Insuring against Investment: How policies foster agricultural distress

पाम ऑयल मिशन को लेकर नॉर्थ-ईस्ट में उपजी आशंकाएं

“हमसे कोई सलाह-मशविरा नहीं लिया गया। नॉर्थ ईस्ट में पाम ऑयल मिशन ठीक नहीं है क्योंकि मेघालय में हम आदिवासियों का जीवन...

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2017-18 is turning out to be another poor year for agriculture. Despite improving monsoons, farmer suicides continue to mount caused by high levels of agrarian debt coupled with meager prices and low returns from farming. The macroeconomic situation is quite bleak as well. With 2017-18’s estimated Gross Value Added (GVA) from the sector growing at a mere 0.91%, the divergence between the performance of agriculture and that of the general economy (growing at 5.55%) appears to be increasing. This is not a one off occurrence. Agricultural growth throughout the BJP years (2014-15 and onwards) has been tepid with average growth stagnating at less than 2%. A substantial shrinkage if it were compared to the over 5.5% growth clocked in 2013-14.

Source: Ministry of Statistics and Programme Implementation

Agriculture, like any productive sector, grows based on investments made. But unlike in other productive sectors, there exists limitations in growth from revenues. Restrictions on increase in food prices leave agrarian growth highly dependent on the volume and volatility of the output as well as cost of inputs and production. In other words, investments in capacity expansion and productivity are key to promoting growth in agriculture. This correlation is fairly evident if year on year growth in agrarian GVA and investment are compared (refer to the graph below).

Source: Ministry of Statistics and Programme Implementation

It can be seen that upward or downward movements in investments are roughly mimicked by GVA, though to a lesser degree. This implies that monsoonal vagaries aside, a major reason for poor agrarian growth during the BJP years lies in the negligible appreciation of investments made in agriculture. These generally account for less than 8% of total investments in the economy and are derived primarily from the public and household sectors. At an average, the public sector chips in around 13% of total agricultural investment while households contribute roughly 85%. According to the latest available data, the household sector’s contribution has been on a downward trend since 2014-15, contracting by little less than 9% in 2015-16. Sadly, this was expected as gross savings of the household sector shrank by over 7.6% in 2016-17 from a pre-2014-15 two year average increase of nearly 13%. What wasn’t expected was government’s repeated failure at making good this shortfall.

The union budget provides government with the single largest opportunity to invest in Indian agriculture. Schemes like the Pradhan Mantri Krishi Sinchai Yojana (PMKSY) and the Rashtriya Krishi Vikas Yojana (RKVY) seek to bolster agricultural investments and as a result improve agricultural growth. PMKSY aims at improving farm productivity by investing in irrigation while RKVY seeks to ensure a steady level of annual agrarian growth (4%) by fostering state centric public investment. Both these schemes form the most significant conduits for desperately needed public investments and structural up-gradations in the agricultural sector. In fact, there exists a fair degree of correlation between the growth in allocations to these two schemes and investment growth in agriculture (refer to the graph below).

Source: Ministry of Statistics and Programme Implementation and Union Budget documents

Despite this, neither scheme has witnessed any significant increases in budgetary allocations in 2018-19. PMKSY was increased only by Rs 600 crore (less than 18% increase) while RKVY was actually reduced by nearly 25%. RKVY’s beyond merely suffering a cut in this budget has been subjected to a year on year reduction of funds since the BJP took charge. In terms of rates of growth, RKVY has consistently remained below the departmental rate and even when the departmental budget was nearly doubled in the 2016-17 budget, RKVY was increased by only a fifth.

Source: Union Budget documents

What this indicates is that throughout the BJP’s tenure, there has been a marked policy shift from investments and structural reform in the agrarian sector to quick fix solutions. Prime among these are insurance schemes which serve a dual purpose of temporarily stemming farmer backlashes from crop failures and lost earnings while at the same time enabling the BJP’s corporate backers to profiteer off agrarian distress.

