International Journal of Advance Engineering and Research Development. Crop Insurance in India: Scope for Improvement

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1 Scientific Journal of Impact Factor (SJIF): 4.72 International Journal of Advance Engineering and Research Development Volume 4, Issue 6, June-2017 Crop Insurance in India: Scope for Improvement 1 Amlendu Kumar, 2 Shashi kant e-issn (O): p-issn (P): Assistant Professor, 2 Senior Research Fellow(IIT-BHU), Department of Mathematics, 1, DeenDayalUpadhyaya College (DU), New Delhi,India Abstract Indian Agriculture dependent on monsoon which is always flexible. It leads to operating risk in cultivation of different crops. Therefore, there is a great need for crop insurance to provide economic support to farmers, stabilize farm income, induce farmers to invest in agriculture, reduce indebtedness and decrease the need for relief measures in the event of crop failure The National Agricultural Insurance Scheme is vital for providing insurance cover to farmers, across regions, across seasons and across crops. This paper comprehensively reviews the NAIS and suggests changes to make it more effective. To cover the risk which may occur in future, there is need to some provision and crop insurance is only mechanism available to safeguard against production risk in agriculture. For fulfilling this need the Government of India has made experiments & efforts by introducing various schemes of crop insurance. Since the year , National Agricultural Insurance Scheme has been launched by National Agricultural Insurance Scheme Corporation of India. This research paper has made attempt to study the growth and development of National Agricultural Insurance Scheme and to examine the important features and performance of NAIS. Keyword: Crop Insurance, Agriculture, NAIS, India. Introduction Symbols &Notations: K = number of crop types; Tk = number of planting dates for crop k; Ik = number of insurance policies for crop k; J = number of scenarios; qk = planting area (in acres) available for crop k; Ck = planting cost per acre of crop k; Rki = premium of insurance policy i for crop k per acre; Zkti = (random) revenue of crop k per acre planted on date t and insured by policy i; Zktij = revenue of crop k per acre planted on date t and insured by policy i under Scenario j; L_ = threshold of losses in probability exceeding penalty constraint; p = the upper bound of the probability exceeding penalty constraint; b = upper bound on CVaRc (L(x; Z)) v = upper bound on VaRc (L(X; Z)) Ykti = yield of crop k per acre planted on date t under scenario j; Yk = (historical) average yield of crop k per acre; Pki = market price of crop k per pound under scenario j; pk = price base of crop k per pound. Mathematical Formulation: max X kti Maximizing expected profit I k E Z kti X kti K T k k=1 t=1 i=1 (1) Subject to Planting area constraint for each crop k X kti = q k ; k = 1,2.., K T k I k t=1 t=1 (2) Joint constraint on planting area and insurance All rights Reserved 23

2 T k X kti q k t=1 ki ; i = 1,2,.. i k ; k = 1,2,.. K (3) Each crop k can be insured by at most one policy Cardinalitypositivity(X w) 1; k = 1,2,.. K (4) Risk constraint (CV a R, V a R, and Probability Exceeding Penalty) CV a R c L x, Z b; (5) Or V a R c L x, Z v; (6) Or Prob(L(x, Z)) L ) p; (7) Constraint on additional variables 0 X 1; i = 1,2,.. I k ; k = 1,2,.., K (8) Lower bounds on variables 0 X kti q k ; i = 1,2,.. I k ; k = 1,2,.., T k (9) Agriculture played vital role in economic development of India. At present 70 per centpopulation of the country dependent on agriculture but Indian agriculture dependent on monsoon which is always flexible. It leads to operating risk in cultivation of different crops. Natural calamities may affect on the yield from agriculture sector. To coverthe risk which may occur in future, there is need to some provision and crop insurance is only mechanism available to safeguard against productionrisk in agriculture. For fulfilling this need the Government of India has made experiments and efforts by introducing various schemes of crop insurance such as First individual approach scheme ( ), Pilot Crop Insurance Scheme ( ), Comprehensive Crop Insurance Scheme ( ), Experimental Crop Insurance Scheme ( ), Pilot Scheme on Seed Crop Insurance And National Agricultural Insurance Scheme ( onwards).the Pilot Crop Insurance Scheme (PCIS) based on the homogenous area approach was put in place on the basis of the recommendation of the Dandeker Committee report, in The Comprehensive Crop Insurance Scheme (CCIS) was introduced in The National Agricultural Insurance Scheme (NAIS) replaced CCIS from the rabi season of The Agricultural Insurance Company (AIC) has overall responsibility to implement the scheme. There are three policy goals implied in the scheme: (a) social response - providing support to the