“Crop Insurance Schemes: Dismally Inefficient And Poorly Implemented”

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While the Government is pushing for insurance schemes in the agricultural sector, a Comptroller and Auditor General of India (CAG) audit report points towards some glaring flaws in the implementation of such schemes in the state of Himachal Pradesh.

The Comptroller and Auditor General of India has advised that Himachal Pradesh’s crop insurance schemes undergo a conceptual overhaul if benefits are to reach farmers. Based on a compliance audit conducted between 2014 and 2017, the CAG declared that schemes are dismally inefficient and riddled with implementation issues. These include; low coverage of farmers, non-maintenance of beneficiary databases, delays in issue of notifications, ineffective surveys, unverified premium payments, delays in finalization of insurance claims and non-existent monitoring mechanisms.

The major crop insurance schemes operating in the state during the audit period were the National Agricultural Insurance Scheme (NAIS), it’s successor Pradhan Mantri Fasal Bima Yojna (PMFBY) and the Weather Based Crop Insurance Scheme (WBCIS). NAIS mitigates financial losses from crop damage or destruction, WBCIS does the same with specific focus on adverse weather incidences while PMFBY, rolled out in 2016 to replace NAIS, provides insurance cover at all stages of the crop cycle. These schemes cover all major crops; wheat, paddy, maize, potatoes, etc. and are administered and implemented by a mix of government and private bodies.

The cumbersome administrative process

The Ministry of Agriculture and Farmer’s Welfare (MoAFW) is the apex authority for all three schemes, responsible for overall implementation and release of the central government’s share of premium subsidy. At the state level, State Agriculture and Horticulture Departments (SAHD) act as proxies for MoAFW, controlling the release of state government’s share, conducting crop yield surveys and providing information to insurers. They also, as per the decisions of State Level Coordination Committees on Crop Insurance (SLCCCI), notify crops and areas to be covered for the season.

Then come implementing agencies that include the Agriculture Insurance Company (AIC) and other empanelled private insurers. These are selected through an annual bidding process to provide crop insurance to farmers. AIC acts as an intermediary between insurers and banks on one side and government on the other, exchanging insurance declarations and claims for government subsidy. Farmer’s share of premium is collected by banks, often one’s that provide agricultural credit to farmers. These banks keep 4% of premium collected as collection charges, transferring the rest to AIC and other insurers along with consolidated declarations of farmer, crop and area wise insurance.

This rather complex administrative system governing all aspects of state sponsored crop insurance must not only operate efficiently but also as per a strict seasonal schedule for farmers to receive timely compensation. Timeliness is of prime importance as crop cultivation operates primarily on seasonal credit and on slim margins. Increased costs stemming from delays in compensation could render cultivation unprofitable, sapping the farmer’s seasonal income and contributing to prevailing agrarian distress. Take for example, a delay in SAHD notifying SLCCCI’s decision. This notification should be issued before the commencement of the Rabi and Kharif seasons, in September and March respectively. Delays in notifying would cause a lag in banks submitting declaration forms of farmers insured. These declarations must be submitted by 31st December (rabi) and 31st July (kharif) respectively for farmers to be eligible for insurance coverage. Delays in doing so would render farmers ineligible and exposed to losses.
Post harvest processes also follow strict guidelines regarding receipt of harvest yield data to determine losses (within a month from final harvest) and payment of claims. All in all, in an ideal situation farmers suffering crop loss would receive compensation no later than two months of the final harvest.

Photo : AIKS
    Farmers stage a protest in Shimla.

Systemic delays

In reality though, delays are borderline systemic. SLCCCI meetings were delayed by anywhere between 37 to 125 days. This in turn delayed SAHD’s notifications by 27 to 98 days for the kharif crop and 14 to 54 days for the rabi crop. Delays in notifying, beyond merely affecting the eligibility of farmers for insurance coverage, also impact the coverage of non-loanee farmers. Insurance coverage is only compulsory for farmers that receive agricultural credit. As other farmers aren’t compelled to take insurance and also because they aren’t necessarily within the banking system, the extent of insurance coverage among non-loanee farmers depends on insurers having sufficient time to market and sell their instruments. The period for doing so begins with receipt of SAHD’s notification and ends with the cut-off date for submitting crop insurance declarations. As the latter date is a fixture, delays in issue of notification impact the extent of coverage by reducing the coverage maximizing period.

Besides this, there are even delays in submission of crop insurance declarations which have had disastrous consequences on farmers. In 2016, 24 commercial and cooperative banks submitted these forms post cut-off dates which resulted in nearly 5,500 farmers being denied insurance coverage, despite paying premium.

