Hindu Editorial Analysis : 8-June-2024

Crop insurance is crucial for Indian farmers, who rely heavily on agriculture. Recent reports from the Press Information Bureau (PIB) reveal that although more farmers are enrolling in crop insurance programs, the actual penetration and effectiveness of these schemes are quite low. This essay explores the current state of crop insurance in India, the challenges faced, and potential solutions.

The Need for Crop Insurance

India’s agriculture is highly dependent on monsoons and is vulnerable to unpredictable weather. Farmers often face risks like droughts and floods, which can lead to significant crop losses. To address these challenges, the Indian government has introduced various crop insurance programs, including:

  • Pradhan Mantri Fasal Bima Yojana (PMFBY)
  • Restructured Weather-based Crop Insurance Scheme (RWBCIS)
  • Pilot Unified Package Insurance Scheme (UPIS)
  • Coconut Palm Insurance Scheme (CPIS)

These programs aim to provide financial protection to farmers.

Current State of Crop Insurance

Despite the increasing enrollment of farmers—27% from 2022 to 2023—the penetration of these insurance schemes remains low. Key statistics include:

  • Penetration Rate: The gross premium as a percentage of GDP is just 0.62%.
  • Insurance Density: The average premium paid by farmers is only ₹2,148.

Although claims payouts have improved, the overall effectiveness of these programs is still lacking.

Challenges Faced

Several issues hinder the growth and efficiency of crop insurance in India:

  • High Transaction Costs: Small farmers face significant costs in accessing these services.
  • Lack of Coordination: Poor collaboration among insurers, banks, and government agencies causes delays.
  • Skewed Distribution: Most benefits go to loanee farmers, leaving small and resource-poor farmers underserved.

Financial Analysis of Insurers

From 2018 to 2022, insurers paid out about 92% of their premium income in claims. However, underwriting expenses were 36%, resulting in a combined ratio of 128%. This means insurers paid out more than they earned, which is unsustainable.

Policy Suggestions

To enhance crop insurance effectiveness, several policy changes are needed:

  • Specialized Management: Different management strategies for PMFBY and RWBCIS can improve outcomes.
  • Flexible Premium Rates: Offering different premium rates for various programs can encourage wider participation.
  • Alternative Risk Models: Implementing new risk-sharing models can reduce subsidies and encourage more farmers to enroll.
  • Strengthening Distribution Networks: Leveraging mobile networks and banking channels for premium collection and claim settlements can improve access.

Why In News

Recently, the Press Information Bureau (PIB) disclosed that the penetration and density of crop insurance programs in India are significantly low, despite a substantial increase in farmer enrollment in these schemes. This paradox highlights the urgent need for reforms to enhance the effectiveness and accessibility of crop insurance for all farmers.

MCQs about The Importance of Crop Insurance in India

  1. What is the primary purpose of crop insurance programs in India?
    A. To increase crop yields
    B. To provide financial protection against crop losses
    C. To promote organic farming
    D. To subsidize seed costs
    Correct Answer: B. To provide financial protection against crop losses
    Explanation: Crop insurance programs aim to protect farmers from financial losses due to unpredictable weather and other risks associated with agriculture.
  2. Which of the following is the most prominent crop insurance scheme in India?
    A. Restructured Weather-based Crop Insurance (RWBCIS)
    B. Pilot Unified Package Insurance Scheme (UPIS)
    C. Coconut Palm Insurance Scheme (CPIS)
    D. Pradhan Mantri Fasal Bima Yojana (PMFBY)
    Correct Answer: D. Pradhan Mantri Fasal Bima Yojana (PMFBY)
    Explanation: PMFBY is the most widely recognized and implemented crop insurance program in India, designed to cover a wide range of risks for farmers.
  3. What challenge significantly affects the effectiveness of crop insurance programs in India?
    A. High agricultural productivity
    B. Low transaction costs for large farmers
    C. Lack of coordination among insurers, banks, and government
    D. Abundance of available insurance options
    Correct Answer: C. Lack of coordination among insurers, banks, and government
    Explanation: Poor collaboration among these entities leads to delays and inefficiencies in the delivery of crop insurance services, affecting overall effectiveness.
  4. What is one suggested policy change to improve crop insurance in India?
    A. Reducing the number of insurance programs available
    B. Implementing a one-size-fits-all approach
    C. Offering different premium rates for various programs
    D. Eliminating the role of private insurers
    Correct Answer: C. Offering different premium rates for various programs
    Explanation: Tailoring premium rates to different insurance programs can encourage more farmers to participate and ensure that coverage meets their specific needs.

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