When the Narendra Modi government took charge, the gods welcomed it with two back-to-back drought years, a first in three decades. Agricultural growth and productivity plummeted. Then, unseasonal rains lashed out at the already battered farmers. The usual ritual of doling out compensation packages followed.

This exposed the failure of government’s then ongoing crop insurance schemes like the National Agriculture Insurance Scheme (NAIS) and Modified NAIS (MNAIS). The centre somewhere felt the need to shift from the culture of compensation packages to a system of crop insurance.

Making farmers opt for crop insurance was no mean task given Indians’ aversion to even critical health and life insurance scheme. To entice an uniformed and sceptical public, the government merged earlier insurance policies and tweaked them to make more lucrative, including reducing the premiums considerably.

Karif 2015 was the first season when the Pradhan Mantri Fasal Bima Yojana (PMFBY) - the new crop insurance scheme - was put to test. Consider the achievement of the scheme from the impressive numbers put out by the government: Compared to Kharif 2015, PMFBY insured 40 per cent more farmers in Kharif 2016, covered over 100 million hectares of more area and achieved 104 per cent increase in the total sum insured. More than 25 per cent of the farmers were insured and the government is looking to double the coverage by Kharif 2019. In fiscal year 2017, due to PMFBY’s impressive performance, the private insurance companies collected premiums worth Rs 22,500 crore.

At first glance, the results seem impressive but the devil, as always, is in details.

It’s not optional

PMFBY is compulsory for all loanee farmers. Those who have taken seasonal agricultural loans are given crop insurance even if they don’t want it. PMFBY operating guidelines state: “All farmers availing Seasonal Agricultural Operations (SAO) loans from Financial Institutions (i.e. loanee farmers) for the notified crop(s) would be covered compulsorily.” Essentially, the government issues a notification one month before the commencement of crop season; a deadline is announced before which all farmers can insure their crops. But this is for the non-loanee farmers. For loanee farmers, the banks simply deduct the premium from the account of farmers without their consent. In course of our research on this article, Swarajya met many farmers who didn’t even know that premiums had been deducted from their accounts until we told them to have their bank copies completed from their respective branches and take a look. They were understandably angry and stunned at temerity of the banks to deduct amounts from their accounts without even informing them, let alone asking. Bank managers, who have only been following instructions, have been bearing the brunt of such farmers’ anger since PMFBY has come into action.

Pitfalls of hubris

All sorts of problems crop up when a farmer’s crops are insured without his consent, the obvious one being you don’t know what you are insuring. Swarajya met farmers who had grown sugarcane but the banks had deducted the premium for wheat. One farmer had not grown anything but his non-existent crop was insured anyway. Banks do not seem to even know which crop the farmer is growing. Instead, they insure the crop the farmer told them he intended to grow when he his Kisan Credit Card was made. This information could be many years old and the farming pattern in all probability would have changed in the meantime. When asked if there is an opt-out option for farmers in this scheme, bank managers told Swarajya that the farmer could choose not to take agricultural loans!

A small digression is in order here. Farmers who have KCC get loans from banks. A different amount is specified for each crop. When farmers apply for KCC loans, they usually don’t report the crop they are growing but the crop that would fetch them maximum loan amount under KCC. Thus, the farmers are not blame-free in this whole saga. Additionally, we met some farmers who own non-arable land that produces nothing but could still take large loans only to give it to others on interest! A PSU bank manager we visited told us that many such cases exist. KCC loans are mandated strictly for agricultural purposes but farmers use it for all kinds of things - from home improvements to wedding expenses and education.

Insuring the wrong way

PMFBY provides cover for four types of risks as mentioned in operating guidelines issued by the centre. These are: a) prevented sowing/planting risk where a farmer is prevented from sowing/planting due to adverse seasonal conditions; b) standing crop where risks covered include yield losses due to drought, dry spells, flood, inundation, pests and diseases, landslides, natural fire and lightening, storm, hailstorm, cyclone, typhoon, tempest, hurricane and tornado; c) post-harvest losses upto a maximum of two weeks from harvesting for those crops which allowed to dry and in cut and spread condition in the field after harvesting against specific perils of cyclone, cyclonic rains and unseasonal rains and d) localised risks.

