already paid for capital, e.g. seeds and fertilisers. This results in fluctuating incomes and unstable livelihoods. Around 52 percent of India’s total land under agriculture is still unirrigated, posing problems for farmers investing in production and cultivation.[15] According to the Economic Survey 2017–18,[16] extreme temperature shocks result in a four-percent decline in agricultural yields during the Kharif season and a 4.7-percent decline during the Rabi season. Similarly, extreme rainfall shocks—when the rain is below average—lead to a 12.8-percent decline in Kharif yields and a smaller but not insignificant decline of 6.7 percent in Rabi yields. The agricultural productivity patterns as a result of climate change can reduce annual agricultural incomes between 15 percent and 18 percent on average, and between 20 percent and 25 percent for unirrigated areas.[17]
The three factors discussed above, along with lackadaisical implementation of agricultural policies, render farmers highly vulnerable. Crop insurance schemes were formulated to tackle such issues that hinder the productivity of the agricultural sector and to reduce their negative financial impact on farmers. Such schemes attempt to not only stabilise farm income but also create investment, which can help initiate production after a bad agricultural year. The GoI has been updating its crop insurance schemes to keep up with the changing times. The most recent one was launched in 2016, a scheme that rectifies past errors and ensures increased farmer participation, which in turn promises increased agricultural productivity and a bigger share for agriculture in GDP.
Pradhan Mantri Fasal Bima Yojana (PMFBY): An Overview
The PMFBY has made several improvements compared to its predecessors, the National Agricultural Insurance Scheme and the Modified National Agricultural Insurance Scheme. One of the highlights of the PMFBY is the absence of any upper limit on government subsidy, even if the balance premium is 90 percent. The scheme was implemented in February 2016 and was allocated an initial central-government budget of INR 5,500 crore for 2016–17.[18] It has increased by 154 percent, as announced in the Interim Budget of 2019.[19] This massive increase in the outlay for the scheme shows that it is important for the government to insure all farmers and guarantee financial support and flow of credit to them in the event of crop-yield loss.
Coverage of Farmers: The scheme covers loanee farmers (those who have taken a loan), non-loanee farmers (on a voluntary basis), tenant farmers, and sharecroppers.
Coverage of Crops: Every state has notified crops (major crops) for the Rabi and Kharif seasons. The premium rates differ across seasons.
Premium Rates: The PMFBY fixes a uniform premium of two percent of the sum insured, to be paid by farmers for all Kharif crops, 1.5 percent of the sum insured for all Rabi crops, and five percent of sum insured for annual commercial and horticultural crops or actuarial rate, whichever is less, with no limit on government premium subsidy.
Area-based Insurance Unit: The PMFBY operates on an area approach. Thus, all farmers in a particular area must pay the same premium and have the same claim payments. The area approach reduces the risk of moral hazard and adverse selection.
Coverage of Risks: It aims to prevent sowing/planting risks, loss to standing crop, post-harvest losses and localised calamities. The sum insured is equal to the cost of cultivation per hectare, multiplied by the area of the notified crop proposed by the farmer for insurance.
Innovative Technology Use: It recommends the use of technology in agriculture. For example, using drones to reduce the use of crop cutting experiments (CCEs), which are traditionally used to estimate crop loss; and using mobile phones to reduce delays in claim settlements by uploading crop-cutting data on apps/online.
Cluster Approach for Insurance Companies: It encourages L1 bidding amongst insurance companies before being allocated to a district to ensure fair competition. A functional insurance office will be established at the local level for grievance redressal, in addition to a crop insurance portal for all online administration processes.
The PMFBY was implemented to ensure transparency, availability of real-time data and an accurate assessment of yield loss.
The state-run Agriculture Insurance Company of India (AIC), which has been allocated the largest number of districts under the scheme, handles insurances in other districts and states. The others are the United India Insurance, New India Assurance and Oriental Insurance, and private general insurers such as HDFC ERGO, ICICI Lombard, Reliance GI and Iffco-Tokio.
