Chapter One Crop Insurance

Chapter One Crop Insurance A Safety Net in Agriculture 1.1. Introduction Agriculture which is an important sector of economy is considered widely as an industry. It faces various types of natural hazards. Insurance is an important instrument to give protections under risky activities and that plays significant role in the agricultural production decision, chemical use decision, cultivation practices and cropping pattern decisions. In the advance market economy public agencies introduced all risk crop insurance policies to give protection to the agriculture sector. But in the less developed or developing country such mechanism does not exist because the farmers have the lowest risk bearing capacity. Though in the developing country the sharecropping is an important policy to give them safeguard from risk activity but it only gives protection to landless or partially landless peasants. It fails to give protection to small and medium-sized farmers from risk. Agricultural insurance is a more efficient instrument and an effective institutionalized mechanism for dealing with the problem. Agricultural insurance considerably strengthens the financial security of farmers and reduces the direct and indirect costs on the national economy. In India crop insurance is compulsory for the loanee farmers who borrow loan from banks and other financial institutions. The crop insurance is a potentially more effective risk-shifting mechanism to give protections to all types of farmers and the use of it as a risk management tool has grown rapidly in recent years. Also the crop insurance subsidies help the farmer on various grounds. They give protection from different natural calamities. They encourage the planted acres and also encourage the producer to use large amounts of chemical fertilizers, pesticides and herbicides. The crop insurance subsidies 1

create important problem, which increases the probability and size of production loss (moral hazard). Due to the presence of moral hazard problem the insured farmers reduce input use and average yields. Again many environmentalists argue that if agricultural chemical input use increases, it becomes harmful to animal and human wealth. Theoretically, the analyst, Quggin (1993) suggests that moral hazard problem incentives to increase the use of inputs that raises the expected yields as well as the variance of yields. But the other two analysts (Horowitz and Lichtenberg -2004) suggest that the farmer who purchases crop insurance use more chemical inputs than the farmers who do not purchase crop insurance. The organization of this chapter is as follows. In the section 1.2 the definitions of crop insurance and related issues in crop insurance have been discussed. We have presented the brief history about Indian crop insurance system in section 1.3. In section 1.4 we would explain the brief history about West Bengal crop insurance system. Section 1.5 deals with the need of study. The objective of this study has been considered in section 1.6. We have discussed the socio economic profile of the Hooghly district in section1.7. Section 1.8 concludes this chapter. 1.2. Definition of Insurance and Crop Insurance By which contract a person or institution promises to other person or institute to repay the compensation of an accident or damage instead of fixed amount of money is called insurance. Insurance means a thing providing protection against a possible event or insurance means money paid to insure against something or by an insurance company in the event of damage, injury, etc. So insurance is compensation against an agreement. In the insurance agreement the person who insures for getting back the compensation is called insured, and the person who promises to repay the compensation is called insurer. The agreement between the insurer and insured is known as an insurance policy. The insured agrees with the insurer to pay the fixed amount of money regularly termed as premium. Crop insurance is an important measure/instrument used by farmers for mitigating the financial losses due to various types of natural calamities/risks which damage and destruct the production. 2

It is also one of the important instruments that can be used by a farmer to stabilize his income against partial or complete crop failure due to adverse weather [such as disasters, flood, hail, drought etc.] or due to related adverse physical crop conditions which are beyond his control. Why is it Called Crop Insurance not Crop Loan Insurance? Before the introduction of crop insurance farmers took crop loan from the different financial institutions, that is, from different formal credit institutions such co-operative credit institutions, regional rural banks and commercial banks. So they became loanee farmers. There were no crop insurance facilities. In that case if the crops were damaged by natural calamities, there was no chance of getting or receiving indemnity from the insurer. After crop damage they were bounded in debt trap. After the introduction of crop insurance scheme (the Comprehensive Crop Insurance Scheme (CCIS) was introduced in Indian agriculture from 1 st April 1985 over all India and the National Agricultural Insurance Scheme (NAIS) or Rashtriya Krishi Bima Yojana (RKBJ) has been running well for the session 2000-2001 with the active assistance and agreement of the West Bengal Government (W.B Govt.) in the state of West Bengal) all the loanee farmers are compulsorily insured and get the benefits of crop insurance after crop damages due to natural calamities. The National Agricultural Insurance Scheme (NAIS) pays the indemnity to the affected farmers by its own indemnity paid rule. Various types of crop insurance schemes have been introduced in the field of Indian agriculture such as Compressive Crop Insurance Scheme (CCIS), National Agricultural Insurance Scheme (NAIS) or Rashtriya Krishi Bima Yojana (RKBJ), Seed Crop Insurance Scheme (SCIS), Firm Income Insurance Scheme (FIIS), Rainfall Insurance Scheme (RIS) and Weather Based Crop Insurance Scheme (WBCIS).The crop insurance schemes are operated on area approach, individual approach and pilot basis according to the types of crops. Among the above stated crop insurance schemes, the Compressive Crop Insurance Scheme (CCIS) and the National Agricultural Insurance Scheme (NAIS) are operated on the basis of area approach and the NAIS also operates on individual approach for localized calamities, and the reaming crop insurance 3

schemes are followed on pilot basis. In case of area approach crop insurance scheme, unit of area may be District, Subdivision, Block and Gram Panchyat. In India, at the beginning of the crop insurance scheme no specific area is chosen as unit. Consequently various problems were found. Later on district was chosen as a unit of area, then extended to subdivision, Block and finally it tries to manage its extension to the Gram Panchyat level. Similarly in West Bengal, district is chosen first as unit area, then sub division, after subdivision block is chosen as unit area and today Gram Panchyat is selected as unit area. 1.2.1. Objectives of Crop Insurance Scheme The objectives of crop insurance scheme are: To protect the farmers against the loss of their crops [declared affected crops] due to natural disasters such as hail, drought and flood etc. or the loss of revenue due to decline in the prices of agricultural commodities. To encourage the farmers to use progressive agricultural strategies, high yielding seeds and fertilizers, and to use advance technology in the agriculture. To stabilize the income of the farmers in the years of natural calamities 1.2.2. Features of Crop Insurance 1.2.2A. Included Crops The following crops are included under the scheme: Rabi Crops: Boro rice, Wheat, etc. Pluses: Musur, Arhar, Mung,Gram,and Maskalai, etc. Oil Seeds: Mustard, Linseed and Til, etc. Potato. Kharif Crops: Aman Rice, and Aus Rice. 4