The BJP’s flagship agricultural insurance scheme is the Pradhan Mantri Fasal Bima Yojana (PMFBY). It is a crop insurance scheme, whose allocations for 2018-19 were increased by Rs 4,000 crore (a 44% increase which is over 82% of the agriculture department’s total budgetary increase). Though robust crop insurance is a necessity in monsoon dependent agriculture, PMFBY’s structural and operational peculiarities seem to facilitate an almost criminal transfer of funds from the exchequer to private coffers. The scheme entails mandatory crop insurance for farmers cultivating particular crops in select states. The farmer pays a subsidized rate of premium, limited by the scheme, with government bearing the balance. However, the scheme contains no provisions for limiting the gross premium charged, allowing private insurers to charge exorbitantly. Alongside this is the option for insurers to bid on an annual basis which has allowed private insurance companies to take up the scheme only when favorable monsoons are predicted, leaving public insurance companies to deal with the lean years. In fact, data tabled in parliament last July indicates that insurers, mostly private made a windfall of roughly Rs. 16,700 crores. 11 general insurance companies over the 2016 Kharif and Rabi seasons collected Rs. 20,374 crore as premium but paid out only Rs. 3,655 crore as claims, which in itself constitutes only 63% of the claims submitted. With such appalling rates of claim disbursement coupled with the super normal profits raked in by private insurers, allocations to PMFBY could actually be classified under corporate subsidies.

The problems with agrarian insurance are not limited to PMFBY alone. The 2017 performance audit report of the Comptroller and Auditor General of India (CAG) is scathingly critical of Indian agricultural insurance and repeatedly insinuates that willful administrative lapses are suffered for the purpose of benefitting private insurance agencies. Though it doesn’t cover PMFBY, the report states that over 66% of famers surveyed are unaware of schemes and that despite specific provisions for coverage of scheduled castes and tribes, records of such are not maintained. Also that the coverage of previously uncovered famers, sharecroppers and tenant farmers is negligible and that by not maintaining the requisite records, the government has become completely dependent on private parties for determining both the scope of the schemes and the manner of their implementation. In spite of this, and many other critiques of agricultural insurance schemes (especially ones that involve private participation), more and more of the annual budget is being allocated towards insurance subsidies and often at the cost of more impactful programmes like PMKSY and RKVY.

Source: Union Budget documents

Though most criticisms pertain to poor implementation of schemes, there are also conceptual issues with insurance taking primacy in the state’s intervention in agriculture. Insurance by definition can only recover losses and even if the rampant private profiteering was overlooked, it has little effect on agricultural productivity or operational profits. Indian farming suffers severely on both these fronts. Not only is less than half the cultivated land reliably irrigated but also, there is a severe dearth in requisite infrastructure be it in terms of produce storage and processing facilities or procurement centers (the lack of which effectively nullifies hikes in Minimum Support Prices). These can only be addressed by significant and sustained state sponsored investment in a variety of areas. The area under irrigation needs expanding to improve farm productivity and mitigate monsoonal influences. Sustainable agriculture needs promoting to tailor regional farming practices to the local environment and reduce dependence on costly and soil damaging inputs like GM seeds, fertilizers and pesticides. The number and coverage of brick and mortar government mandis (procurement centers) needs increasing, beyond merely creating digital linkages and platforms, to effectively implement Minimum Support Prices (MSP) and protect farmers from rapacious grain merchants. Storage and produce processing facilities also have to be upgraded to limit produce wastage and spoilage. And alongside all this, a sincere effort at land reform is imperative.
Were all these measures implemented and agrarian productivity established, promoting insurance schemes (sans private participants) to cover losses from poor harvests or improving farmer incomes via MSP hikes would truly be justified. As such is not the case, they are nothing more than sops to deflect rural rage and keep the agricultural sector in a cycle of poor productivity, low profitability and perpetual distress.


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