Govt finalises ‘simpler and easy-to-settle’ farm insurance policy

The Modi government is finalising a new farm insurance policy with lower premiums and simpler norms for prompt payments, a move aimed at finding a more lasting solution for increasing climate shocks such as droughts.


Hoping to ameliorate a farm crisis and quell criticism that it is paying more attention to industrialisation, the whole point of a new farm insurance policy is to make it “simpler and easy to settle”, an official said, requesting anonymity.

Less than a quarter of India’s farmers insure their crops under three state-bankrolled polices, which are cumbersome and archaic. A back-to-back drought in half the country this summer has shrunk farm incomes and stoked a rural crisis, posing a political challenge for the government.


Farm insurance and compensation has been a complicated process that often relies on estimates of crop losses in a cluster of villages, rather than individual farms. Doles often go to absentee landlords, rather than sharecroppers and farm tenants. “All these aspects are being looked into,” the official said.


Under the draft proposal, premium is aimed to be brought down to 3% from the current levels between 3.5% and 8%. The insurance scheme will be tied to agro-climatic and land conditions – such as hilly, rain-fed and irrigated – that determine farm output, rather than just crop value.


For certain vulnerable categories of farmers, the government will propose to cap the premium at a certain level. The Modi government’s proposal, which will come up for the Cabinet’s approval, may require certain categories of farmers who take farm loans – and are thus ‘risk-taking’ – to compulsorily buy insurance, the official said.


As droughts or untimely rains become frequent, farm incomes have little protection in a country where agriculture supports half of the population. Many farmers exposed to risks commit suicide.


“The objective is to make it hassle-free. If it’s not hassle-free, it will not be popular, as has been the case so far,” an official said, requesting anonymity.


Unlike in India, where a drought nearly always stokes a crisis, in countries such as the US, farmers make the biggest profits because of insurance when crops fail. In 2012, for example, when US corn farms wilted under the fifth-most severe drought, aggregate farm profits went up 3.7% due to insurance payouts, according to the US department of agriculture.


An inter-ministerial panel – which includes the home, finance and farm ministries – is steering the proposal. It recently reviewed the draft scheme and will meet again shortly, the official said.

The NDA government aims to make agricultural insurance in India universal and popular, which will automatically take care of losses in farm income without the need for laborious, clumsy state interventions that often don’t work.

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