1.2.2B. Integrated Farmers All farmers, including share croppers, tenancy farmers, who will produce notified crops in the notified area, may be integrated under the crop insurance scheme. For such scheme the farmers are included either on compulsorily basis or voluntary basis. Compulsory basis: The farmers who will cultivate the notified crops and also collect loan from financial institutions for seasonal agricultural purposes are called loanee farmers and they are automatically compulsorily insured. Voluntary basis: All other farmers-who do not collect crop loan but cultivate the notified crops must have bank account. These farmers are called non-loanee farmers and consequently belonging to voluntary basis. (Ref. National Agricultural Insurance Scheme; Scheme and Guidelines, Page No. 25). 1.2.2C. Risks Covered and Exclusions Natural Fire and Thunderbolt, Strom, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood, Inundation, and Landslide, Draught, Dry spells, Insects, pests/diseases etc. But the losses due to war, nuclear risk, malicious damage and other preventable risk shall not be included. 1.2.2D. Premium Subsidy Small and Marginal farmers will get a percent of premium as a grant. The premium for Small and Marginal farmers is subsidized to the extent of 10 percent which is shared by State government and government of India. 1.2.2E. Indemnity and Custom (Method) If the Actual Yield (AY) of notified crops of an area is less than the specified Threshold Yield (TY), all the loanee farmers who are affected will get compensation for damages. 5

1.3. Brief History About Indian Crop Insurance System Agriculture is a main stake of the Indian economy and this sector faces diverse types of uncertain events such as natural calamities (drought, flood etc) and delay monsoon which are beyond the control of the farmers. Due to the natural calamities the agricultural production, gross national product and also the income of the farmers decrease. Though before independence both direct and indirect subsidies have been offered in Indian agriculture but after independence at the time of five years plan India has institutionalized both direct and indirect subsidies and they have also been increased their scope and amount for the benefit of the farmers. The agricultural subsidies are price supports, fertilizers subsidies, cheap credit, subsidies irrigation rates, reduce tariff on electricity, reduce excise duties on diesel fuel, differential freight rates for agricultural outputs and inputs, free extension services and incentives offered for agro-processing industries or export of agriculture commodities (N.K. Rustagi: Crop Insurance in India, Page No.15). However, it has been observed that these subsidies have not reached the targeted groups (small and marginal farmers). Most of it generally goes to the large and influential farmers who are usually not publicly stated targeted group. Though subsidizing the prices of agricultural inputs is one way of supporting and stabilizing the income of farmers but this policy cannot reach to the target groups. However, Government increases its attention towards the introduction of crop insurance. To safe-guard the farmers from vagaries monsoon, since independence, the question of introduction of crop insurance has been under the consideration of government. (After independence,) according to the central legislation in 1947, the minister of food and agriculture, Rajendra Prasad, gave an assurance that the government would examine the feasibility of introduction of crop insurance in the Indian agricultural system. To study the problems and formulate experimental crop insurance scheme in selected areas of the country, an Officer on Special Duty was appointed in August 1948. In this respect, he circulated two pilot crop insurance schemes to the states for implementation. Due to the shortage of sates funds, they did not implement the schemes. Among the states, however, the Punjab government submits a proposal to implement crop insurance as a part of the third five year plan (1961-66), requested the central government for requisite financial support. In this respect the central legislature alone 6

was competent to enact necessary legislation and the government of India also decided in October 1965 to have Crop Insurance Bill and a Model Scheme of Crop Insurance formulated so that the state which wanted to introduce crop insurance in areas under their jurisdiction could do so. But the states governments expressed their different views on this subject. So the government of India, in March 1970 decided to examine the economic, administrative, financial and actuarial implication of Bill and Scheme and then in July 1970 an Expert Committee on Crop Insurance was appointed. This committee concluded that the running country s conditions were not suitable to introduce crop insurance scheme in the near future. Thus, the whole question of introducing crop insurance in the country has been given an expert burial. But, Dandekar in his article (Crop Insurance in India-1976) examined in details the arguments of expert committee and strongly advocated the introduction of crop insurance in Indian agriculture. Even though the need for crop insurance in India had been debated for a long time, it was not introduced until 1973. The program was offered in the public sector to insure cotton in a district in Gujarat and later extended to other states (Andhra Pradesh, Maharashtra, Karnataka, Tamil Nadu and West Bengal) and to more crops (wheat, groundnuts, and potato). The program was based on the individual approach and proved to be very expensive due to the problems of moral hazards and adverse selection. The program was stopped in 1976 (Crop Insurance In India, An analysis by Kustagi-1988). The present program based on the homogeneous area yield approach, was started in 1979. Under this approach, if the area yield is less than the guaranteed yield, all insured farmers in the area, irrespective of their actual yields, are compensated on equal basis. If the area yield is more than the guaranteed yield, no indemnity is paid even if some farmers have low yields. In India, the General Insurance Corporation of India (GIC) managed crop insurance, and delivers crop insurance through rural financial institution and the crop insurance tied with crop loan and subsidy shared equally by the central and state governments. The GICI requested the Indian School of Political Economy to prepare a report on the feasibility of introduction of crop insurance in agriculture. The GICI introduced a Pilot Crop Insurance Scheme in 1979-80, in association with the state governments, in 26 areas of Gujrat, 23 areas of West Bengal and 17 7