Table 1: Comparison of crop insurance schemes in India
Feature
NAIS (1999)
MNAIS (2010)
PMFBY (2016)
Premium rate
Low
High (9–15%)
Low (Govt. to contribute five times that of farmer)
One season-one premium
Yes
No
Yes
Insurance amount covered
Full
Capped
Full
On account payment
No
Yes
Yes
Localised risk coverage
No
Hailstorm, landslide
Hailstorm, landslide, inundation
Post-harvest losses coverage
No
Coastal areas
All India
Prevented sowing coverage
No
Yes
Yes
Use of technology
No
Intended
Mandatory
Awareness
No
No
Yes (target to double coverage to 50%)
Insurance companies
Only government
Govt and private companies
Govt and private companies
Source: PIB, Ministry of Agriculture and Farmers Welfare, January 2016.
The models prior to PMFBY were claim-based insurance schemes. The NAIS was backed by a government-funded insurance company called “Agriculture Insurance Company,” which collected premiums from farmers without any subsidy and then used that money to pay the claims at the end of the season. On the other hand, the PMFBY allows a subsidy in the premium-based system, which is implemented through a multiagency framework of select private insurance companies, the ministries of agriculture, GoI and state governments in coordination with commercial banks, cooperatives, regional rural banks and regulatory bodies, e.g. the Panchayati Raj.[21] Thus, the premium is subsidised by the centre and state governments to reduce the burden on farmers.
The PMFBY was created to target 50 percent of all farmers, with the promise of compensation in case of crop loss. The previous schemes saw low enrolment rates due to a lack of trust. Moreover, under those schemes, the dissemination of agricultural insurance was low and stagnant in terms of the area insured and the farmers covered in the previous schemes due to high premiums, the lack of land records, low awareness and the absence of coverage for localised crop damage.
Since its implementation, the PMFBY has achieved 41-percent coverage of farmers—this may be considered impressive, particularly when compared to the 28-percent coverage of farmers achieved under the three previous schemes combined (WBCIS + NAIS + MNAIS).[22] During its first year, 58 million farmers were enrolled in the PMFBY, a quantum jump from the 30 million insured in the previous year under the MNAIS. However, there has been a fall in the number of total farmer applicants from 58 million in 2016–17 to 47 million in 2017–18.[23]
One could argue that the previous schemes were based on a better model, wherein the government created a fund that would collect premiums and then use it to pay off the remaining overhead claim settlements. However, this trust model was not resilient. Competition is necessary to bring down premium rates, and the government must step back after it has corrected the market failures. The private sector is required to pool in larger amounts of money, and with the help of the government, they can reach the masses through agricultural subsidies. Under the PMFBY scheme, the government can correct market failures before pulling back. In India, a private-public partnership works best in the agricultural sector, since the government is crucial in data collection and financial premium support in the form of subsidies, while the private sector enables the availability and mobility of credit.
Table 2 shows the percentage change of certain indicators to ascertain and compare the impact of the PMFBY on Kharif 2016 and Kharif 2017. Due to a lack of data on Rabi 2017–18 on the PMFBY website, the table does not show the percentage change during this season. However, there has been a significant increase in the number of claims paid and farmers benefitted: 64 percent and 29 percent, respectively.
While the positive effects are significant, it is important to also discuss the negative changes. As Table 2 shows, the number of insured farmers has declined by 14 percent from Kharif 2016 to Kharif 2017, and the total area insured has decreased by one percent over the span of one year. The PMFBY has therefore failed to achieve its main targets, i.e. increasing the area and the number of farmers insured.
Table 2: Percentage change in indicators for Kharif season under PMFBY
Kharif 2016
Kharif 2017
Percentage Change
Farmers insured
40,258,737
34,776,055
–0.14
Claims paid (crore)
10,496.3
17,209.9
0.64
Gross premium (crore)
16,317.8
19,767.6
0.21
Area insured (ha)
37,682,608
34,053,449
–0.10
Farmers benefitted
10,725,511
13,793,975
0.29
Source: Author’s compilation using data from the PMFBY Website.