Now let’s deal with these coverage areas one by one. We take the case of Haryana as our team did its ground research in that state but the problems highlighted are very much common to other states too.

Insurance as we understand it, covers risks only after you have actually insured something. It doesn’t cover past damages. In Kharif 2016, bank managers in Jhajjar district of Haryana told us that the insurance amount was deducted on 1 August 2016 for Kharif and 10 January 2017 for Rabi crop (official cutoff date for debit of premium however in notification is set at 31 July and 31 December). We corroborated this with many farmers in the area and verified this by checking their bank copies. But here is the ground truth: Almost everyone would’ve sowed their Kharif crops by July end and Rabi by December-end. This means that insurance does not cover pre-sowing risk as it comes into effect after the sowing period is over. If a farmer fails to sow, it is not possible for him to approach his insurers as the plan has not started. It is clearly mentioned in the operating guidelines that “only those farmers would be eligible for financial support under this cover who have paid the premium/the premium has been debited from their account before the notification by the state government invoking this provision for compensation.” Another condition of the insurance plan is that farmers will be eligible for “Prevented Sowing/ Planting” payout only if more than 75 per cent of Crop Sown Area for notified crop remained unsown. Effectively the first stage insurance cover is good for nothing.

Moving on to the coverage for losses under the second stage, we find that it is exhaustive. However, in case of Haryana, where more than 80 per cent fields are irrigated, environmental phenomena such as droughts and dry spells are very rare. Historically, the state has rarely declared itself as drought-hit despite receiving deficit rainfall. Similarly, floods haven’t ravaged Haryana's fields since the mid-1990s. Landslides, cyclones, typhoons, tempests, hurricanes, and tornados aren’t applicable to the state either; natural fire and lightening cases are also too few to justify premiums for all farmers in the state. Finally, losses caused by pests and diseases can very much fall under “preventable causes” which isn’t defined and is excluded so the only justifiable reason for Haryana farmers to go for insurance is inundation which is a localized phenomenon.

The third stage is no less ill-conceived. The losses covered include only the crops which are allowed to be cut and spread after harvest. This practice isn’t generally followed in Haryana except for mustard crop. Given these natural factors and historical precedents, the natural question in the mind of a farmer in haryana is why he should pay the same premium as a farmer elsewhere who is prone to far greater risk than he is.

A fourth type of coverage relates to losses due to localized risks of hailstorms, landslides, and inundation affecting isolated farms. This is very much relevant to agricultural risk in Haryana. All these protections can be availed, theoretically, only if farmers intimate the relevant authorities within 48 hours of their crops getting damaged. Yet this is not possible in the case of many crops, whose failure may remain concealed for several days.

Of the insurance firms, for the insurance firms?

As most things in India, there are always hiccups even when things work smoothly. The cases of Jai Bhagwan, Bhim Singh, and Omprakash of Akehri Madanpur village in the Jhajjar district of Haryana are illuminating in terms of what the PMFBY actually delivers when farmers have patiently jumped through all the bureaucratic hoops. Unsurprisingly, these farmers have been given the bureaucratic run-around for their compensations.

In each case, the premium was deducted on 1 August last year for Kharif 2016. The farms of Omprakash and Bhim Singh were inspected on 18 September 2016 in presence of a loan assessee from ICICI Lombard which is the designated bank for Jhajjar district and an official from state agriculture department. There has been no development since then: nine months have passed but the farmers are yet to receive their compensation. In fact, the Swarajya team was amazed at how fastidiously these farmers have followed every rule and procedure. A PSU bank manager our team visited in Jhajjar informed us that many farmers who have accounts in his bank branch have been pillorying him for non-payment of claims. The process of deducting premiums takes a few seconds - and is done without consent - but when it comes time for the insurance firms to pay up, their machinery takes months. With such criminal delays, it is a legitimate question how useful the insurance scheme is for the farmers.

