CROP INSURANCE IN INDIA

LOK SABHA SECRETARIAT PARLIAMENT LIBRARY AND REFERENCE, RESEARCH, DOCUMENTATION AND INFORMATION SERVICE (LARRDIS) MEMBERS REFERENCE SERVICE REFERENCE NOTE. No. 17 /RN/Ref./ November /2014 For the use of Members of Parliament Not for Publication CROP INSURANCE IN INDIA.------------------------------------------------------------------------------------------------------- The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for publication. This Service is not to be quoted as the source of the information as it is based on the sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or veracity of the information or views contained in the note/collection.

CROP INSURANCE IN INDIA Agricultural production and farm incomes in India are frequently affected by natural disasters such as drought, floods, cyclone, storm, landslide, earthquake etc. Susceptibility of agriculture to these disasters is compounded by the outbreak of epidemics and man-made disasters such as fire, sale of spurious seeds, fertilizers and pesticides, price crashes, etc. All these events severely affect farmers through loss in production and farm income, and are beyond the control of farmers. With growing commercialization of agriculture, the magnitude of loss due to unfavourable eventualities is increasing. In recent times, mechanisms like contract farming and futures trading have been established which are expected to provide some insurance against price fluctuations directly or indirectly. But, agricultural insurance is considered an important mechanism to effectively address the risks to output and income resulting from various natural and manmade events 1. HISTORICAL BACKGROUND i) First Individual Approach Scheme 1972-1978 Different forms of experiments on agricultural insurance on a limited, ad-hoc and scattered scale were started from 1972-73 when the General Insurance Corporation (GIC) of India introduced a Crop Insurance Scheme on H-4 cotton and later included groundnut, wheat and potato. The Scheme was implemented in Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu and West Bengal. It continued up to 1978-79 and covered only 3,110 farmers for a premium of Rs.4.54 lakh against claims of Rs.37.88 lakh. ii) Pilot Crop Insurance Scheme (PCIS) 1979-1984 The Pilot Crop Insurance Scheme was launched by the GIC in 1979, which was based on the Area Approach for providing insurance cover against a deficit in crop yield below the threshold level. The Scheme covered cereals, millets, oilseeds, cotton, potato and chickpea and it was confined to loanee farmers of institutional sources on a voluntary basis. The PCIS 1979 was implemented in 12 states till 1984-85 and covered 1 National Centre for Agricultural Economics and Policy Research (NCAEP), Policy Brief on Problems and Progress in Agricultural Insurance in India by S.S. Raju and Ramesh Chand, 2009, p.1-2

2 6.23 lakh farmers for a premium of Rs.195.01 lakh against claims of Rs.155.68 lakh during the entire period. iii) Comprehensive Crop Insurance Scheme (CCIS) 1985-99 The Comprehensive Crop Insurance Scheme (CCIS) launched in 1985 was the first nation-wide Scheme. Previous Schemes were either experimental or Pilot Projects, on a small scale and in a scattered manner. This scheme was linked to short-term credit and was based on the homogenous area approach. The Central Government introduced the CCIS during the year 1985-86. Till Kharif 1999, the Scheme was adopted by 15 States and 2 Union Territories (UTs). Both, PCIS and CCIS were confined only to farmers who had borrowed seasonal agricultural loans from financial institutions. The main difference between PCIS and CCIS was that PCIS was on voluntary basis while CCIS was compulsory for loanee farmers. The CCIS covered 763 lakh farmers for a premium of Rs.404 crore against claims of Rs.2303 crore 2. A more comprehensive Scheme, National Agricultural Insurance Scheme was launched in 1999 with aim to cover all farmers irrespective of loanee or non-loanee. NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS) The National Agricultural Insurance Scheme (NAIS), with the aim to increase coverage of farmers, crops and risk commitment, was introduced in the country from Rabi 1999-2000 replacing the erstwhile Comprehensive Crop Insurance Scheme (CCIS). The main objective of the Scheme was to protect the farmers against the crop losses suffered on account of natural calamities, such as, drought, flood, hailstorm, cyclone, pests and diseases. The Scheme was implemented by the Agriculture Insurance Company of India Ltd. (AIC). The Scheme was available to all the farmers both loanee and non-loanee irrespective of their size of holding. It envisages coverage of all the food crops (cereals, millets and pulses), oilseeds and annual commercial/horticultural crops, in respect of which past yield data is available for adequate number of years 3. The Scheme was continued till Kharif 2013, however, some States are allowed to implement NAIS during Rabi 2013-14 also 4. 2 Ibid. 3 India. Department of Agriculture & Cooperation, Annual Report, 2013-14, p.88 4 Rajya Sabha Unstarred Question No. 3214 dated 8.8.2014

