A new crop insurance scheme the Modi government is set to roll out shortly seeks to cap the premium paid by farmers at about 3% of the insured value, cover a substantial part of the country’s farmland and crop output and make processing of claims hassle-free. The proposed easier crop insurance that would appeal to farmers replacing the existing high-premium schemes is one of the major social sector reforms the BJP-led coalition is banking on to regain its popularity among the masses after the party’s dismal performance in the recent Bihar assembly election. The new scheme, unlike the sundry schemes existing now, will necessitate the government to take a higher burden of the premium payment, but possibly not result in losses due to huge payouts for settling claims. A note detailing the contours of the scheme and the cost to the government prepared by the agriculture ministry is likely to discussed by the Cabinet shortly, sources said. The finance ministry is helped by the low global crude oil price, subdued prices of other commodities that India imports, deregulation of fuels and the tax buoyancy in finding the fiscal space to roll out the new scheme. The government feels that a credible insurance support to farmers will be a major stimulus to the rural consumption. The farm sector accounts for over 13% of GDP and provides livelihood for 70% of rural households. Ashok Gulati, chair professor for agriculture, ICRIER, attributes the dismal performance of existing crop insurance schemes to the discouraging claims settlement experience of farmers marked inordinate delays and the very small amounts of insurance payouts — they cover the cost of cultivation, not the farmer’s income. “Insurance based on input-cost mechanism is not going to help. The policy should be to protect the income of farmers from agriculture risks. Besides land record digitisation, the satellite images should be used for quicker assessment of crop damage and settlement of dues to farmers,” said Gulati. “For any such insurance scheme to succeed, accurate estimation of the expected loss and, hence, calculation of premium based on actuarial principles is very important. Crop insurance has to be simple and should be easily accessible to farmers, say at the point of sale of fertilisers,” said Gopal Kumar, director, Allons Insurance Research & Consultants. At present, despite having more than two dozen general insurance companies, crop insurance schemes are offered only by a few companies, including the government-owned Agriculture Insurance Company, because the claims ratio — the total claim divided by premium — is very high, explained Kumar. The three existing crop insurance schemes — National Agricultural Insurance Scheme (NAIS), the Modified NAIS and the weather-based crop insurance scheme — have managed to cover only about 40.27 million hectares, a fifth of the country’s total agricultural land. Farmers at present pay 3.5% to 8% of the total premium fixed by the insurers under the existing crop insurance schemes while the rest is borne by the government. According to Ramesh Chand, member, Niti Aayog, the sum insured at present covers only a fifth of the crop acreage and just 5.5% of the value of total crop output. He is of the view that instead of crop insurance, which has not worked satisfactorily so far, the country should have an “Agricultural Calamity Compensation Fund”, shared between the Centre and states, for meeting a part of crop losses faced by farmers. “Huge subsidy for crop insurance is given across the world. The US provides subsidy of more than 60% while China gives 80% subsidy. The nature of agriculture insurance is such that unless it is heavily subsidised, neither farmers nor private companies will show interest. There are issues about compensating farmers for crop losses when damages are not uniform across the country. There are serious problems of errors of inclusion and exclusion of farmers,” said Chand. The proposed scheme is expected to be compulsory for farmers who rely on loans to finance agriculture. At present, Rajasthan has the largest insured agricultural land at 12.26 million hectares, followed by Bihar, Karnataka, Maharashtra, Gujarat, Uttar Pradesh and Andhra Pradesh. Oilseeds, rice, wheat, pulses and coarse grains are the major insured crops Field protection * Premium paid by farmers under existing crop insurance schemes: 3.5-8% of insured value * New scheme to include heavy subsidy; may cap premium by farmers at around 3%. * Extant scheme covers a fifth of the crop acreage and just 5.5% of the crop output value; new scheme to have much broader coverage Source - http://www.financialexpress.com