The insurance companies have seized this opportunity of a poorly considered government scheme to fleece thousands of crores from farmers and taxpayers. There is little evidence that they are investing in the manpower which is needed to assess the crop damage. The burden seems to have fallen on existing employees who have no expertise in agriculture. The government notification mandates that the implementing insurance agency sets up an office at all district headquarters – which they haven’t - with regular phone and cellular connections – calls to which don't get answered - to serve as helplines. These ground-level stations are supposed to verify five per cent of the beneficiaries and file a report with the District Level Monitoring Committee (DLMC), who then has to cross verify 10 per cent of the beneficiaries and send a report higher up. This lengthy and cumbersome process ensures that the monies are never released to the ravaged farmers in a timely manner if at all. The sweet irony in all of this is that the banks who are supposed to automatically deduct premia from the accounts of farmers who have availed crop loans are as inefficient and several accounts go undebited!

Typical state incompetence

An Agriculture Development Officer (ADO) is expected to carry out crop cutting experiments (CCEs) to decide on a threshold yield. The village is the Insurance Unit (IU). That means CCEs need to be carried out there. Since four crops are notified by Haryana and there are 6,841 villages, more than 1,09,456 (at least four CCEs samples per crop) experiments need to be carried out in a very short window of 15-25 days when the crop is ready for harvest. The total number of ADOs, Swarajya was informed, is less than 1,000 in Haryana. That translates to more than 100 experiments per officer which is simply not physically possible. Yet such are the operating guidelines.

A tiny clause allows the Haryana government a neat way out of its own inefficiency: if the yield estimate of the IU cannot be carried out, the estimate can be arrived at by grouping several neighbouring IUs together. If that is also not possible, yield estimate can be arrived at as the average of an entire district. If even that is not possible, the figures of the adjacent district is acceptable. It only remains for the Haryana government to quote results from Sindh!

Senior officials are spared the legwork of conducting the CCEs - threshold yields for districts and blocks are already given in the annexure of the state government notification. Officials can simply forward the data to insurance companies by the press of a button from the comfort of their own offices. This potentially faulty information ends up deciding whether a farmer’s yield warrants release of insurance funds or not. The state government also has to provide 10 years of historical yield data to Insurance companies for the calculation of indemnity limits, threshold yield, calculation of premium rates and so on at insurance unit area. To minimize the total CCEs needed by about 30-40 per cent, states can adopt new technologies such as remote sensing technology, drones, satellite imagery, digitization of land records for planning of crop cutting experiments in generating yield estimates. Predictably, there is little evidence that states are investing in these smart sampling methods.

Way ahead

Despite its several pitfalls, the problem is not the PMFBY itself. Insurance must be encouraged and is certainly cheaper than periodic farm loan waivers and ad hoc dole after a bad monsoon. Such discriminatory and populist methods are not sustainable. That said, the PMFBY's design is seriously flawed and implementation even worse. There is too much trust in the altruism of insurance companies. Since the government is the major contributor to the overall premium these (private) agencies receive, some experts have pitched the idea of creating a state-run insurance agency specifically for executing PMFBY, ignoring unencouraging past experiences of the government running such agencies.

Private insurers can continue to administer the PMFBY but they need to be more accountable. It is an important point to bear in mind that farmers must get their insurance claims before the commencement of the next crop; any later, and the ameliorating impact is lost.

All banks must take an undertaking from the farmers regarding the crop that will be grown. A receipt should also be provided to farmers for the premium deduction. Deducting money from poor people’s account in the way it is happening now is not how responsible governments conduct themselves. It’s politically daft too. One wonders who convinced the prime minister to adopt this vacuous way. There must be complete transparency regarding the flow of money, claims status, procedures, and recompense to and from the farmer to the insurance agent and the government.

The biggest problem is obviously centralisation factor of the PMFBY. Delhi cannot possibly know all the relevant details of every locality in the country. Besides, agriculture is a state subject and it should be left to them to administer the details with, perhaps, basic central oversight. The risks to crops in Haryana or Punjab are very different from those in coastal or hilly areas or in a semi-arid state like Rajasthan; some regions have better irrigation than others. The diversity is too much to have a ‘one size fits all’ insurance scheme. In the name of protecting farmers, Delhi has overextended itself and opened huge lacunae in the programme.

The Prime Minister needs to be on top of this otherwise it will cost him dearly. For a country that is predominantly agricultural, he is playing with fire.

The author would like to thank Shri Ram Kanwar, Professor (retd), Haryana Agriculture University, Hisar, for his invaluable inputs.