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India - New crop insurance scheme will reduce premium 10-fold, ensure faster payouts

The central government is expected to launch a new crop insurance scheme for which the rate of premium paid by farmers will be about a tenth of existing rates.

The move is an attempt by the government to stem rural distress as farmers are facing three successive crop failures due to inclement weather conditions. The scheme, which is expected to be approved by the cabinet soon, will also put to use mobile phones to assess crop yields and cut down payout delays.

Such a scheme will make crop insurance more affordable for the marginal farmers who now pay a high premium of up to 25% of sum insured and help cover about half of all farmers in the next three years.

The decision also comes at a time when the Indian farm sector is witnessing a structural makeover with the entry of commercial horticulture crops—production of fruits and vegetables surpassed foodgrains by over 30 million tonnes in 2014-15 and farmers are dealing with a new class of risks like pest attacks and price volatility, in addition to conventional weather risks.

A government official who did not want to be identified said that Prime Minister Narendra Modi expressed great concern at the high rate of premium a resource-poor farmer has to pay and had instructed the farm ministry to come up with a new scheme which addresses their hardships.

Low penetration of crop insurance schemes despite their existence for over 30 years has been a major concern for the government, the official said, adding that lack of awareness coupled with high premium rates and lower claim payments drew the centre’s attention.

While the rate of premium for the current crop insurance schemes are as high as 25% for some crops, under the new scheme it will be cut 10-fold, or 2.5% of the sum insured. The new scheme also aims to change the criteria to determine losses by providing local-level assessment for calamities like hail-storm.

The Prime Minister got key officials on the drawing board and zeroed in on the proposed scheme after multiple meetings, the officer quoted above said. The new scheme will increase the coverage of from existing 23% of total farmers to 50% in next two to three years, he adds.

Rural distress in the country has risen leading to fall in rural demand in the economy mainly due to crop failure. Firstly, in 2014 Kharif crop suffered losses due to a drought as the June-September south-west monsoon recorded a country-wide deficit of 12% compared to the normal. This was followed by a spate of unseasonal rains and hailstorms across 15 states between February and April 2015 that damaged the winter harvest and led to a 7% dip in wheat production.

Further, a widespread drought in 2015 dampened the prospects of the Kharif crop. Between September and December 2015, 10 states declared drought and sought Rs.38,000 crore in central assistance. The centre, so far has approved over Rs.11,000 crore to seven states.

The central assistance towards drought relief in 2015-16 is several times higher than what it spends to subsidise crop insurance premiums every year. Lower premium rates in the new insurance scheme means the subsidy component will rise substantially.

In 2014-15, under the existing yield and weather-based crop insurance schemes, about 37 million or 27% of farmers were covered, the government informed Parliament last month.

Farmers across the country paid a premium of Rs.2,696 crore in 2014-15, the rest of the gross premium of Rs.4,940 crore came as subsidy from centre and the states. Claims during the year when farmers were battered by drought and unseasonal rains was Rs.7,997 crore.

Source –