This failure is a result of some fundamental issues in the scheme, which must be discussed to create a more holistic crop-insurance scheme that mitigates risks for both farmers and food security.
An Assessment of PMFBY Performance
While the PMFBY aims to be a transformative scheme, its implementation has been poor, with various issues in its execution at the state/district level.
Structural Issues
Since states choose to voluntarily implement the PMFBY, it is their responsibility to notify crops. However, it is unclear how states should choose the major crops during a season for different districts, which results in the exclusion from insurance coverage of farmers who grow non-notified crops. Further, state governments use their discretionary powers to decide how much land will be insured and the sum insured, to reduce their burden of subsidy premiums. Thus, farmers often find it pointless to buy the insurance if the sum insured is less than their cost of cultivation. During Kharif 2016, Rajasthan decided to minimise the landholding insured to save themselves INR 60 lakh.[24]
An article in Down to Earth[25] noted that in a village in Sonipat, farmers were coerced to pay the premium amount with a condition that they would have to pay seven percent interest subsidy on a loan. This is unfair if the farmers have not received their claims, and it prevents small farmers from taking new loans. Vulnerable farmers under debt and in need of new loans are unable to avail this insurance unless all dues are paid, putting them in a vicious cycle of debt.
Farmers are apprehensive about the scheme because of a trust deficit, which is a result of the mandatory credit-linked insurance. The premium is deducted from a farmer who has taken a loan from any banking institution without their consent and, sometimes, even without their knowledge. Loanee farmers do not have the choice to opt out of this scheme and find it unfair to pay the premium each season without being compensated for the losses in the previous year. Further, the insured farmers do not receive any policy documents or receipts of premium charges from the banks or insurance companies. Thus, there has been a 20-percent drop in loanee farmers in 2017 as compared to the first year (see Table 3). Few farmers now take loans or credit, harming future yield production.
Sometimes, a farmer is insured for the wrong crop[26] or the bank may be late in paying premiums to the insurance companies, leaving the farmer in a lurch and unable to claim payments. In Rajasthan, when the SBI did not pay the premium on time, farmers had to cultivate the next season without receiving their claim payments.[27]
Non-loanee farmer participation has been low because they might not own the required provision documents such as an Aadhaar card. While the overall non-loanee farmer enrolment rate has fallen by five percent in 2017, there has been a 3.6-times increase in the number of non-loanee farmers than loanee farmers in Maharashtra. This is because Maharashtra changed the rules of mandatory credit-linked insurance, giving one the choice to opt out of the PMFBY.[28]
Leasing agricultural land is prohibited in Kerala and J&K, while states such as Bihar, MP, UP and Telangana have conditions on who can lease out land, which prevents many tenant farmers from buying insurance. In Haryana and Maharashtra, tenants acquire the right to purchase land after a period of time,[29] but without land-lease certificates, sharecroppers and tenant farmers cannot be part of the scheme.
Being only a yield-protection insurance, this scheme is not holistic and fails to take into account revenue protection. Without revenue protection, farmers do not benefit from the insurance scheme since, irrespective of the harvest at the end of the season, a negative Wholesale Price Index (WPI) for primary food articles leaves farmers under-compensated. According to data from the Ministry of Commerce and Industry, the WPI for primary food articles has seen several fluctuations, with a 2.1-percent increase (144.7) in July 2018 to a 1.4-percent decline in December 2018 (144.0) to a further decline of 0.2 percent (143.8) in February 2019.[30] Lower wholesale prices of food articles render farmers unable to breakeven their investment for crop production, leaving them with little income security for the next season. For instance, even if a farmer were to reach the targeted harvest, low wholesale prices will prevent the compensation of their production costs. What is missing is a revenue-protection insurance to protect farmers from a “yield and price” risk.
Concerns regarding the ability of the state to conduct reliable CCEs must be addressed by involving village and district-level institutions and/or farmers in different stages of PMFBY implementation. There is a lack of trained professionals to handle the CCEs, and the current technology is not reliable. This has led to delays in assessment and settlement of claims, further eroding trust in the scheme.