poor farmers who stand to lose the most during severe crop failures; (b) risk management - improving rural financial services' ability to manage commercial risk, which is important for improving access to finance by the farmers; and (c) fiscal exposure - controlling the fiscal exposure of the government, in terms of the average exposure as well as the peak exposure during disaster years. The scheme is a mix of voluntary and compulsory participation. The voluntarism is at the state level in terms of specific crops and areas to be covered. It becomes compulsory in selected areas of the state for farmers growing designated crops and taking loans from rural financial institutions. In other words, in the notified areas. Farmers who borrow from financial institutions have to take insurance compulsorily. All over the world agriculture is synonymous with risk and uncertainty. Agriculture contributes to 24% of the GDP and any change has a multiplier effect on the economy as a whole. Economic growth and agricultural growth are inextricably linked to each other. Crop insurance helps in stabilization of farm production and income of the farming community. It helps in optimal allocation of resources in the production process. Indian Government has been concerned about the risk and uncertainty prevalent in agriculture. As all of us are aware about the unfortunate deaths of farmers in Maharashtra who got caught in a debt trap and the devastating affect it had on their families. In this article, we try to trace the genesis of the crop insurance scheme and its effectiveness. We have attempted a comparison of the Indian scenario vis-a-vis the scenario in Western nations. (G.Venkatesh, 2008). The generally agreed principles of crop insurance are: (a) the uncertainty faced by individual farmers is transferred to the insurer, and for availing this benefit, the insured farmers pay a risk premium; (b) a large number of participating farmers covering a large area over a period of time enable the horizontal spread of risks over a wide area, and vertical spread over many years; (c) the risk premium reflects the group risk assumed by the insurer; and (d) an indemnity is to be paid to the individual farmer when a loss is incurred due to causes beyond his control, as long as he maintains the insurance contract valid by paying the All rights Reserved 24

3 Role and Responsibility of Stakeholders: Crop insurance in India is a multi-agency programme. The central government, state governments, National Bank for Agriculture and Rural Development (NABARD), General Insur- ance Corporation (GIC), commercial banks and cooperative banks all has a role to play. If the objective of a significant increase in the coverage and hassle free implementation is to be achieved, the role and responsibility of each major stakeholder will have to be clarified, and wherever necessary, strengthened. The central government is the prime mover of NAIS. It is important that the government does not consider it an ad hoc scheme. With all its limitations AIC has made important strides in the area. The central government has to come out unequivocally in favour of a scheme such as NAIS as a permanent feature of agricultural policy. The other area where clarity is needed is the extent and duration of subsidy in the premium. We have earlier presented a case for the continuation of the subsidy at the present level for the small farmers for their food crops. This should continue at least for the next five years. The role of the states is equally critical, in terms of their share in subsidy and more importantly, in helping with the timely results of the crop-cutting experiments in determining the scale of indemnity to be paid to the farmers. On the consideration that stakeholders other than the central and the state governments should also "own" the scheme, there is a case for reducing the share of subsidy by the states. However, they should also contribute to the subsidy amount to own their responsibility to cultivators, especially the small cultivators of their state. Their equally important role is to organise and deliver results of crop-cutting experiments in time. We heard the complaints from more than one quarter that the results are not transmitted to the concerned agencies for four to six months. This is quite a distance from the concurrent assessment and timely payment, which we have advocated. The commercial and the cooperative banks have a seminal role in the implementation of NAIS. First in canvassing the business of crop insurance, especially for the loanee farmers and then distributing the amount of indemnities to the affected farmers. Our discussion with bankers and other concerned parties suggested a lack of enthusiasm on the part of the banks to conduct this business although they are paid a token service charge. This is untenable, because the banks are the direct