Why we need agricultural insurance schemes?

India is having one of the largest agriculture depending population in the world. Agriculture is a high-risk profession as most of the farmers depend on rain and the general weather conditions to grow their crops. Hence to protect the framers, the government has been following a prudent agricultural policy including the agricultural insurance policy. In January 2016, the government launched the Prime Minister’s Fasal Bima Yojana (PMFBY), which is a crop insurance scheme with the objective of eliminating the defects of existing schemes. Following are the important dimensions related to agricultural insurance in India.
Need for agricultural insurance
There are two sound reasons for agricultural insurance in India:
Traditionally, Indian farmers are relying on weather conditions to grow their crops and hence there is a need to protect farmers from agriculture variability.
Price fluctuation of agricultural crops are high, and this necessitates insurance against income failure.
Implementation of agricultural insurance
In India, crop insurance is subsidized by the central and state governments. Agricultural insurance programmes are managed by the General Insurance Corporation (GIC) and the associated entity – Agriculture Insurance Company. Insurance is delivered through rural financial institutions and they insurance policies are usually tied to crop loans.
Why government is necessary to sponsor agricultural insurance programmes?
Given the magnitude of agriculture risks – both yield and price – the actuarially fair premium for insurance may not be affordable or attractive for farmers.
Government subsidy is needed to attract farmers.
Government initiatives are necessary to reduce the risks of agriculture through expansion of canal and other surface water irrigation facilities and development of a national integrated market for agricultural products.
Problems of agricultural insurance in India
Low penetration of agricultural insurance: several programme specific and delivery related issues are adversely affecting the spread of agricultural insurance in the country.
Farmers in India are not subscribing agricultural insurance policies despite big efforts by the government. A nation-wide crop insurance data by the National Institute of Securities Markets or NISM (2014) shows that only 6.7% of the farmers are covered under crop insurance. Similarly, the level of awareness about crop insurance is also very low.
The low usage indicates that farmers either do not find crop insurance useful or are denied access to the insurance.
Delay in the distribution of compensation, inadequacy of the compensation compared to the costs and inadequate funds allocated under the to finance insurance are some of the issues.

January 6, 2018
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