areas of Tamil Nadu and later the scheme has been extended to more areas of more states. The scheme offered to all borrowing members but on a voluntary basis. It (Pilot Crop Insurance Scheme) covered only about 60,000 (sixty thousand) farmers all over the country (India). Thus the scheme is not yet fully integrated with agricultural credit. This scheme is loss making (Can Crop Insurance Work? The case of India, Mosley and Krishnamurthy (1995)). India predominantly belongs to an agricultural dependent economy; a large scale of crop failure due to natural hazards could have an adverse effect on national output/production. Natural hazards not only affect the production of agriculture in the year in which they occurs but also week the productivity efficiency of the farmers, most of whom are small(one hector) and marginal( one to two hector), in ensuing years/next years. Realizing the risky character of farming, the comprehensive crop insurance scheme (CCIS) was introduced in Indian agriculture from 1 st April 1985 by the General Insurance Corporation of India (GIC) in collaboration with state governments(as co-insurer in the ratio of 2:1).Initially the scheme covered major cerealswheat, paddy and millets and critical deficit crops-oil seeds and pulses. The key objectives of scheme are as follows. to provide a financial support to the farmers in the event of crop failure as a result of natural calamity, to restore the credit eligibility of farmers after a crop failure for the next crop season, and to support and stimulate production of cereals, pulses and oilseeds. The CCIS is based on area approach and voluntary in nature. All the farmers availing crop loan from co-operative credit institutions, regional rural banks and commercial banks are eligible for insurance coverage. The insurance premium rates are charged 2 percent of the sum insured in the case of rice, wheat and millets and 1 percent in case of oilseeds and pulses (Economy Survey 1985-86). The Central Government and respective State Government have shared risk-premia and claims in the ratio of 2:1and 50 percent of the premium payable by small (1hectare) and marginal (1-2 hectares) farmer and the remaining 50 percent is subsidized equally (50:50) by the Central and State Governments (Economy Survey of India 1989-90). 8

Initially twelve States and one Union Territories were covered under the scheme in Kharif 1985 and covered near about 39.5 lakh hectares of cultivated land and 22.6 lakh farmers, which is not satisfactory (Economic Survey of India 1986-87). This occurred due to inadequate publicity or lack of knowledge of crop insurance scheme. From the beginning the CCIS has been quite popular and beneficial to the farmers. Under the crop insurance scheme coverage of area continuously expanding from kharif 1985 to the end of kharif 1991 cumulatively 29.4 millions farmers have been covered over an area of 51.9 million hectares and the total sum of insured was Rs. 6591 crore (Economic Survey-1991-92).However due to drought and flood in1986-87 and 1987-88, claims shot up from Rs.84 crores in kharif 1985 to Rs. 277 crores in kharif 1987.But due to good monsoon, the claims has come down to Rs.34 crores in kharif 1989 (Economic Survey 1990-91). This is shown in the table-1.1. Following the quantum jump in claims and heavy losses, the scheme was temporarily suspended in January, 1988. After some modifications it was reintroduced in September 1988. However, the sum insured was reduced from 150 percent to 100 percent of crop loans and limited to a maximum of Rs.10, 000 per farmer (Economic Survey 1989-90). The CCIS covered 467 lakh farmers on an area of 802 lakh hectares and the amount of suminsured is Rs.11846 crores from Kharif 1985 to the end of Rabi 1994-95 seasons. The total amount of claims paid to the farmer was Rs. 1178.76 crores but more than half of this amount were accounted for Gujarat (Economic Review 1995-96). The adverse claims ratio indicates that there is need to improve the parameters of the scheme to make it financially viable. The seasonwise progress of CCIS is shown in the following table. Refer to table-1.1. The numbers of states/union territories included under CCIS increased up to Kharif 1987 and Rabi 1987-88. Intuitive logic is that the interest of states/union territories increases and as well as the farmers are more interested in this scheme. Besides the Kharif crops are cultivated all over the country. After Kharif 1987 included states under the CCIS fall in Kharif 1988 due to heavy drought, floods and high claims ratio. In the remaining Kharif and Rabi season the states/union territories under CCIS are more or less the same. After Rabi 1987-9

88, the states/union territories in Rabi 1988-89 decrease tremendously. It may be regarded that the quantum jump in claims and heavy losses, the scheme was temporarily suspended in January, but after some modifications the scheme was reintroduced in September 1988. Therefore after Rabi 1989-90 the number of the states/union territories was increased. Table-1.1. Progress of Comprehensive Crop Insurance Scheme (CCIS) from Kharif 1985 to Rabi 1992-93 Season No. of States/UT s No. of farmers Covered (lakh) Kharif 1985 to Rabi 1992-93 Area covered (lakh hectares) Sum Insured (Rs. Crore) Premium Collected (Rs. Crore) Claims Paid/Payab le (Rs. Crore) 1 2 3 4 5 6 7 Kharif 1985 13 26.4 53.7 542.7 9.4 84.1 Rabi 1985-86 16 12.1 23.2 238.4 4.5 3.1 Kharif 1986 18 39.6 77.4 856.2 15.0 169.4 Rabi 1986-87 17 11.3 21.0 242.4 4.5 4.6 Kharif 1987 21 46.3 84.1 1140.7 19.1 277.4 Rabi 1987-88 19 21.3 32.4 475.4 8.8 12.1 Kharif 1988 13 29.6 52.4 547.9 8.8 29.2 Rabi 1988-89 9 8.7 10.1 164.1 3.1 3.9 Kharif 1989 17 42.3 66.5 873.9 14.5 34.4 Rabi 1989-90 17 6.6 9.6 151.6 2.8 2.9 Kharif 1990 17 19.4 34.1 515.1 7.7 81.6 Rabi 1990-91 16 7.9 10.7 196.3 3.5 4.0 Kharif 1991 17 37.6 68.6 931.4 14.4 195.0 Rabi 1991-92 15 7.8 11.0 199.9 3.6 8.8 Kharif 1992 17 41.2 72.3 1154.7 18.1 43.7 Rabi 1992-93 16 7.4 10.1 228.1 4.1 7.0 Source: Economic Survey 1993-94 In the Kharif 1989, Kharif 1991 and Kharif 1992 seasons, the number of states/union territories remains the same (seventeen) but the numbers of the insured farmers and the insured area as well as sum insured were increased, that is, in these seasons the interest of the farmers about the CCIS was increased. The number of states/union territories in the Kharif 1990 is seventeen but the number of insured farmers, insured area and sum insured were decreased compared to the previous year and also the claims or indemnity is high compared to the previous year. On the other hand for Rabi season crops, the number of insured farmer and area and sum insured sometimes increases and sometimes decreases. 10