3 The Scheme was optional for States/Union Territories (UTs) and it had been implemented by the 25 States and 2 Union Territories in one or more seasons. Since the inception of the Scheme 2084.78 lakh farmers for a premium of Rs.8,67,121 lakh against the claim of Rs.25,37,558 lakh were covered until 2012-13. The total area insured was Rs.3137.70 lakh hectares during the same period 5. The State-wise details of coverage under National Agricultural Insurance Scheme is available at Annexure-I. MODIFIED NATIONAL AGRICULTURAL INSURANCE SCHEME (MNAIS) To improve further and make the Scheme easier and more farmer friendly, a proposal on Modified National Agricultural Insurance Scheme (MNAIS) was prepared and was approved by Government of India for implementation on pilot basis in 50 districts from Rabi 2010-11 season 6. During the Five seasons of its implementation in 17 States, the MNAIS covered 45.80 lakh farmers for a premium of Rs.1,08,800 lakh against the claim of Rs.86,400 lakh until Rabi 2012-13. The total area insured was 46.79 lakh hectares during the same period 7. The State-wise details of coverage under Modified National Agricultural Insurance Scheme is available at Annexure-II, Table-A. PILOT WEATHER BASED CROP INSURANCE SCHEME (WBCIS) With the objective to bring more farmers under the fold of Crop Insurance, a Pilot Weather Based Crop Insurance Scheme (WBCIS) was launched in 20 States in 2007. Apart from Agriculture Insurance Company of India, some private companies have also been allowed to implement the Scheme. The WBCIS is intended to provide insurance protection to the farmers against adverse weather incidences, such as deficit and excess rainfall, high or low temperature, humidity etc. which are deemed to impact adversely the crop production. It has the advantage to settle the claims within shortest possible time. The WBCIS is based on actuarial rates of premium but to make the 5 op.cit. Annual Report, 2013-14, p.89 6 op.cit. Annual Report, 2013-14, p.90 7 India. Department of Agriculture & Cooperation, Report of the Committee to Review the Implementation of Crop Insurance Schemes in India,, 2014, p.39-40

4 Scheme attractive, premium actually charged from farmers has been restricted at par with NAIS 8. The WBCIS was implemented in 18 States and 469.38 lakh farmers were covered for a premium of Rs.7,51,920 lakh against the claims of Rs. 52,860 lakh under the Scheme from 2007-08 to 2012-13. The total area insured was 632.01 lakh hectares during the same period 9. The State-wise details of coverage under Pilot Weather Based Crop Insurance Scheme (WBCIS) is available at Annexure-II Table-B. PILOT COCONUT PALM INSURANCE SCHEME (CPIS) The Coconut Palm Insurance Scheme (CPIS) was approved for implementation on pilot basis for the years 2009-10 and 2010-11 in the selected areas of Andhra Pradesh, Goa, Karnataka, Kerala, Maharashtra, Odisha and Tamil Nadu. Later on, it was extended to West Bengal also. The pilot was implemented during the years 2011-12 and 2012-13 and continues to be under implementation during the year 2013-14 also. Fifty percent of the premium is contributed by Government of India, 25 percent by the concerned State Government and the remaining 25 percent by the farmer. The CPIS is administered by the Coconut Development Board (CDB). Under the Scheme, 51,108 farmers were covered for a premium of Rs.167.69 lakh against the claims paid of Rs.214.05 lakh till December 2013. And the total area covered during the same period was 25,938 hectares 10. The State-wise details of coverage under Pilot Coconut Palm Insurance Scheme (CPIS) is available at Annexure-III. NATIONAL CROP INSURANCE PROGRAMME (NCIP) To make the Crop Insurance Schemes more farmer friendly, a restructured Central Sector Scheme in the name of National Crop Insurance Programme (NCIP) was introduced from Rabi 2013-14. The existing MNAIS, WBCIS and CPIS were merged under this programme with various improvements and changes for 8 op.cit. Annual Report, 2013-14, p.92 9 op.cit. Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p.42 & 44 10 op.cit. Annual Report, 2013-14, p.93