beneficiaries of crop insurance as the sum advanced by them is recouped even in the time of crop failure with the amount received by the growers as compensation. Indemnity payments are finally credited to the farmer's loan or bank account. There is a need for greater involvement of the banks. The fact that some private banks on their own are entering the field of crop insurance, in one or the other variant, suggests that this business is not alien to them. AIC and the concerned banks should arrive at some arrangement which ensures greater stake of the banks in crop insurance. NABARD and GIC are among the sponsors of AIC. They should take a more proactive role in meeting the targets of larger coverage and smoother functioning of the scheme. Their representatives on AIC Board should act as two-way conduit between their parent organizations and AIC. National Agricultural Insurance Scheme: Keeping in view the demands of States for improving scope and contents of CCIS, abroad-based National Agricultural Insurance Scheme (NAIS) has been introduced in thecountry from Rabi with the following objectives. a. To provide insurance coverage and financial support to the farmers in the event offailure of any of the notified crop as a result of natural calamities, pests and diseases. b. To encourage the farmers to adopt progressive farming practices, high value inputsand higher technology in Agriculture. c. To help stabilize farm incomes, particularly in disaster years.some of the improvements incorporated in the new scheme are visible from the following. Scope of the Scheme: a. Area Coverage The scheme was available to all states and union territories on optional basis.however the states opting for the scheme were required to take up all the crops identified forcoverage in a given year and shall have to continue for a minimum period of three yearsbefore it may quit. For Rabi 1999 only eight states (Assam, Goa, Gujarat, Himachal Pradesh,Kerala, Madhya Pradesh, Maharashtra and Orissa) and union territory of Pondicherry optedfor the scheme. This number was increased to 17 in Kharif 2000 and to 21 in Kharif 2002.Currently the scheme has been implemented in 23 states and two union territories. Punjab,Manipur, Nagaland, and Arunachal Pradesh among states and Chandigarh, Daman & Diu,Dadra & Nagar Haveli and Lakshadweep among union territories have not yet opted for thescheme. b.farmers covered All farmers including sharecroppers and tenant farmers growing notified crops innotified areas are eligible for coverage under the scheme. However, it is compulsory forloanee farmers availing crop loans from financial institutions (PACS, RRBs, and commercialbanks). While all loanee farmers would automatically get compulsorily coverage undernais through PACS / bank branches extending crop loan for insured crops all non-loaneefarmers desirous of availing insurance coverage should contact the nearest bank branchbefore the stipulated time frame with a proposal for insurance. They must have a bankaccount and pay the requisite premium to get insurance All rights Reserved 25

4 c. Risks Covered The scheme provides comprehensive risk insurance against yield losses due to non-preventable risks, i.e. (a) natural fire and lightening, (b) storm, hailstorm, cyclone, typhoon,tempest, hurricane, tornado etc., (c) flood, inundation and landslide, (d) drought, dry spells,and (e) pests / diseases etc. However losses arising out of war and nuclear risks, maliciousdamage and other preventable risks shall be excluded. d. Crops Covered The scheme besides food and oilseed crops also covered annual commercial andhorticultural crops. The crops in respect of which the past yield data based on Crop CuttingExperiments (CCEs) are available for past 10 years and the state government agreed toconduct requisite number of CCEs for estimating the average yield during the proposedseason are covered. The crops to be covered next year will have to be spelt before the close ofpreceding year. At present 35 different Kharif and 30 different Rabi season crops are beinginsured under NAIS in the country. The crops covered in various states fall under thefollowing groups. a. Food crops (cereals, millets and pulses): Wheat, paddy, Jowar, Bajra, Maize, Ragi, Korra, Kodokutki, Green gram, Black gram, Red gram, Horse gram, Moth etc. b. Oilseeds: Groundnut, Sunflower, Soya bean, Safflower, Sesame, Niger, Caster etc. c. Annual commercial/horticultural crops: Sugarcane, Cotton, Potato, Onion, Chilly, Turmeric, Ginger, Coriander, Cumin, Fennel, Fenugreek, Isabgol, Jute, Tapioca, Banana, Pineapple, etc. However mangoes, apples, grapes and oranges are not yet covered. SUGGESTIONS 1. There is need of an agent at local level for helping the farmers for claims assessment and receiving the indemnity payment. 