The comprehensive crop insurance scheme included loanee farmers alone. Now to include nonloanee small and marginal farmers growing specified crops in selected districts under the crop insurance scheme, an Experimental Crop Insurance Scheme was introduced by the Government of India during Rabi 1997-98 seasons. The scheme is intended to be implemented in 24 districts of 8 states in that season. The premium of small and marginal farmers was totally (100 percent) subsidized by the Central and State Government in the ratio of 4:1(Economic Survey-1998-99) and all other features of the scheme will be the same as that of the CCIS. The scheme has been discontinued from Kharif 1998 season. But an expanded crop insurance scheme that will cover all farmers and more crops is still under consideration of the Government. The National Agricultural Insurance Scheme (NAIS) was introduced in Indian agriculture from Rabi 1999-2000 season by replacing the Comprehensive Crop Insurance Scheme (CCIS).The scheme was implemented by the General Insurance Corporation India (GICI) on behalf of the Ministry of Agriculture. The new scheme included all types of farmers-loanee and non-loanee farmers, with regard to their land holdings or indebtedness. The main objectives of the scheme are mentioned below. To provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crop as a result of natural calamities, pests and diseases so as to restore their credit worthiness for ensuing season. To encourage the farmers to adopt progressive farming practices, high value inputs and higher technology in Agriculture. To stabilize farm incomes, particular in disaster years. The NAIS implemented that types of crops for which existing data is available for adequate numbers of years. This insurance scheme at present included all the food crops (cereals, millets and pulses), oilseeds and seven annual commercial/horticultural crops and further it covered eleven annual commercial/horticultural crops, namely, sugarcane, potato, cotton, ginger, onion, turmeric, chilies, jute, tapioca, annual banana and pineapple. 11

The scheme (NAIS) operates on the basis of area approach for widespread calamities and on an individual basis for localized calamities, such as hailstorm, landslide, cyclone and flood. Under the scheme every participating States/Union Territories will be required to reach the Gram Panchayat level as the unit of insurance in a maximum of three year period. The scheme charges the premium rates at 3.5 percent (of sum assured) for bajra and oilseeds, 2.5 percent for other Kharif crops; 1.5 percent for wheat and 2 percent for other Rabi crops. On the other hand, actuarial rates are being charged in case of annual commercial/horticulture crops. In the premium, 50 percent of the subsidy is given to the small and marginal farmers and equally (50:50) shared by Central and State Government (Economic Survey 2001-02).The premium subsidy has been gradually phased out on a sun-set basis over a period of five years and at present only 10 percent subsidy is available to small and marginal farmers (Economic Survey 2003-04). Initially in 16 States/Union Territories, the said scheme (NAIS) was implemented, during Rabi 1999-00 and later in 2000-01 seasons two more states such as Sikkim and West Bengal included under this scheme. So at present this scheme included 23 States and 2 Union Territories (Economic Survey 2003-04). The progress of the NAIS is shown by the following table (8.15): Table-1.2. Performance of National Agricultural Insurance Scheme (NAIS) Sl.No. Season Number of farmers Area (lakh Sum assured Premium Total claims covered (lakh) ha) (Rs. Crore) (Rs. Crore) (Rs. Crore) 1 Rabi 1999-00 5.8 7.8 356.4 5.4 7.7 2 Kharif 2000 84.1 132.2 6903.4 206.7 1222.5 3 Rabi 2000-01 20.9 31.1 1602.7 27.8 59.5 4 Kharif 2001 87.00 128.9 7,502.5 261.6 493.5 4 Rabi 2001-02 19.6 31.5 1497.5 30.2 64.7 5 Kharif 2002 97.7 155.3 9431.7 325.5 1824.3 6 Rabi 2002-03 23.3 40.4 1837.6 38.5 188.6 7 Kharif 2003 79.7 123.6 8114.1 283.3 649.9 8 Rabi 2003-04 44.2 64.7 3049.5 64.1 490.7 9 Kharif 2004 126.9 242.7 13170.5 458.9 1037.6 10 Rabi 2004-05 35.3 53.4 3774.2 75.9 160.6 11 Kharif 2005 126.7 205.3 13547.7 449.9 1054.8 12 Rabi 2005-06 40.5 72.2 5069.5 104.8 252.3 13 Kharif 2006 129.3 196.7 14759.1 467.3 1771.6 14 Rabi 2006-07 49.8 76.3 6592.6 142.9 477.0 Total 970.8 1562.1 97209 2942.8 9755.3 Source: Economic Survey 2006-07 12