5 implementation throughout the country. However, on the basis of requests received, some States have been allowed to implement NAIS during Rabi 2013-14 11. The coverage of NCIP in terms of farmers and area insured has been projected to the level of 50 percent each from the existing level of about 25 percent and 20 percent respectively by the terminal year 2016-17 of the Twelfth Plan. The coverage under CPIS is projected at 25 percent of coconut growers during 2013-14 with increase of 5 percent each year during remaining years of Twelfth Five Year Plan 12. ISSUES RELATED TO CROP INSURANCE Agriculture in India is varied, diversified and prone to a variety of risks. Most farmers are small and marginal ones. In most areas, agriculture is rain fed, leading to a greater degree of yield variability and risk. Crop Insurance, which aims at addressing yield risk though necessary for a vast majority of farmers is subject to structural, design and financial problems. Problems of asymmetry of information moral hazard and adverse selection and co-variability are more pronounced in crop insurance than in other forms of insurance. Consequently, crop insurance schemes face many problems. In response to such problems, Schemes based on the area approach were introduced in the 1980s. More recent Insurance Schemes are based on weather, and adopt an area approach. Due to the vastness of the country, large number of small and marginal farmers, and adoption of area-based approaches, several agencies and organizations are involved in crop insurance programmes. Hence, coordinated efforts are critical for effective implementation of crop insurance scheme 13. A four members Committee headed by Dr. P. K. Mishra, former Secretary, Department of Agriculture and Cooperation was constituted in September 2013 to examine the loopholes in the implementation of the Crop Insurance Schemes. The Committee examined the various issues related to Crop Insurance such as:- Discrepancy in area insured. Delay in receiving crop cutting data and quality and reliability of such data. Weather data. Crop loan practices. Crop insurance premium. Settlement of Claims. 11 Rajya Sabha Unstarred Question No. 1098 dated 18.7.2014 12 op.cit. Annual Report, 2013-14, p.87 13 op.cit. Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p.iii

6 Role of Banks and Agricultural Insurance Companies in the operation of schemes and Awareness of farmers regarding various features of the Schemes 14. RECOMMENDATIONS FOR IMPROVEMENT After examining the various existing Schemes, the Committee has recommended following measures for improvement in the field of Crop Insurance: A web portal should be developed for all States to make land record data be available to financial institutions. Premium rates to be revisited for MNAIS. Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD) should effectively monitor the compliance of their circulars regarding compulsory crop insurance for loanee farmers. Insurance companies and banks should play a pro-active role in insuring effective implementation of crop insurance schemes. State Governments should insure the use of GPRS-enabled and camera fitted mobile phones etc. while conducting crop cutting experiments. An Atlas of critical weather elements for different agro-climatic regions and An Agricultural Insurance Act should be formulated to take care of specific needs of the crop insurance and agricultural insurance in general 15. CONCLUSION The shift from a social crop insurance program with ad-hoc funding from the Government of India to a market-based crop insurance program with actuarially sound premium rates and product design is a major step forward. The improved product and active involvement of private sector insurance markets are expected to lead to significant benefits for farmers, including faster claims settlement, a more equitable allocation of subsidies and lower basis risk. For the product to be pro-poor, small and marginal farmers must purchase the MNAIS product voluntarily, and insurers and government must experiment with cost-effective ways of increasing outreach 16. 14 Ibid. p.vii-viii 15 Ibid. p.ix-x 16 World Bank, Policy Research Working Paper on Improving Farmers Access to Agricultural Insurance in India by Olivier Mahul, Niraj Verma and Daniel J. Clarke, 2012, p.18

7 Use of latest technology such as GPRS-enabled and Camera fitted Mobile Phones may be used to implement Crop Insurance Schemes more effectively. A comprehensive programme of capacity building in line with the needs of stake holders such as State Government functionaries, insurers and Central Government agencies associated with Crop Insurance Schemes should be organized. Programmes of creating awareness and insurance literacy among farmers should be prepared by Insurance Companies and Banks, in collaboration with the concerned State Governments 17. 17 op.cit. Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p. IX

