CROP INSURANCE IN INDIA - A BRIEF REVIEW

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1 Pinnacle Research Journals 20 CROP INSURANCE IN INDIA - A BRIEF REVIEW VISHITA KHANNA*; KEYUR UPADHYAY**; HARSHIL GANDHI*** ABSTRACT *International Agribusiness Management Institute, **International Agribusiness Management Institute, ***International Agribusiness Management Institute, The basic aim of crop insurance scheme, minimum support price, calamity relief fund, etc is protection of the Indian farmer from agricultural variability. However, crop insurance covers only about 10% of sown area and suffers from adverse claims to premium. These are problems with both the design and delivery of crop insurance schemes. The solution for these problems can be rainfall insurance and with a well established rainfall measurement infrastructure. Private and public insurers are currently experimenting with rainfall insurance products. KEYWORDS: Crop Insurance, Indemnification. INTRODUCTION Economic growth and agricultural growth are linked to each other. Agriculture contributes to 13.9% of GDP and any change has a multiplier effect on the economy as a whole (Economic Survey ). Crop insurance helps in stabilization of farm production and income of farming community. It helps in optimal allocation of resources in the production process. On an average 12 million hectares of crop area is affected annually by these calamities severely impacting the yields and total agricultural production (1).It has been established that 50 percent of variation in the crop yield is due to variations in the rainfall. Crop Insurance scheme in India in Product fullform implemented scope states farmers covered NAIS National Agriculture Insurance Scheme Natural calamity,pest and diseases 25 states and 2 UT 1762 lakh farmers MNAIS Modified NAIS rabi Sowing, planting risk,post harvest risk like cyclone WBCIS Weather based crop insurance kharif 2007 Source: - Economic Survey Deficit rain,excess rain, high or low temperature and humidity 17 states 4.89 lakh farmers lakh farmer

2 Pinnacle Research Journals 21 NEED FOR INDEX BASED CROP INSURANCE Crop insurance is a risk mitigation tool. 1. Non availability of past records of yields,land surveys, ownership and Tenacy 2. Large number of farm holdings 3. Small size of farm holding 4. Remoteness and inaccessibility of farm holding 5. Low value per unit 6. Large variety of crop, varied agro climate condition and package of practices 7. Difficulty in collection of small amount of premium from large number of farmers 8. Simultaneous harvesting of crops all over the country 9. Prohibitive cost of manpower and infrastructure There are many cropping strategies and farming practices which have been adopted in the absence of crop insurance for stabilizing crop revenue. An average farmer has very low risk bearing capacity.a large farm household or a wealthy farmer is able to spread risk over time and space in several ways; he can use stored grains or savings during bad years, he can diversify his crop production across different plots. The uptake of insurance services in agricultural sector is quite low compared to the other sectors of the economy like manufacturing, mining, etc.farmers consider insurance as an unnecessary expense rather then an invetsment to protect their future. The major role played by insurance programmes is the indemnification of risk-averse individuals who might be adversely affected by natural probabilistic phenomenon.insurance offers a possibility to reduce the risk involved and encourages individuals to engage in cropping activities which otherwise they would not.in other Insurance policies the risk is for the particular insurer but in case of crop insurance the risk of unpredictable weather affects the complete area.also, the premium rates are also very high which discourages the participation of farmers. Moreover, in crop insurance the individuals do not have control over the event, but depending on terms of contract, the individuals can affect the amount of indemnity. A few studies conducted have confirmed that cultivators are less enthusiastic to avail crop insurance if there is no pay-out during the previous crop season. In other words, every claimfree season throws-up a challenge of participation in the next season. Problem gets compounded if the cultivator doesn t receive a pay-out in the initial two or three years.