Refer to table-1.2. The number of insured farmers in the Rabi season is increased all the years except Rabi 2000-01 and Rabi 2004-05. The area under crop insurance is also increased all the year except the Rabi 2004-05. We point out that the interest of the farmers under the NAIS is increasing for Rabi crop. In the Rabi 2004-05 both insured farmer and area decrease but the sum insured increases. The intuitive logic behind is that the amount of loan taken by insured farmers increases. Similarly for Kharif season crops, the number of insured farmers was increased all those years except Kharif 2003 and Kharif 2005. The area under this crop was increased all those years except Kharif 2001, Kharif 2003 and Kharif 2005. In the Kharif 2001 both insured farmers and sum insured were increased but insured area was decreased. The insured farmers and area as well as sum insured were all decreased in Kharif 2003. The intuitive logic behind this is that in the previous year (Kharif 2002) the farmers were affected by natural calamities or the numbers of defaulter farmers were increased. In the Kharif 2005 both the insured farmers and insured area were decreased but the sum insured was increased due to increase in the amount crop of loan taken by farmers. From this table it is noticed that for the crop of Rabi and Kharif season some amount of claim should be paid to the farmers in every season. Insurance claim or indemnity due to crop damage is very high for the crop of Kharif 2002 and Rabi 2003-04. The logic behind this is that the numbers of affected farmers due to natural calamities are more than that of other years. Again to strengthen confidence in the existing Seed Breeders/Growers and to provide financial security to seed Breeders or Growers in the event of failure of seed crops, the Government of India implemented Pilot Seed Crop Insurance for indentified crops (viz. paddy, wheat maze, jower, bazra, gram, red gram, ground nut, soya bean, sunflower and cotton) in the states of Andhra Pradesh, Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Punjab, Rajasthan and Uttar Pradesh from Rabi 1999-2000 season ( Economic Survey 2000-01). 13

The scheme covers all the natural risk as follows. Failure of seed crop either in full or in part due to natural risk; Loss in expected raw seed yields; Loss of seed crop after harvest; and Loss at seed certification stage. The Pilot Seed Crop Insurance scheme charges the premium rates for wheat and groundnut which are 2 percent of the sum insured, 2.5 percent for sun flower, 3 percent for paddy, 3.5 percent for Jowar and Bazra and 5 percent for gram, red gram cotton, Bazra, Soya Bean and Maize (Economic Survey 2001-2002). The Department of Agriculture and Cooperation provided the Farm Income Insurance Scheme (FIIS) in Rabi 2004 in18 district of 12 states for wheat and paddy on a pilot basis. This scheme was also implemented in the selected districts of four states on pilot project basis during Kharif 2004 season. This is shown in the following table. Table-1.3. Farm Income Insurance Scheme (FIIS) States implementing FIIS during Kharif 2004 season Sl.No. States Districts 1 Jharkhand West Singhbhuim, Ranchi, Hajaribagh and Gumala 2 Gujarat Ahmedabad, Panchmahal, Surat, Baroda and Bulsad 3 Maharashtra Bhandra, Chandrapur, Gadchiroli,Raigarh and Thane 4 West Bengal Source: Economic BBSurvey l 2004-05 Birbhum, North 24 Parganas, Murshidabad and Jalpaiguri The Firm Income Insurance Scheme (FIIS) is Crop Income insurance scheme and it is designed to protect the income from a particular crop. The main objectives of the FIIS are given bellow: farmers will be protected by ensuring minimum guaranteed income. 14

If the actual income of the farmers falls sort of the guaranteed income (product of average yield and Minimum Support Price) they would be eligible for compensation to the extent of indemnity from the Agriculture Insurance Company of India Limited (AIC). Area approach as in NAIS would be used for actual yield and price measurement of the insured crop. Initially the scheme would cover paddy and wheat only. The scheme would be available for all the States and would be compulsory for farmers availing crop loans. NAIS will be withdrawn for the crops covered under FIIS but would continue to be applicable for other crops (Economy Survey 2003-04). From the analysis of the features of the NAIS, it observed that the scheme suffered from certain limitations/short comings relating to unit area of insurance calculation of guaranteed income, low indemnity level and delay in settlement of insurance claims, and for having these limitations, and then the National Common Minimum Programme (NCMP) provided to redesign the crop insurance scheme. To overcome some of the limitations and to make the scheme more farmerfriendly, a Joint Group was constituted to study the improvement required in the existing crop insurance scheme. The Joint Group made important recommendations 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 coverage of pre-sowing/planting risk and post-harvest losses, personal accident insurance cover etc (Economic Survey 2007-08). Now, based on the recommendation of the Joint Group and views/comments of various stake holders (States/Union territories and concerned department/agencies), modification of the existing NAIS is under consideration of the Government. Agricultural Insurance Corporation which was formulated in December 2002 started its activities from April 2003 and also took over the performance of National Agricultural Insurance Scheme (NAIS). The AICIL introduced Rainfall Insurance Scheme which is known as Varsha Bima during 2004, south-west monsoon period. Initially, Varsha Bima was piloted in 20 rain-gauge areas spread over Andhra Pradesh, Karnataka, Rajasthan and Uttar Pradesh in2004-05 15

(Economic Survey 2006-07). Again, during Kharif 2005, Varsha Bima-2005 introduce around 130 districts across Andhra Pradesh, Chhattisgarh, Gujarat, Karnataka, Maharashtra, Madhya Pradesh, Orissa, Tami Nadu, Uttarakhanda and Uttar Pradesh. This scheme was introduced for the major crops. Further during 2006, Varsha Bima-2006 was implemented around 150 districts/rain gauge stations areas, covering 16 states across the country. Also the AICIL is piloting another weather related insurance product for mango and coffee. The AICIL has implemented the Weather Based Crop Insurance Scheme (WBCIS) on a pilot basis in Karnataka during Kharif 2007 and covering eight rain-fed crops, insuring crops on nearly 50,000 hectares for a sum-insured of Rs 50 crore. In 2007-08, this scheme was implemented on a large scale in selected areas of twelve States for Rabi 2007-08 seasons (Economic Survey 2007-08). In addition to AIC, private insurers like ICICI-LOMBARD General Insurance Company and IFFCO-TOKIO General Insurance Company have also been included for selected areas. Now the Weather Based Crop Insurance Scheme (WBCIS) is being implemented in thirteen states to provide insurance protection to farmers against adverse weather incidence such as deficit and excess rainfall which are deemed to impact adversely the crop production. During five crop seasons (from Kharif 2007 to Kharif 2009), about 21.77 lakh farmers have been covered under the pilot scheme and claims to adjust of about Rs. 388 crore have been paid against a premium of about Rs. 444 crore (Economic Survey 2009-10). The Agriculture Insurance Company of India (AIC) implements the Coconut Palm Insurance Scheme (CPIS). This scheme has been launched on pilot basis during 2009-10 in the selected areas of Andhra Pradesh, Goa, Karnataka, Kerala, Maharashtra, Orissa and Tamil Nadu. The pilot scheme will continue during 2010-10. To get benefit from the scheme, a farmer should have at least 10 healthy nut-bearing palms in the age group four to sixty years in contiguous area/ plots and to have been enrolled by the State Agriculture/ Horticulture Department of Coconut Development Board (CDB) or any other such agency under a rehabilitation/development/expansion scheme. The Agriculture Insurance Company of India (AIC) which is implementing the scheme is responsible for making payment of all claims within 16

