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LATEST NEWS UPDATES | Killing fields

Killing fields

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published Published on Oct 13, 2015   modified Modified on Oct 13, 2015
-The Hindu Business Line

Crop insurance will make farming a safer vocation

The plight of Punjab’s cotton farmers after a swarm of ‘whiteflies’ ravaged their crop is truly disquieting. In a knee-jerk response, Punjab has promised 640 crore for over two-third of the crop being destroyed, but on what basis, it is hard to tell. This highlights the absence of crop insurance in Punjab, as pointed out by a recent Crisil study. The cost is perhaps not considered worthwhile in a State that is almost fully irrigated and where procurement acts as insurance. But crop insurance does not really figure in India’s largely rain-fed farm economy either. According to the Reserve Bank of India’s June 2015 Financial Stability Report, “the coverage of agricultural insurance still remains low as only 4 per cent of the farmers reported having crop insurance”. Constraints to its adoption need to be recognised.

A crucial demand-side problem is the absence of consumer choice, particularly for individual farmers. Group-based products that cover a large area could shortchange some farmers and reward others excessively, as the fall in yield over the recent average could vary from plot to plot. The Modified National Agriculture Insurance Scheme, in force since rabi 2013-14, introduces accuracy in measuring yield variations by bringing down the policy unit to a village, as against a revenue circle of about 25 villages earlier. Although a meticulous assessment drives up cost and premiums, a subsidy could work as an interim measure or until the programme picks up scale. Weather-based insurance, which has drawn private operators, insures a group of producers for weather variations and pays them quickly, unlike yield-based insurance, but the issue here is the quality of weather assessment. Even as these methods are fine-tuned, it is important to have a clear demand profile. Karnataka has initiated a study of market preferences, which could serve as useful information for investors. While the typical crop insurance is bundled with a bank loan, this could leave out tenant farmers and sharecroppers. A microfinance-led approach could work here.

A serious supply-side constraint is the adverse claims-to-premium ratio. Crop insurance schemes from 1999-2000 to rabi 2014-15 have mopped up a premium of 25,760 crore, but paid out claims worth 47,785 crore. One reason for this imbalance is the moral hazard arising out of flawed policy design — the area insured is shown more than that sown when crop failure is on the cards. This can be addressed by creating income-based instruments, covering both yield and price, mooted by the Centre last year, thereby covering farmers who suffer for overproduction. A no-claims bonus as in vehicle insurance can serve as a deterrent against false claims, as can a policy that promises a return after a period, akin to fixed deposits. We haven’t tried enough to make crop insurance viable, and make farming a safer vocation.

The Hindu Business Line, 11 October, 2015, http://www.thehindubusinessline.com/opinion/editorial/killing-fields/article7750076.ece


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