Pradhan Mantri Fasal Bima Yojana (PMFBY)

• The Union Cabinet has approved Pradhan Mantri Fasal Bima Yojana, a new crop insurance scheme to boost farming sector in the country.
•  In which the premium rates to be paid by the farmers have been brought down substantially so as to enable more farmers avail insurance cover against crop loss on account of natural calamities.
•  The scheme will come into effect from the upcoming kharif season.

Why?

• Farmers, unlike most other economic agents, are exposed to production (weather) as well as price (market) risks. Given the extent of risk involved in growing any crop — ranging from prolonged dry spells and pest attacks to price crash at the time of harvesting — no insurer would normally want to enter this segment.
•  Even if they do, most farmers cannot afford to fork out the huge premiums based on actuarial or statistical risk assessment. There is a case, therefore, for the government to subsidise crop insurance premiums that will ultimately also encourage farmers to invest in productivity improvements and new technologies.
• Such subsidy is any day preferable to those on fertiliser, electricity or water, which only promote inefficient resource use.
• The fact that even farmers in a country like the US pay just 35 per cent of the average premium on crop insurance policies — entailing annual federal subsidies of $10 billion — only proves the point.

Salient Features:

• Uniform Premium: 1.5% for Rabi crops, 2% for Kharif crops, 5% for annual commercial crops
• The gap between the premiums they would pay and actuarial rates will be met by the government.
• There will no upper limit on government subsidy and even if balance premium is 90 per cent, it will be borne by the government.
•  Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction.
• The use of technology will be encouraged to a great extent. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments.
• The new Crop Insurance Scheme is in line with One Nation- One Scheme. It incorporates the best features of all previous schemes and at the same time all previous shortcomings/weaknesses have been removed.

 Difference from earlier schemes:

• Modified National Agricultural Insurance Scheme was earlier there but under that the government subsidised a maximum of 75 per cent of the actuarial premium. Moreover, the premium rate on which the sum insured was calculated was itself capped, so as to limit both the farmer’s claim and the government’s outgo. But now, there will be no such indirect capping of the sum insured.
• Subsidised premiums and prompt claims settlement enabled by remote sensing and GPS technology — as opposed to patwaris and crop-cutting experiments — should help substantially expand coverage.
• An increase in the area insured should also bring down premium rates, through spreading of risks across more farmers. That would also help contain the government’s subsidy burden.