a specified period. The Coconut Development Board (CDB) administered the scheme (Economic Survey 2009-10). In fine, it is to be noted that so far various agricultural insurance schemes have been introduced and implemented for some years to protect the farmers from crop failure. But in spite of that the case of suicide has been increased day by day all over the country. The main reason is that the bureaucrats in the agriculture ministry have no clear understanding of the problems of our farmers. They continue with their insurance experiments-sometimes for specific crops, sometimes for stable farm incomes, sometimes for specific areas. In the meanwhile, farmers suffer from crop failures and commit suicides in different parts of the country (Indian Economy- Dutt and Sundharam, 61 th fully Revised Edition, page 610). 1.4. Brief History about Crop Insurance System in West Bengal West Bengal, compared to the other eastern states, is one of the significant agricultural dependent states, of India. The agriculture sector is the main source of the state gross domestic product (Nearly 26.37% of GDP come from this sector at constant 1993-94 prices, Economic Review 2003-2004). It is also the prime earning sector of the major rural population. The state economy heavily depends upon the agriculture and the performance of this sector has been well above the national average. Around two third of state population directly depends upon the agriculture sector (Govt. of India 1992). In order to overcome the backwardness of agriculture the governments have taken the green revolution policy in the early 1970 s. However, after the green revolution the technological and economic advancements has taken place, but the condition of farmers is continuously unstable due to natural calamities (such as hail, drought, floods etc.) and price fluctuations. The effect of this variability is highlighted when the news of farmers suicides came from many parts of the state. Then, the crop insurance is one of the important instruments for protecting the farmers from agricultural variability. By the crop insurance, the insured farmers get indemnities from the insurer, on the basis of their insurance premium against their crop loss. The indemnities are paid to the farmers either on the individual basis approach or the area yield basis approach. The present crop insurance program 17

in West Bengal is based on homogeneous area yield approach. Under this approach, if the area yield is less than the guaranteed yield, all insured farmers in the area, irrespective of their actual yields, are compensated on an equal basis. If the area yield is more than the guaranteed yield, no indemnity is paid even if some farmers have low yields. Consequently it is very necessary to expand the crop insurance policy into the agriculture for all types of farmers. In West Bengal, due to increase in population, the dependence on the agriculture sector increases, and also fragmentation and sub-division of land increases. As a result amount of the holding per-owner decreases. Therefore, the numbers of small-holding and marginal-holding farmers increases. Most of the small and marginal farmers are economically very weak and for the agricultural purpose they are to borrow money from village money-lenders and other close relatives or friends. In that situation, if any natural calamity occurs the agricultural production is damaged and finally the revenue of the small and marginal farmers decreases. They are to turn into an economically very poor section in the rural sector. If the crop insurance is properly implemented, it will protect the interest of the farmers who are capable of mortgaging of their land. Since, the poor farmers in the category of small and marginal are often not in the position of mortgaging their land they are deprived of the benefit of crop insurance and crop loan. The General Insurance Corporation of India (GIC) introduced a crop insurance scheme in 23 areas of West Bengal in collaboration with the state government and delivers crop insurance through rural financial institution. The crop insurance united with crop loan and subsidy was equally shared by the central and state government. This scheme is based on the homogeneous area yield approach and on voluntary basis. Over a long period of time, the state West Bengal comes under the NAIS or the Rashtriya Krishi Bima Yojana (RKBJ) from Rabi 2000-01 season. The scheme is operated in the state by the GICI. It was started at the Gram Panchayat level for Aman rice, Boro rice and Potato and at the Block level for Jute, Aus rice, Mize, Wheat, Mustard and at the district level for Musur, Gram, Maskalai, Arhar, Mung, Linseed and Til. The Department of Agriculture and Cooperation provided the Farm Income Insurance Scheme (FIIS) on pilot project basis during Kharif 2004 18

season in the four district of West Bengal. These districts are Birbhum, North 24 Parganas, Murshidabad and Jalpaiguri. The objectives of the FIIS have been enlightened in the previous chapter. Besides, the minister for agriculture, Narendra Nath Dey has suggested that the government should introduce an insurance scheme for seed like the crop insurance scheme. Because the farmers whose crop fails due to low quality of seed should be provided compensation. At the same time, steps should be taken to increase seed production significantly to avoid over dependence on imported seed. The progress of NAIS or RKBY for Rabi crop has shown in the following table from 2001-02 to 2007-08. Table-1.4. Progress of NAIS or RKBY from 2001-02 to 2007-08 Seasons Rabi (2001-02) Rabi (2002-03) Rabi (2003-04) Crops Boro, wheat, potato, oilseeds and pulses Boro paddy, potato, wheat, Mustard Mustard, paddy, potato, and wheat No. of farmer Covered Sum insured (Rs.lakhs) Total Premium (Rs.lakhs) S/M Total S/M Total Total Total Subsidy(Rs.lakhs) State s shares 320450 321733 20565 20932 519 204 102 325254 326416 NA NA NA NA NA 366521 368141 NA 29454.7 775.76 152.44 Rabi (2004-05) Mustard,boro paddy, wheat, and potato 452077 454319 NA 40504.92 1193.42 117.4 Rabi (2005-06) Same as above 480177 482539 47479.62 48471.05 1274.97 124.99 62.49 Rabi (2006-07) Same as above 570714 574491 65604 67334 1655.33 178.64 89.32 Rabi (2007-08) Same as above 592777 595682 23294 23588 529.77 58.03 29.01 S/M- Small and Marginal Farmers, NA- Not Available Source: Various issues of Economic Review of West Bengal Rabi Season-1 st October to next year February 19