Annexure-I State-wise details of coverage under National Agricultural Insurance Scheme (NAIS) from Rabi 1999-2000 to Rabi 2012-13 (Rs.in lakh) Sl. NO. State / UTs Farmers Insured (no.) Area Insured (h.) Sum Insured Premium Collected Claims Paid Farmers Benefitted (no.) 1. Andhra Pradesh 2,85,78,464 4,37,62,477 56,06,783 1,60,398 4,41,990 65,81,020 2. A&N Island 2,532 4,049 734 17 8 438 3. Assam 3,38,936 2,52,864 62,238 1,756 1,329 61,056 4. Bihar 60,36,983 73,77,698 11,90,402 30,383 2,11,347 24,31,008 5. Chhattisgarh 97,74,546 1,97,81,274 10,22,157 26,108 38,240 16,71,623 6. Goa 7,893 12,973 279 5 2 702 7. Gujarat 1,32,98,937 3,05,76,316 35,52,734 1,37,461 4,54,035 48,85,981 8. Haryana 6,35,688 7,68,865 83,459 2,413 4,024 1,29,217 9. Himachal Pradesh 3,02,530 2,24,894 47,603 995 995 1,669 1,06,683 10. J&K 44,520 63,165 9,044 167 123 4,292 11. Jharkhand 60,88,264 35,92,539 3,25,861 8,078 52,166 21,78,175 12. Karnataka 1,29,11,992 2,05,74,232 1,58,22,723 46,848 1,77,698 51,33,480 13. Kerala 4,37,915 3,89,798 76,878 1,646 2,500 75,684 14. M.P. 2,80,38,512 6,86,84,709 43,68,005 1,24,207 1,72,917 46,77,299 15. Maharashtra 3,27,51,138 2,84,01,545 20,54,414 81,370 2,25,068 95,33,989 16. Manipur 19,629 24,372 6,478 160 668 18,946 17. Meghalaya 29,619 30,925 5,019 245 47 2,668 18. Mizoram 121 134 23 1 11 119 19. Odisha 1,44,47,590 1,44,78,255 19,37,570 48,386 1,36,558 26,61,382 20. Puducherry 37,402 53,434 9,246 176 293 7,037 21. Rajasthan 15,58,674 3,13,79,980 16,20,309 45,754 2,62,166 52,00,566 22. Sikkim 1,893 1,324 254 4 1 86 23. Tamil Nadu 59,61,793 77,82,617 16,11,269 41,164 1,54,814 25,01,663 24. Tripura 19,573 12,671 2,927 81 58 3,432 25. UP 2,21,37,563 2,95,55,100 29,76,571 60,756 1,00,973 42,27,898 26. Uttarakhand 3,86,068 3,62,836 84,106 1,903 4,145 1,18,698 27. West Bengal 1,11,29,748 56,10,472 11,15,589 46,638 94,707 23,36,616 Total 20,84,78,523 31,37,69,515 2,93,52,675 8,67,121 25,37,558 5,45,49,758 Source: India. Department of Agriculture & Cooperation, Annual Report, 2013-14, pp.89-90

Annexure-II Table - A State-wise details of coverage under Modified National Agricultural Insurance Scheme (MNAIS) from Rabi 2010-11 to Rabi 2012-13 Source : India. Department of Agriculture & Cooperation, Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p.40 Table - B State-wise details of coverage under Weather Based Crop Insurance Scheme (WBCIS) from Kharif 2007 to Kharif 2013 Source : India. Department of Agriculture & Cooperation, Report of the Committee to Review the Implementation of Crop Insurance Schemes in India,, 2014, p.44

Annexure-III Statewise details of coverage under Pilot Coconut Palm Insurance Scheme (CPIS) till December 2013 (Rs. in lakh) Sl. No. State No. of farmers Area (Ha) Sum Insured Total Premium Claims Paid Farmers benefitted 1. Andhra 517 13.33 558.47 2.97 0.00 0 Pradesh 2. Goa 240 625.26 692.50 3.32 1.63 14 3. Karnataka 684 635.66 1,035.52 5.84 1.49 36 4. Kerala 40,330 17,188.20 16,505.84 92.25 193.27 4,338 5. Odisha 91 21.71 43.53 6.85 0.00 0 6. Maharashtra 5,963 3,802.78 3,575.18 25.15 8.24 174 7. Tamil Nadu 2,314 3,308.23 5,680.24 29.28 9.42 129 8. West Bengal 969 342.66 426.83 2.14 0.00 0 Total 51,108 25,937.83 28,518.12 167.79 214.05 4691 Source: India. Department of Agriculture & Cooperation, Annual Report, 2013-14, p.93