Insurers still face problems in reaching farmers to convey to them the benefits of insurance, due to the lack of rural infrastructure. According to the Comptroller and Auditor General of India[31] in 2017, out of 5,993 farmers surveyed, only “37% were aware of the schemes and knew the rates of premium, risk covered, claims, loss suffered, etc., and the remaining 63 percent farmers had no knowledge of insurance schemes highlighting the fact that publicity of the schemes was not adequate or effective.” Without proper information regarding credit, insurance, premium deduction, yield-loss assessment and non-payment of claims, farmers are treated as outsiders in a scheme that is meant for their welfare.
The PMFBY guidelines contain provisions on bidding/notification of the PMFBY by states for three years, to allow the concerned insurance companies to create infrastructure and manpower in the clusters allocated to them. Thus, every cluster or IU has a specific insurance company selling insurances, with no provision for competitive pricing that could benefit farmers. The lack of competition also serves as a disincentive for insurance companies to improve or upgrade their products and pricing, and creates a monopoly over a scheme that requires competitive pricing.
Table 3: State-wise number of farmers insured under PMFBY
Financial Issues
Many state governments have failed to pay the subsidy premiums on time, as paying these premiums eat into their budgets for the sector. This leads to insurance companies delaying or not making claim payments. In 2016, the Bihar government had to pay INR 600 crore as premium subsidy, which was one-fourth its agricultural budget of INR 2,718 crore in 2016.[32] Since this would reduce the state government’s available fund, it chose instead to dole out direct transfers and loan waivers as cheaper alternatives to win vote banks.
In 2016–17, private insurance companies paid a compensation of INR 17,902.47 crore, and the difference between the premiums received and compensation paid was INR 6,459.64 crore.[33] In 2017–18, they paid over INR 2,000 crore less in compensation. Thus, the outgo in compensation during 2017–18 stood at just INR 15,710.25 crore. Evidently, insurance companies are piggy-backing on the banking system, as the difference increases despite a fall in the number of farmers insured. Insurance companies continue to profit, despite a decline in the number of farmers being benefitted. Moreover, approximately 80–85 percent of the premium is paid by the government, which puts a huge burden on the exchequer, leading to delays in paying premiums and, in turn, delays in the claims-benefit process. Simply increasing the funds allocated to the scheme will not help the government achieve higher enrolments and lower premiums. What is needed is a robust system of trust and investment to provide credit and insurance. Table 4 shows that the difference between gross premium and compensation paid in the Kharif season has reduced, indicating a discrepancy in the data on the disbursement of claims and the profits made by private insurance companies.
Farmers Producers Organizations (FPOs) are a legalized form of farmer-owned institutions, which consists of farmer members with common interests and concerns. It is an entity formed by primary producers, like farmers, milk producers, fishermen, weavers, rural artisans, craftsmen, etc. It can be established in the form of Producer Company, a Cooperative Society or any other legal form which provides systems for sharing of profits/benefits among the members.
These institutions are registered under company’s act and are governed by a set of bye-laws and rules. The structure of these FPCs starts with mobilizing farmers into groups of between 15-20 members at the village level (called Farmer Interest Groups or FIGs) and building up their associations as Farmer Producer Organizations (FPOs), where members can go up to 1,000 in some cases. FPOs are groups of rural producers coming together on the principle of membership, to pursue specific common interests to harness technical and economic benefit.
FPOs were evolved as new generation producer-led organization, to help them receive benefits of aggregation and economies of scale. Organized systems and institutions are required to help small producers aggregate their demand and supply and receive competitive prices for their input materials and commodities produced, to increase their benefits. The commodity value chain has various enablers ad supporters, all these share profit margins and finally reduces the overall profits of the producer itself. These intermediaries are inseparable part of value chain, who work very often in a non-transparent way to receive their own benefits. All this is possible due to absence of systems and institutions.