The Boro rice and potato, winter crop, have been notified at the Gram Panchayat level since 2002-03 onwards and other winter crops such as wheat, mustard, notified at Block level in West Bengal. The above table highlights that most of the small/marginal farmers have insured their crops and others farmers are very small. In 2001-02, 321733 farmers in total who produced Rabi crops insured their crops. Among them 320405 farmers are small and marginal. From the above table we notice that the crop insurance also becomes popular especially to the small and marginal farmers of the reaming years. Among the total sum insured near about 98 percent loan is sum insured by small and marginal farmers from 2001-02 to 2007-08.The affected Rabi season (2002-03) crops have shown in the following table. Table-1.5. Affected Farmers in the Rabi Season (2002-03) Years 2002-03 Rabi Season No. of Farmers affected Claims Rs. Claims Paid (Rs.) Crops State Central S/M Others Total Total GICI Govt. Govt. Rs.38.64 5.56 16.54 16.54 Potato NA NA 74158 crore crore crore crore Wheat NA NA NA 32.79 thousand Mustard NA NA NA 2.28 lakh Boro Paddy NA NA 46243 4.23 crore Source: Report on the West Bengal Economy Volume II Number 2, 2003 S-Small farmer, M-Marginal farmer, NA-Not Available Rabi Season-1 st October to next year February GICI-General Insurance Corporation of India 2.55 crore 85.08 lakh 85.08 lakh Refer to table-1.5. In 2002-03 Rabi seasons, the farmers cultivating Potato, Wheat, Mustard and Boro Paddy are affected by rain and hailstorm. In this season the number of the insured potato producing farmers was 129084, wheat producing farmers was 433, mustard producing farmers was 814 and Boro paddy cultivating farmers was 196085 (Report on the West Bengal Economy Volume II Number 2, 2003). Among the affected crops, potato was largely affected by natural calamities such as rain and hailstorm. More or less 74158 insured Potato farmers (approximately 57.45 percent of total insured Potato farmers) were affected. On the other hand, around 46243 Boro paddy cultivators (23.6 percent of total insured Boro paddy farmers) were affected. Though Potato and Boro paddy both are risky crops, the first one is risky more than the Boro paddy. 20

Potato cultivating farmers are generally affected more by natural hazards. The Potato producing farmers claimed insurance relief of Rs. 38.64 crore and that was paid to them by GICI (Rs.5.56 crore), State Government (Rs.16.54 crore) and Central Government (Rs. 16.54 crore). However, Boro, Wheat and Mustard cultivating farmers jointly claimed insurance relief of Rs. 4.25 crore and this was paid by GICI (Rs. 2.55 crore), State Government (Rs. 85.08 lakh) and Central Government (Rs. 85.08 lakh).the affected Rabi Season (2004-05) crops have shown in the following table Table-1.6. Affected Farmers in the Rabi Season (2004-05) No. of farmers affected Sum Insured (Rs.)/Claims Year Crops S/M Others Total S/M Others Total Mustard 440 42 482 19.94 lakh 3.73 lakh 23.67 lakh 2004-05 Boro Paddy 59175 480 59655 39.2 crore 1.5 crore 40.7 crore Rabi Wheat 55 00 55 4.5 lakh 0.00 4.5 lakh Season Total 59670 522 60192 S-Small Farmers, M-Marginal farmers Source: Economic Review of West Bengal 2005-06 Rabi Seasoon-1 st October to next year February Refer to table-1.6. In the 2004-05 Rabi season mainly three important crops were adversely affected by natural hazards such as rain, hailstorm and besides these two there are low qualities of seeds, low market price of agricultural commodities. Near about 60192 insured farmers who produced mustard, Boro paddy and wheat were affected. Among the total affected farmers approximately 99.10 percent (59655) Boro paddy producing insured farmers were affected and very small number (55 farmers that is 0.091 percent) of wheat cultivating insured farmers was affected. In this season all the affected farmers were fully compensated for their damaged crops. The Rabi crops cultivating insured farmers were also affected by natural calamities, low qualities of seeds, low market of agricultural commodities, etc in the years of Rabi 2005-06, Rabi 2006-07 and Rabi 2007-08.The affected Rabi season crops have shown in the following table. In Rabi 2006-07 a large numbers of farmers (approximately 53.09 percent of total insured farmers) were largely damaged by natural hazards. The compensation was paid to them amounting to Rs. 218.16 crore that was higher than the remaining two affected years. The 21

