FARMERS BEHAVIOURS AND ATTITUDES TOWARDS CROP INSURANCE SCHEME IN INDIA (CASE OF KERALA, INDIA)

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1 Volume 119 No , ISSN: (on-line version) url: ijpam.eu FARMERS BEHAVIOURS AND ATTITUDES TOWARDS CROP INSURANCE SCHEME IN INDIA (CASE OF KERALA, INDIA) Sreejamol.K.S 1, Sridevi.K.B 2, Priyadarshini.V 3, Visagamoorthi.D 4 1 Assistant Professor, School of Management, Sri Krishna College of Engineering and Technology, Coimbatore, Tamilnadu, India. sreejaks@skcet.ac.in 2 Professor, School of Management, Sri Krishna College of Engineering and Technology, Coimbatore, Tamilnadu, India. sridevikb@skcet.ac.in 3 Associate Professor, School of Management, Sri Krishna College of Engineering and Technology, Coimbatore, Tamilnadu, India. priyadarshiniv@skcet.ac.in 4 Professor, School of Management, Sri Krishna College of Engineering and Technology, Coimbatore, Tamilnadu, India. visagamoorthi@skcet.ac.in Abstract The necessity to protect the farmers from natural calamities and to ensure their credit eligibility for the next season has moved to an alarming stage. Thus, Government of India has introduced many agricultural schemes throughout the country. The present study scrutinizes the nature and scope of specialty insurance (Weather-Based Crop Insurance schemes) in the country and its impact on the farmers (policyholder) in Kerala. The study discusses the dissatisfaction level of 967

2 farmers confronting the Weather Based Crop Insurance Scheme, which was addressed as a promising financial innovation in the recent times. Even though the role of crop insurance is appreciated widely as a critical risk mitigation tool, this study points that the socio-economic status of the farmers cannot be overcome by this policy because of insufficient policy intervention. Keywords: - Policy intervention, socio-economic status, Weather-Based Crop Insurance, Policyholder, 1. Introduction Agriculture plays an important role in India s economy. Studies say that 58 percent of the rural population depends on agriculture as their major means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product. Agriculture being the function of physical, socio-institutional, techno-economic factors which are dynamic in nature keeps on changing with the basis objective of increasing production and generation of food grain surplus. As per estimates by the Central Statistics Office, the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) was 16.1 per cent of the Gross Value Added during at prices. During Q1 (quarter 1) FY (Financial year) 2016, agriculture and allied sectors grew 1.9 per cent year-on-year and contributed 14.2 per cent of Gross Value Added. In India Agriculture is highly vulnerable to risks like droughts and floods. Farmers have developed their own risk management strategies to cope up with these adverse events, sometimes with the assistance of the governments. The necessity to protect the farmers from natural calamities and to ensure their credit eligibility for the next season has moved to an alarming stage. Thus, Government of India has introduced many agricultural schemes throughout the country. 1.1 Crop Insurance in India: Evolution 968

3 Crop insurance has been introduced in the early part of the century, though most of the studies trace it to the post-independence period. Economist Prof. V.M.Dandekar introduced the concept of crop insurance on an area approach. His recommendations have played an eminent role in the subject of crop insurance in the country. In late 90 s the Comprehensive Crop Insurance Scheme (CCIS) was replaced with scheme called National Agricultural Insurance Scheme (NAIS). Both loanee and non- loanee farmers can avail this scheme to cover all food grains, oilseeds and annual horticultural / commercial crops subject to the availability of past yield data for requisite number of years. The Government of India initiated Agricultural Insurance Company of India Ltd (AIC) in 2002, a specialzed organization to cater to the insurance needs of the farming community. The Government of India has done many experiments and steps by initiating various schemes of crop insurance like First individual approach scheme ( ), Pilot Crop Insurance Scheme ( ), Comprehensive Crop Insurance Scheme ( ), Experimental Crop Insurance Scheme ( ), Farm Income Insurance Scheme( ), Pilot Scheme on Seed Crop Insurance and National Agricultural Insurance Scheme ( onwards), Pilot Weather Based Crop Insurance Scheme (announced in the Union Budget 2007) and Pilot Coconut Palm Insurance Scheme( ). 1.2 Agriculture in Kerala Though Kerala is one of the small states in India with a geographical area of 38862km, Kerala significantly supports the population of India. The state of Kerala has humid climate types except the southernmost pockets of the state and the state and the eastern parts of the Palakkad region falls under moist sub-humid climatic type. Palakkad district is named as the Granary of Kerala. Palakkad was the principal rice cultivating part in the Malabar district of the old Madras presidency. Out of the five taluks which forms the existing Palakkad district namely Alathoor, Chittoor, Palakkad, Mannarkkad and Ottapalam, rice cultivation was originally concentrated in the first three taluks. Palakkad district is naturally blessed with surplus irrigation facilities. Agriculture is the core occupation of the people of 969

