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LATEST NEWS UPDATES | Protecting farmers

Protecting farmers

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published Published on Apr 26, 2010   modified Modified on Apr 26, 2010

After sitting on the proposal for four years, the Planning Commission has approved the union agriculture ministry’s modified national agricultural insurance scheme. More than half a dozen different models of farm insurance have been tried out since the early 1970s but without much success. None of these schemes has been economically viable. We now have one more experiment being launched. No more than a fraction of the country’s over 120 million farmers have access to crop insurance and even they have not benefited much. This was clear from the widespread distress among farmers due to crop failures, leading to a large number of suicides in recent years, prompting the government to waive off their loans. A sound insurance system could have alleviated, if not wholly averted, this distress. The previous farm insurance schemes, including the National Agricultural Insurance Scheme (NAIS) which is now sought to be modified, had serious limitations. The payable claims invariably turned out to be several fold higher than the premium charged from the farmers and the subsidy paid by the government. It made it difficult for insurance companies to honour the claims. Moreover, these schemes assumed state governments would share the subsidy burden with the Centre, and most states failed to do so.

Though it has been claimed that the proposed modified NAIS has addressed some of these issues, its success cannot be taken for granted. For, the new scheme stipulates extension of insurance cover to more number of crops and calculation of premium on actuarial basis, meaning higher premium for riskier crops. Though this, coupled with subsidy, may make agricultural insurance attractive as a business for the insurance companies, it is unlikely to go down well with the farmers. In particular, the resource-poor small and marginal farmers, who need the insurance most, may find it unappealing because their crops, grown largely on rainfed lands, run higher risk of damage due to natural and other hazards. Also, the state governments, which will again be required to share subsidy burden, may find it difficult to do so.

Since government support is vital for the viability of the farm insurance business — this has been the case all over the world — novel ways must be found to provide this. Apart from the direct subsidy on the premium, the state support could be in the form of reimbursement of administrative costs, provision of reinsurance support for more hazardous crops and incorporation of other forms of profitable rural businesses in the insurance products to cross-subsidise crop insurance. Besides, since many banks use insurance as collateral for agricultural loans — they adjust the compensation against the farmers’ outstanding dues — and, in reality, benefit from it, they may also be roped in to share part of the premium burden. This apart, farmers can also be allowed to hedge their production and price risks by introducing options trading in commodities on futures trading exchanges. This will give them the right, but not the obligation, to sell their produce at a future date when prices are usually higher than in the post-harvest peak marketing season. Several committees, including a parliamentary committee, have endorsed such a move. The ball is in the government’s court.


The Business Standard, 26 Apil, 2010, http://www.business-standard.com/india/news/protecting-farmers/392984/


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