Delays are also prevalent in release of government subsidy, especially in WBCIS. The subsidies should ideally be released at the beginning of the crop season based on fair estimates received from insurers, with the balance settled once final figures are submitted. These final figures should be submitted by insurers to government before 30th April for the following year (rabi) and November 30th (kharif) and are based on consolidated declarations compiled by banks and private insurers. This ensures that all government subsidies are received 2 months before the end of the crop season and that claims are settled within 45 days.

Delays have occurred at both ends of this process, with insurer submissions lagging by 4 to 144 days and subsidy releases by 68 to 204 days.

Persistent surplus budgets

In contrast to the slow release of subsidies, SAHD has consistently declared budgetary surpluses of over 1/3rd for the Agricultural department and nearly 1/4th for the Horticultural department, implying that budget allocations are far in excess of insurance demand. Also, these surpluses are surrendered to state government before the completion of the financial year. Expenditure is often unverified and underestimated, leading to rather absurd situation like the one which transpired in 2014-15. In that year, Rs. 2.38 crore was surrendered to state government by January 2015, 3 months before the end of the year. This surplus was computed without factoring the demand for premium subsidy in the remaining 3 months. Hence, when AIC raised a demand for Rs. 1.30 crore in March 2015, SAHD was forced to seek additional funds which resulted in 8% deficit in re-allocation.

Unrealistic estimates

Over-eager state departments aside, crop insurance schemes are also plagued by paucity of robust yield and coverage data. Crop loss is estimated as the difference between normal yield and actual yield. As normal yield can vary from area to area, dependent on soil conditions, access to irrigation, rain-fall, etc., the Gram Panchayat was chosen as the unit area for estimation as it was small enough to reflect these variances.

However, contravening established guidelines, the tehsil or block was used as unit area. This has led to multiple and varied village based normal yields being condensed into an overall tehsil level normal yield, creating distortions and unrealistic assumptions in assessing losses suffered by farmers. The end results are that some farmers get excess compensation while others less, increasing the precarity of crop cultivation as a means of livelihood.

Poor coverage

To top all the other problems, crop insurance schemes in Himachal Pradesh are further handicapped by abysmally low levels of penetration into the agrarian community. Guidelines demand that state governments ensure maximum coverage of farmers, including non-loanee farmers. NAIS’s penetration never exceeded 2% of Himachal Pradesh’s farmers (estimated at little over 9.5 lakh) in terms of coverage. As for non-loanee farmers, less than 150 were covered between 2014 and 2016. These numbers did improve with PMBFY replacing NAIS, but with coverage still struggling to cross 15% (non-loanee farmers amounting to less than 2% of that), the scope for improvement remains humongous.

WBCIS is also similarly plagued with kharif coverage never topping 3%. The rabi crop’s fares relatively better, averaging little over 11% in terms of coverage.

There are also instances when banks have failed to provide any sort of insurance coverage to their own loanee farmers. A sample survey conducted revealed that near 13% of loanee farmers in a branch of Himachal Pradesh State Cooperative Bank and a branch of UCO bank were un-insured in any fashion.

Crop insurance schemes call for reforms

Most of the problems associated with Himachal Pradesh’s crop insurance schemes stem from non-compliance with prescribed guidelines. Some of these issues could have been addressed internally if robust mechanisms were present for monitoring, review and assessment. Despite guidelines specifically stressing on the need for District Level Monitoring Committees (DLMC), these were set up only in November 2016 and remained non-functional for the rest of the audit period.
There are also no farmer databases maintained nor are any periodical reviews or impact assessments conducted, making monitoring even more difficult. Added to this, there is no system in place to resolve farmer complaints or grievances. In fact, even the SLCCCI which decides on area and crop based coverage contains no representatives from the farming community, making redressal of the community’s issues even more difficult.

Crop insurance is a necessity in case of monsoon dependent agriculture and as most insurance instruments are priced beyond what is affordable to farmers, state involvement is imperative. However, as such schemes are nationally configured, they need effective and continuous monitoring and assessment not only to ensure that operations are up to scratch but also to tailor schemes to meet regional requirements. Not only should these schemes improve their operational ability but also their inclusivity and regional specificity in relation to the local farming community.

Involving farmer representatives and organizations in deliberations, decision making, implementation and review processes would not only achieve the above but would also alleviate the burden on over-stretched state bureaucracy. It would even reduce dependence on private entities whose blinkered adherence to profit seeking renders them unsuitable for providing public services. Without this kind of conceptual and operational overhaul, crop insurance schemes will continue to flounder, leaving farmers distressed and insurers enriched.


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