2. Gram Panchayat should be made accountable for admitting claim of insurance and disbursement of claims to farmers. It can act as an authorized institution to presenting the scheme. It also declared disaster and assess losses. 3. Farmers should pay indemnity as early as possible like within 2 to 3 month from loss. Hence they can make preparation for their next crop season. Hence there is need to proper co-ordination between bankers and implementing agency. 4. There is need of interaction between all of the agencies involved in this scheme. 5. NAIS should seek to have a alternative way of assessing yield. If the damage done to the crop is extensive, dependable procedure for concurrent monitoring and payment have to be sought. Interviews with experts / knowledgeable person may help in assessing the damage to a crop at difference points. Other indicator can also be used and more than one agency could be needed to involve in this process. 6. There is also need to look in to the unit of indemnity payment. Under NAIS indemnity is calculated as the difference between the area yield and the threshold yield multiplied by the liability. This is an acceptable procedure. The main thing is that determination of area. Presently the yield estimation is determined at Mandal/ Block level. NAIS was expected to move towards Panchayat/village level within three years. CONCLUSION Crop insurance schemes in India cover only about 10 per cent of sown area and have a high claims to premium ratio. This paradox of low coverage and high claims to premium ratio is easier to explain if one also considers the fact that a single state - Gujarat - accounts for over 40 per cent of the claims and the next five states account for another 48 per cent. This indicates a problem of adverse selection induced by the generally uniform rates. The programme is also likely to suffer from problems of moral hazard because of inadequate monitoring and control. Since the implementing agency bears no risk it has little incentive to control moral hazard problems. The rural financial institutions, which deliver the policies and carry out initial processing of claims, are also recipients of the claim amounts against their loans. They will also have little incentive to control moral hazard problem Since 1972 so many schemes of crop insurance have been launched in the country but they failed to influence the farmers and share the risk of farmers. Now days some farmers are committing suicide due to lack of risk management. And All rights Reserved 26

5 are selecting the option of suicide rather than crop insurance. Hence there is need of serious concern of this problem of sharing the risk of farmers and protecting their crops against adverse weather and natural calamities. On this background, NAIS has been introduced since Rabi There are so many expectations from NAIS but it also failed to meetfarmer s expectations. Government of India constituted a joint group to overcome shortcomings of NAIS. The group made in-depth study and made important recommendation like reduction in the unit area of insurance to gram Panchayat for major crops, improving the basis of calculation of threshold yield, higher indemnity level of 80 per cent and 90 per cent coverage of presowing / planting risk and post-harvest losses. Personal accident insurance cover and package insurance policy etc. based on the recommendation of joint group and views/comments of various stakeholders, proposal of Modified National Agricultural Insurance Scheme (MNAIS) was prepared and sent to the Planning Commission. Planning Commission was decided that the MNAIS will be implemented on non-plan side. But all these recommendations are remain on the paper and once again government failed to improve crop insurance program. References 1: V M Dandekar (1976): 'Crop Insurance in India', Economic and Political Weekly, June 26. 2: Vyas, V S and Surjit Singh (2005): Agricultural Crop Insurance: Performance and Needed Reforms, a report submitted to Agriculture Insurance Company of India. 3: Hardaker, J B, R B M Huire and J R Anderson (1997): Coping With Risk in Agriculture, CAB International, New York. 4. Raju, S.S. & Chand, Ramesh (2008), Agricultural Insurance in India Problems and Prospects, National Centre for Agricultural and Policy Research, New Delhi, March. 5. Vyas, V.S. & Singh, Surjeet (2006), Crop Insurance in India Scope for Improvement, Economic and Political Weekly, November. 6. Venkatesh, G. (2008), Crop Insurance India, The Journal, Insurance Institute of India, pages 15-17, January-June Reddy, Sivaram (1998), Dr. P.V. Narasaih, Comprehensive Crop Insurance Scheme (CCIS). 8. Sinha, Sidharath, Agriculture Insurance in India: Scope for Participation of Private Insurers, Economic and Political Weekly, June 19, 2004, P World Bank, Piloting Weather Insurance Scheme in India, August 27, 2003, web.worldbank.org 10. Optimizing Crop Insurance under Climate Variability: CVaR Model, ISSN: All rights Reserved 27