The main objective of an FPO is to ensure better income for the producers through an organized system of their own. Small producers do not have the large marketable surplus individually (both inputs and produce) to get the benefit of economies of scale. These farmer members own agricultural land in the range of 0.5 to 1 hectare, hence have little to no bargaining power for their input and output supplies.
Less than 4% of these farmers possess Kisan Credit Card. According to the latest published reports by NABARD, the number of FPOs in India are little more than 5,000. This number is quite large if seen as farmer-owned institutions and in terms of outreach of any vulnerable section of the rural population. Of these around 3200 FPOs are registered as Producer Companies and the remaining as Cooperatives/Societies etc. Majority of the PCs are very new and have a shareholder membership base in the range of 100 to 1000 farmers.
The farmer producer companies do require technical and managerial expertise to carry on their requisite work, including forward-backwards linkages, best agriculture practices, seed production, value addition, branding etc. to make their business operation sustainable and more profitable for all shareholders. An inclusive yet affable ecosystem is required for any producer organizations to develop and nurture, because they have to deal with issues starting from farm till far-away markets. This ecosystem must comprise of various services like emergency credit, consumer credit, production credit, retail services of inputs for agriculture, storage, transportation and other agricultural production services required by the small and marginal farmers. This ecosystem can be strengthened with various types of services made available for farmer members at the right time and at affordable price. These services provided by POs are capable of diverting surplus produce from the local trader to the producer organization and can help maximize the profit margins of the company. Additionally, the producer organizations can take up other services related to facilitating linkage with the banks and line departments for ensuring the infrastructure access for the business.
Farmer producer companies can be strengthened more through various policy and structural reforms, including technology support, financial support through customized services and loan products and marketing support in various markets available (retail, spot and futures).
The various government-supported agencies and NABARD has provided initial funds to build capacities, technical assistance and develop innovative financial systems for sustainability of FPCs. NABARD created its own subsidiary (NABKISAN Finance Ltd.) for meeting the credit requirements of FPOs by adopting a flexible approach based on life cycle needs, while it continues to provide promotional support towards capacity building, market linkages and other incubation services to FPOs out of grant fund.
There are various schemes launched by the Government of India for the support of FPOs; these include:
Equity Grant Fund Scheme
Credit Guarantee Fund Scheme
Scheme for Creation of Backward and Forward Linkages
National Rural Livelihoods Mission (NLRM)
The union budget 2018-19 was much focused on promoting and strengthening Farmer Producer Organizations. These measures will help promote FPOs towards prosperous and sustainable agriculture sector with increased agriculture productivity through efficient, cost-effective and sustainable resource utilization. Some of the examples were launch of “Operations Green” for onion, potato and tomato crops with an allocation of Rs. 500 crores. The initiative aims to address price fluctuation in vegetables for the benefit of farmers and consumers. Another step taken by the Government was 100% tax deduction for FPOs with an annual turnover of up to Rs. 100 crores, this step is expected to encourage enabling an environment for aggregation of farmers into FPOs.
Some of the challenges faced by these new generation institutions are linked with its basic design, i.e. farmers’ inefficiency to act as managers or CEOs of the organization, understanding of various resource optimization techniques, update with best agri-practices and representation of farmers as a group in organized market. This calls for a strong handholding and capacity building initiatives, which can be governed by local authorities but delivered through local institutional development civil society organizations or other capable institutions working with farmers. Farmers do face challenges related to customized and affordable financial services, which currently are not provided as per their future cash flows. They also face a problem in selecting the CEO, whether from inside or outside there is always a risk.
The FPOs have come a long way in past some years, success and failure cases shows that these institutions require some policy changes to attain sustainability and reap optimal benefits for its shareholder. Some of the policy reforms which can be thought of are mentioned below:
Allowing private equity, angel investor and venture capital support to FPOs as the lines of support for start-ups can be introduced.
Amendments in Food Grain Procurement policy is required to allow procurement of produce directly from FPOs under Minimum Support Price scheme.
Specified funds can be created or diverted from Government to build infrastructure at FPO level, including facilities for grading, sorting, packing, branding, storage, transportation and marketing.