4 Palakkad district. The major crops cultivated in this district are paddy, Coconut, Rubber, Pulses, Areca nut, Tapioca, Ginger, Groundnut, Sugarcane, Cotton etc. Coconut and Paddy occupies the predominant place among the major crops. The weather-based crop insurance scheme (WBCIS) and the modified national agriculture insurance scheme (MNAIS) are the two vital parts of the National Crop Insurance Programme of the Union government, are being provided to the farmers in the State for the existing crop season. Paddy, plantain, cashew, sugarcane, mango, and tapioca are included under this scheme. Particulars of the applicability of the scheme for crops in various districts have been listed by the State Level Coordination Committee on Crop Insurances. While farmers who have availed agriculture loans from banks and reputed financial institutions are included under the scheme, for others it is voluntary. The scheme is currently being implemented by the Union and the State governments together. 1.3 Weather Based Crop Insurance The population involved in agriculture and the fact that 60 per cent of the crop cultivation is carried on in rain-fed conditions highlights the most dependence of the Indian agriculture on the weather. Severe weather events (drought, flood, extreme temperatures, high wind velocity) may have a devastating consequences on the livelihood of farmers and also a wider population that depend on the sector. Weather Based Crop Insurance is a mechanism for providing a significant risk management support to those individual farmers and institutions likely to be affected by the adverse weather incidences. 2. Review of Literature In 1976 Prof. V.M.Dandekar was entrusted to conduct a study about the scheme. On the basis of his research findings, a Pilot Crop Insurance Scheme (PCIS) was introduced by GIC in the year It was considering Area Approach rather than Individual Approach of the previous scheme for extending insurance cover against a decline in crop yield below the 970

5 threshold yield. The risk was shared by GIC and State Governments on 2:1 basis. The maximum sum insured was at par to the crop loan premium ranged from 5 to 10 percent of the sum insured. According to the research of Sing and Rai(1980), Crop Insurance would safeguard the cultivators from the risk and could encourage them to cultivate high risk crop like pulses and oilseeds, which would fit with the ongoing national strategy to enhance production of pulses and oilseeds and would lead the farmers towards high income. Karthik.T.T in his research titled A study on crop insurance in Madurai district that in spite of the schemes introduced periodically in India for agriculture insurance has not ensured the purpose. Crop insurance coverage in terms of area, database of farmers and agricultural output is not sufficient enough; payment of indemnity based on area approach has settled the claim for unaffected farmers. Government should take initiatives to redesign by providing appropriate mechanisms and providing financial support for agricultural insurance. Providing similar help to private sector insurers would also provide a provision to increase insurance coverage and viability of the insurance schemes over time. 3. Research Objective This study aims to enquire: To study the growth and development of Weather Based Crop Insurance Schemes. To analyze the impact of WBCIS in socio-economic status of the policy holders in Kerala. 4. Research Methodology Primary data collection is been implemented with a structured questionnaire method. A sample size of 500 respondents have been selected for the study. This study considered several statements to measure the wide range of the components in the study variable. Since the population for this 971

6 study is infinite, for an assumed level of 5% error in estimates of means of these responses, using the information on variance from the pilot study, sample size was obtained based on each response. If n is the sample size, s is the estimate of standard deviation and d is the estimate of error under the assumption of 5% error in estimate and the critical value from Normal test at 4.37% level of significance is 1.96, then with 95% confidence level is given by n = (1.96 s / d) 2. Number of respondents required for the survey was 383. Estimating 60% of response rate 640 policyholders were considered for the survey. The sample size of 500 is the maximum among the sample sizes obtained from responses for all the statements. To get better accuracy, the sample size was enhanced from 383 to 500. This study is analyzed by using the primary data collected through questionnaires in 13 community blocks. The tools used for analysis are percentage, Weighted Average Method and Analysis of Variance (ANOVA). 5. Results & Discussion 5.1 Socio-Economic Factors The table demonstrate that less than 8% of the farmers succeeded in motivating the next generation into farming because of WBCIS. Table 1 Impact on Socio Economic Factor Socio Extent of Impact Total Weighted Rank Economic Average Factors Reduction in fear of loss Improvement in standard of living Increase in the confidence level for continuing % 42.60% 4.80% 2.20% 100% % 42.20% 3.80% 6% 100% % 44.20% 6.20% 1.40% 100% 972

7 Agriculture Testing new crops in field Comfort in loan closures during the time of unexpected losses Bringing the next generation into farming Reduction in migration to urban areas Increase in income level Improvement in saving and investment level Reduction in borrowing % 41.40% 3.80% 1.40% 100% % 39.80% 4.40% 1.40% 100% % 42.00% 4.40% 2.60% 100% % 35.60% 3.20% 1.20% 100% % 38.20% 3.60% 1.00% 100% % 35.80% 3.80% 1.20% 100% % 41.00% 3.20% 1.00% 100% level Not Applicable - 1 Very Little Benefited - 2 Fairly Benefited - 3 Highly Benefited - 4 Source: Authors Calculation In rural India most of the farmers are living their livelihood with wages and salaries but still it was analysed that the principle source of income for farmers is generated through crop cultivation. The most common source of these wages is through agricultural labour in farms owned by other households. It is inferred that the present crop insurance scheme is not supporting the farmers to progress their earnings and investment. Table 1 expresses that crop insurance is not serving as a useful tool to those farmers who are cultivating unlisted crops in the crop insurance scheme, to test listed crop in their field. Farmers are often worried about the rising costs of 973