insurance claim was paid by GICI, the state government and the central government. The affected numbers of farmers in the Rabi season crops are shown in the following table-1.7. Table-1.7. Affected Farmers in the Rabi Seasons Years Crops Claims Paid or Compensation (Rs. No. affected farmers Lakh) State Central S/M Total GICI Total Govt. Govt. Rabi Potato, Wheat, Mustard, 2005-06 and Boro Paddy NA 137000 1262.41 1262.41 1833.18 4358 Rabi Potato, Wheat, Mustard, 2006-07 and Boro Paddy NA 305000 9675 9675 2466 21816 Rabi Potato, Wheat, Mustard, 2007-08 and Boro Paddy NA 39546 NA NA NA 887 NA-Not Available, S-Small farmers, M-Marginal farmers, GICI-General Insurance Corporation of India Source: Various Issues of Economic Review of West Bengal; Rabi Season-1 st October to next year February Now the progress of the crop insurance scheme (RKBY) for Kharif crops is shown in the table given below. Table-1.8. Progress of RKBY for Kharif Crops Years Crops No. of Farmers Sum Total Subsidy(Rs.Lakh) S/M Others Total Insured(Rs. Premium (Rs. Total (Rs. State s Lakh) Lakh) Lakh) share Kharif Aman Paddy 404351 1367 405718 18529.00 NA 137.02 68.51 2002 Aus Paddy NA NA 6.00 Kharif Aman Paddy 378398 1628 380026 19270.25 481.76 95.07 47.54 2003 Aus Paddy 6 00 6 Kharif Aman Paddy 352749 1218 353967 19650.70 491.27 48.49 24.27 2004 Aus Paddy 198 00 198 18.51 0.46 0.04 Kharif Aman Paddy 413391 1387 414778 25009.83 625.25 61.74 30.91 2005 Aus Paddy 74 00 74 13.26 0.33 0.033 Kharif Aman and 425054 1802 426856 28548.75 713.71 70.24 35.12 2006 Aus Paddy Kharif Aman and 455002 2033 457035 33896 766.04 83.44 41.72 2007 Aus Paddy Kharif Aman and 312451 917 313368 23588 529.77 58.03 29.01 2008 Aus Paddy S-Small farmer, M-Marginal farmer, NA- Not Available Source: Various Issues of Economic Review of West Bengal Kharif Season- 2 nd April to 14 th August in every year 22

In the Kharif season, two important rice crops such as Aman and Aus paddy are cultivated by farmers. Aman paddy which is produced by a large number farmer (nearly 99 percent) is heavily depended on the south-western monsoon and it is produced all over the parts of the state. It is less risky crop compared to other Kharif crops and is insured at the Gram Panchayat level, that is, the indemnity is also paid at the Gram Panchayat level to the affected farmers. On the other hand, only few farmers cultivate Aus paddy and also less risky crop. This paddy is insured at the block level in the State. The above table (table-1.8) gives the picture that the crop insurance become popular among small and marginal farmers, specially, to the farmers cultivating Aman paddy. Such as, 405718 farmers insured their crops for Aman paddy in the Kharif 2002, among them 404351 farmers (nearly 99.66 percent) were small and marginal. In the Kharif 2003, 380026 farmers cultivating Aman paddy insured their crops. Among them, 378398 farmers (near about 99.57 percent) were small and marginal. In this year only six farmers insured their crops for Aus paddy. Similarly in the remaining year the insurance scheme also becomes catching up among small and marginal farmers. Affected Kharif years and farmers have been explained with the help of the following table. Table-1.9. Affected Farmers in the Kharif Season Years Kharif 2002 Kharif 2005 Kharif 2006 Kharif 2007 No. affected farmers Claimed or Compensation (Rs. Lakh) Crops Central S/M Total State Govt. Govt. GICI Total Aman 27284 Aus 51 27335 Nil Nil 51.51 51.51 Aman NA Aus NA 140000 1364 1364 627 3355 Aman NA Aus NA 42854 58 58 713 829 Aman NA Aus NA 132813 NA NA NA 4025 NA-Not Available, Source: Various Issues of Economic Review of West Bengal Kharif-2 nd April to 14 th August (Every Year) 23

Refer to table-1.9. In Kharif 2002, about 27335 insured farmers producing Aman and Aus Paddy were affected by natural calamities or due to low qualities of seeds or delay of monsoon etc. Among the affected farmers only 51 insured farmers cultivated Aus paddy and 27284 insured farmers (99.81 percent of total affected farmers) produced Aman rice. In this season all the affected farmers were small and marginal. Approximately 6.75 percent insured small and marginal farmers were damaged by natural hazards among 99.66 percent of total insured small and marginal farmers who were producing insured Aman rice. The above table also reveals that, in Kharif 2005 higher number of small and marginal insured farmers was damaged compared to the other years when the crop was damaged. Though, small and marginal Aman and Aus cultivating insured farmers suffered from damage in Kharif 2002, Kharif 2005, Kharif 2006 and Kharif 2007 the number of insured farmers has been increased every year succeedingly (except 2008). It reminds that the interest of the farmers about crop insurance goes on increasing in West Bengal. The total insurance claims or insurance relief was fully paid by the GICI in Kharif 2002 but in the reaming years insurance claims were paid by GICI, the West Bengal Government and the Central Government where the central and state government paid insurance claims on the same amount. 1.4.1. Weather Based Crop Insurance Scheme (WBCIS) The West Bengal Government implemented pilot Weather Based Crop Insurance Scheme (WBCIS) from Rabi 2009-10 in selected Blocks and Districts. The Scheme is meant for Nonloanee farmers only on Optional basis. Loanee farmers shall be covered compulsorily under NAIS as notified earlier. The emergence of this Scheme lays with inherent shortcomings of existing NAIS. They are (1) lengthy process of claim settlement resulting in delayed claim payment, (2) Threshold Yield (TY) based on preceding Yield data of three or five years, (3) huge cost involved in Crop yield estimation, (4) Adverse selection of risk and no provision for compensation in case of crop failure in initial stages of cultivation. Whereas it has been proved that rainfall variations alone accounts for more than fifty percent (50%) of variability in Crop Yield and Indian Crop Insurance Programmes since 1979 (PCIS, CCIS, ECIS, NAIS, FIIS, etc) have paid ninety percent (90%) of claims due to uneven rainfall, dry spell, drought and flood. Keeping in view of above facts, pilot Weather Based Crop Insurance Scheme (WBCIS) is an 24