Proper changes can be brought in under Equity Grant & Credit Guarantee Fund schemes to include a large number of FPOs having less than 500 farmer members.
Liberal statutory compliances may be provided for FPOs during the initial 10 years, to help them stabilize (operationally and legally) in business environment.
Suitable amendments in the APMC Act can be brought to treat the country as a single, unified market for agri-produce with no restrictions on commodity movement as also to enable FPOs market their produce directly to the consumers/ bulk-buyers, without payment of Mandi Fee.
Convergence of delivering various farmer and agriculture related schemes through FPOs.
A single window can be introduced for issuance of all licenses to FPOs, to ease the process of doing business.
Awareness and capacity building of farmers and position holders in FPCs should be done on regular interval to help them understand the real benefit of institution.
FIG – Farmer Interest Groups
FPC – Farmer Producer Company
FPO – Farmer Producer Organization
NABARD – National Bank for Agriculture and Rural Development
Under the Merchandise Export from India Scheme (MEIS), onion exporters were eligible for a five per cent rebate for the onions they exported. However, the scheme was suspended in June 2019 due to the steady rise in retail and wholesale prices in the countryThe state marketing board has helped four to five traders from Lasalgaon’s wholesale market in Nashik district’s Niphad taluka to export 1,700 tonnes of onions to Bangladesh via train.
In the wake of the daily slide in average traded price of onions in Maharashtra’s wholesale markets, the state government has written to the central government seeking the introduction of the subsidy-based export scheme for onions.
As the domestic demand slackens and exports via the road route face administrative hurdles, the state agricultural marketing board is pushing for exports to Bangladesh via the rail route.
Already, the state marketing board has helped four to five traders from Lasalgaon’s wholesale market in Nashik district’s Niphad taluka to export 1,700 tonnes of onions to Bangladesh via train.
Under the Merchandise Export from India Scheme (MEIS), onion exporters were eligible for a five per cent rebate for the onions they exported. This was done mainly to remove the glut in the market caused by excess production. However, the scheme was suspended in June 2019 due to the steady rise in retail and wholesale prices in the country. Subsequently, exports were banned in September with the country floating tenders to import onions from across the globe to cool down prices. Failure of the kharif and late kharif crop last year in Maharashtra was the main reason for this price rise.
But now, the tables have turned with the country witnessing a steady decline in wholesale onion prices. This is mostly because of a bumper rabi or summer crop, which has started arriving in markets.
Farmers in Maharashtra usually take three crops of onion depending on the season and availability of soil moisture. So, kharif (sown in June-July and harvested after September) and late kharif (sown in October-November and harvested post December-January) are grown on monsoon rains and have higher moisture content. The rabi or summer crop is grown on residual soil moisture and due to lower moisture content, is amenable to storage.
Both kharif and late kharif crops had yielded good returns for growers, which had led them to increase their rabi crop acreage. Across India, the rabi acreage as reported by the central agriculture ministry stood at 7.25 lakh hectares, compared to 5.25 lakh hectares last year.
Maharashtra has reported 4.99 lakh hectares of rabi onion, which last year was 2.67 lakh hectares. Rough estimates have pegged the onion production for 2019-20 at 245 lakh tonnes as against the national requirement of 220-225 lakh tonnes annually.
Excess production has come at a time when demand for the bulb is low due to the ongoing nationwide lockdown.
Officials said that at least 60 per cent of the onion which hits the markets is consumed by the hospitality and food processing industry. “The coronavirus crisis has put a question mark on when hotels will open. So, the country will see a glut in onion for the next few months,” stated a senior official of the state marketing department.
Senior officers of the state agriculture marketing department said that internationally, demand for Indian onions is robust in countries like Oman, Sri Lanka, Singapore and UAE. “Last year, India had exported 21.82 lakh tonnes of onion and even during the lockdown, we have seen good demand for onions” said the officer.
The state marketing board has helped four to five traders from Lasalgaon’s wholesale market in Nashik district’s Niphad taluka to export 1,700 tonnes of onions to Bangladesh via train.