8 inputs which includes water, seeds and pesticides. Thus the farmers are in need of credit to meet the basic expenditure required for raising the crops on land. 5.2 Knowledge About The Various Components Of Insurance And Demographic Factors Of The Respondents To find out the existence of difference between knowledge about the various components of Insurance and the selected demographic variables of the respondents, ANOVA test was administered with the following hypothesis statements: H0 : There is no significant difference between knowledge about the various components of Insurance and the selected demographic factors of the respondents Ha : There is no significant difference between knowledge about the various components of Insurance and the selected demographic factors of the respondents Table No. 3 Results of test of association between knowledge about the various components of Insurance and Demographic factors Components Age Gender Annual Income of Insurance F Sig. Result F Sig. Result F Sig. Result Extent of coverage (Insured value) Premium to be paid (per year) Crops covered under the scheme Procedure for insuring crops Method of loss determination H H Ha H H H H H H H Method of H H H0 H0 H0 H0 H0 H0 974

9 compensation determination Subsidy on insurance premium by state and central government Ha H H0 Source: Authors Calculation Thus it can be understood that there is no significant difference between the selected demographic variables viz., gender and monthly income and knowledge of various components of insurance which means that the knowledge about various components of insurance do not vary based on gender and annual income of the respondents. All income groups and gender have similar knowledge about the components of insurance. For Age, the result indicates the same trend except for the components Crops covered under the scheme and Subsidy on insurance premium by state and central government, where there is significant difference among the age groups. 6. Conclusion Crop insurance is a very unique and significant risk management tool introduced by our Government for the welfare of the farmers of oour country. Critical analysis reveals that the crop insurance is a real solution for the risk encountered by the farmers. Designing, evaluating and regulating indexed insurance products is really a expertise area which demands lots of technical support. The central and state government need to join their hands in formulating and implementing more relevant schemes to the farmers, the real back bone of our country. References 1. Dandekar, V.M. (1985), Crop Insurance in India a Review, to , Economic and Political Weekly, Vol.20, Nos , June, Page No. A46-A

10 2. Singh, I. J and K.N. Rai, 'Acreage, Yield Pr'toaad Gross Income Variability of Selected Crops in Dry Farming Areas of Haryana', Agricultural Situation in India, Vol. XXXV, No , Page No Karthik.T.T, A study on crop insurance in Madurai district, Ph.D thesis, Madurai Kamraj University, Ghalavand Kiyanoush, Agriculture insurance in India a study of Jammu and Kashmir, Ph.D. thesis, Panjab University, December A Critical Study on Impact Of Weather Based Crop Insurance Scheme on Chilli Farmers of Guntur District Of Andhra Pradesh, K. P. Sravana Varalakshmi, M.Sc(Agriculture) thesis, Agricultural College, Bapatla AcharyaN.G, Ranga Agricultural University 6. The Annual Report of Department of Agriculture, Cooperation & welfare farmers (Ministry of Agriculture) 7. Growth of NAIS: A Study of Crop Insurance In India, Dr. Shrikrishna S. Mahajan and Prof. Amol H. Bobade, EISSN , Volume-3, No.-1, Jan-April Ethridge, D.E. (2004) Research Methodology in Applied Economics John Wiley & Sons, p ANNUAL REPORT , Department of Agriculture, Cooperation & Farmers Welfare Ministry of Agriculture & Farmers Welfare Government of India. 10. Impact of Climate Change on Indian Agriculture & Its Mitigating Priorities- Manas Ranjan Senapati, Bhagirathi Behera, Sruti Ranjan Mishra Division, B., Report of the Expert Group on Agricultural Indebtedness. Ministry of Finance. Available at: Dwivedy, N., Challenges faced by the Agriculture Sector in Developing Countries with special reference to India. International Journal of Rural Studies, 18(2), pp.2 7. Available at: 976

11 online.org.uk/ijrs/oct2011/challenges faced by the Agriculture Sector in India.pdf. 13. FAO, The Impact of Natural Hazards and Disasters on Agriculture and Food Security and Nutrition, Itlay. Available at: [Accessed November 3, 2015]. 14. Narayanan, S., The Productivity of agricultural credit in India. Indira Gandhi Institute of Develoment Research. Available at: [Accessed November 2, 2015]. 15. Evolution and Current Scenario of Crop Insurance in India, D. D. Dange, Regional Manager, Agriculture Insurance Company of India Ltd., September MODULE 2 India: Natural Environment, Resources and Development 977

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