3 Pinnacle Research Journals 22 CHALLENGES Low penetration of the scheme Scarcity of reliable data to determine the crop yield and farming population Lack of qualified personnel in agricultural insurance Lack of initiatives from commercial banks in agriculture finance Low literacy level in farmers Low priority for major farmers Lack of co-ordination between the banks and government of department Lack of awareness and proper knowledge about the procedure Premium is less compared to the claim in majority states Delay in the indemnity payment to farmer CONCLUSION Economic reasoning and empirical analyses strongly suggest that crop insurance subsidies encourage production changes that reduce aggregate negative environmental effects on farming. The production changes themselves may be relatively small for some crops but because insurance encourages planting on marginal lands the environmental impacts are disproportionately high. The insurance programs in 2012 are more diversified, at higher subsidy rates. More research is also needed to measure the extent to which farmers respond to crop insurance subsidies by taking on more risk elsewhere in their operation, such as by shifting to cash rents or practicing less diversification. REFERENCES 1. Government of India, Report of the Working Group on Risk Management in Agriculture for Eleventh Five Year Plan ( ), Planning Commission, New Delhi 2. Agriculture Insurance Company of India Ltd.(2008): accessed on 6 th Feb Ahsan, Syed, M., A.A.G.Ali, and N.J.Kurian (1982). Towards a theory of agricultural crop insurance. American Journal of Agricultural Economics. 64(3): Atwood, J.A, M.J.Watts and A.E.Baquet. (1996). an Examination of the Effects of Price Supports and the Federal Crop Insurance upon the Economic Growth, Capital Structure

4 Pinnacle Research Journals 23 and Financial Survival of Wheat Growers in the Northern High Plains. American Journal of Agricultural Economics. 78(1) : Bhende, M.J.(2002). An analysis of Crop Insurance Scheme in Karnataka. Bangalore: Agricultural Development and Rural Transformation Unit, Institute for Social and Economic Change (ISEC). 6. Bhende, M.J.(2005). Agricultural Insurance in India: Problems and Prospects. Department of Economic Analysis and Research, National Bank for Agriculture and Rural Development Occasional paper Binswanger, H.P. (1980). Attitudes towards Risk: Experimental Measurement in Rural India. American Journal of Agricultural Economics. 62(3): Dandekar,V.M (1985): Crop Insurance in India A Review, to , Economic and Political Weekly, 20(25&26): A-46 to A Economic Survey ( ): Ministry of Finance, Government of India, New Delhi. 10. Hazell. P., L.M. Bsssoco and G.Arcia (1986). A Model foe Evaluating Farmers Demand for Insurance: Applications in Mexico and Panama. In P.B.R.Hazell, C.Pomareda. And A.Valdes (eds), Crop Insurance for Agricultural Development: Issues and Experience. Baltimore and London: The Johns Hopkins University Press. Hazell. P. (1992). The Appropriate Role of Agricultural Insurance in Developing Countries. Journal of International Development. 4(6) : Horowitz, J.K and E.Lichtenberg (1993). Insurance, Moral Hazard, and Chemical Use in Agriculture. American Journal of Agricultural Economics. 75(4): Jodha, N.S. (1981). Role of Credit in Farmers Adjustment against Risk in Arid and Semi-Arid Tropical Areas of India. Economic and Political Weekly. XVI (22&23). 13. Mishra, P.K. (1994) : Crop Insurance and Crop Credit : Impact of the Comprehensive Crop Insurance Scheme on Cooperative Credit in Gujarat. Journal of International Development. 6(5) : Mishra, P.K. (1996). Agricultural Risk, Insurance and Income. Arabury, Vermont: Ashgate Publishing Company. 15. Mahajan,S.S. and Bobade,A.H(2012). Growth of NAIS: A study of crop insurance in India.Journal CMIMC.3(1) 16. Pomareda, Carlos. (1986). an Evaluation of the Impact of Credit Insurance on Bank Performance in Panama. In Peter Hazell, Carlos Pomareda and Alberto Valdes. Crop Insurance for Agricultural Development: Issues and Experience. Batimore and London: The Johns Hopkins University Press.

5 Pinnacle Research Journals Raju, S.S and Ramesh Chand. (2007): Progress and Problems in Agricultural Insurance in India, Economic and Political Weekly, May 26, pp Rao, C.H.H., S.K. Ray and K. Subbarao.(1988): Unstable Agriculture and Droughts- Implications for Policy. New Delhi: Vikas Publishing House Pvt.Ltd. 19. Smith, V.H. and B.K. Goodwin (1996). Crop Insurance, Moral Hazard, and Agricultural Chemical Use. American Journal of Agricultural Economics. 28(2) : Walker, T.S and N.S.Jodha, (1986). How Small Farm Households Adapt to Risk. In Peter Hazell, Carlos Pomareda and Alberto Valdes (eds.), Crop Insurance for Agricultural Development. Baltimore and London: The Johns Hopkins University Press.