Risk Management in Agriculture Through Insurance Satish Chander Joint Secretary Department of Agriculture & Cooperat

1. Risk Management in Agriculture Through Insurance Satish Chander Joint Secretary Department of Agriculture & Cooperation Government of India Krishi Bhavan, New Delhi

2. Different experiments on Crop Insurance on a limited way started in 1972 : • 1972-79 • H-4 cotton in Gujarat • On limited scale • Individual approach • Farmers covered: 3110 • Premium: Rs.0.45 million • Claims paid:Rs.3.7 million • 1979-85 • 1979- Pilot Crop Insurance Scheme • Homogeneous area approach • Limited to crop loan- voluntary basis • Food crops,Oil seeds,Cotton & Potato • Covered 0.60 million farmers in 13 states • Premium: Rs.19.70 million • Claims paid: Rs. 15.70 million • 1985-1999 • Kharif 1985- Comprehensive crop Insurance Scheme • Coverage- Loanee farmers; Food & oil seeds; Rs.10,000/- per farmer/ season • Premium rate- 2% ( Wheat,Paddy & Millets), 1% (Oil seeds & Pulses) • Premium subsidy- 50% for SF/MF • Sharing of claim liability between Centre & State : 2:1 • Covered 71 million farmers in 19 State & 3 UTs • Premium- Rs. 4 billion: Claims paid- Rs.23 billion; Claim ratio: 1:5.7

3. National Agricultural Insurance Scheme (NAIS) • Background • In vogue since Rabi 1999-00 • Greater coverage of farmers, crops & risks • Rationalized premia structure • Optional to States/ UTs • Compulsory for loanee farmers • Risk Covered • Non- preventable risks • Sum insured- upto value of TY • Insurance beyond TY upto 150% • of AY at actuarial rate • Premium • FOOD CROPS AND OILSEEDS • Bajra & Oilseeds: 3.5% of SI or Actuarial rate, whichever is less • Other Kharif crops: 2.5% of SI or Actuarial rate, whichever is less • Wheat: 1.5% of SI or Actuarial rate, whichever is less • Other Rabi Crops: 2.0% of SI or Actuarial rate, whichever is less • ANNUAL COMM./HORT. CROPS: Actuarial rates • PREMIUM SUBSIDY • 50% subsidy for SF/MF - to be phased out in 5 years on sun set basis. At present 10% subsidy is available to be shared on 50 : 50 basis by Central & State govt.

4. Progress of NAIS • Implemented in 23 States and 2 UTs. Coverage: During last fifteen seasons • Farmers Covered (in lakhs) 970.73 • Area coverage (lakh ha.) 1562.10 • Sum insured (Rs. in crores) 97181.12 • Premium (Rs in crores) 2942.71 • Premium Subsidy (Rs in crores) 279.49 • Total claims (Rs. in crores) 9856.92

5. Status Position of NAIS • During last fifteen crop seasons - out-go of claims Rs. 9856.92 crore - premium income Rs. 2942.71 crores. • Premium to claims ratio ~ 1 : 3.35; loss cost ~ 10.14%. • Annual Coverage of the farmers about 15%. • Annual Coverage of area about 19%. • 8 States account for major part of the indemnity (Gujarat, Andhra Pradesh, Karnataka, Maharashtra, Rajasthan, Bihar, Madhya Pradesh and Orissa. • In spite of large amount of out-go by way of claims the coverage is very small. • The scheme has certain limitations/constraints.

6. LIMITATIONS OF NAIS • Larger unit area results in unrealistic assessment of crop loss and payment of compensation. • Low indemnity level and unfavourable threshold yield. • Limited Coverage - Perennial crops; pre-sowing and post-harvest losses are not covered • Compulsory coverage of loanee farmers. • Phasing out of premia subsidy on sunset basis is resisted/ objected to by some States. • Delay in payment of claims on account of late submission of yield data, share of funds by Centre/State and discrepancies/disputes in the claims • Inadequate infra-structure in the field. • Little interest is shown by Banks in the implementation of the scheme • Low awareness of the scheme at the ground level.

7. Constitution of Joint Group • To study the improvements required in the existing schemes a Joint Group was constituted in the Ministry of Agriculture. • The Joint Group made in-depth study of each and every issue. • The Group submitted its report on 20.12.2004 and made number of recommendations.

8. Main recommendations of the Group are:- • Reduction in the unit area of insurance to the level of village panchayat for major crops. • Threshold/guaranteed yield is proposed to be based on best 5 years out of preceding 7 years yield data. • Indemnity levels will be 90% for low risk areas/crops and 80% for other areas/crops. • It is proposed to cover pre-sowing/planning risks (i.e. prevented sowing on account of adverse seasonal conditions). The indemnity payable may range between 20% - 25% of sum insured.

9. Recommendations • Post-harvest losses on account of cyclone are to be covered in coastal areas. • Uniform seasonality discipline for loanee and non-loanee farmers is to be followed in consultation with the States/UTs. • On account payment of claims is to be made during the season on the basis of weather data or satellite imagery so as to make timely payment of claims. • An individual assessment of claims will be carried out in case of specified localized calamities viz. hailstorm, landslide and damage due to wild animals.

10. Recommendations • Insurance cover to perennial horticultural crops and vegetables is to be provided. • The NAIS is proposed to be placed on actuarial regime. But the premium actually paid by the farmers are to be suitably subsidized. • A composite Package insurance covering all assets of the farmers besides crops should be included so as to provide comprehensive insurance coverage.

11. Consultation and Formulation of Modified NAIS • Most of the States are in agreement with almost all the recommendations except pattern of sharing financial liabilities. • World Bank Consultants engaged by AIC have also agreed with the improvements suggested by the Joint Group with some modifications. • World Bank emphasized the need to reduce delays in settlement of claims by strengthening yield data collection process and moving towards actuarial regime. • Based on the recommendations of the Joint Group and views of other stake-holders, Modified NAIS has been formulated and is under consideration of the Government.

12. WEATHER BASED CROP INSURNCE SCHEME (WBCIS) • WBCIS is a mechanism for providing effective risk management aid to those individuals and institutions likely to be impacted by adverse weather incidence. • It covers anticipated shortfall in crop yield on account of weather parameters like deficit & excess rainfall, heat (temperature ), wind, frost, hail-storm etc. • WBCIS has certain advantages over traditional yield based insurance scheme - less moral hazards; cost effective and speedy settlement of claims. • According to Joint Group constituted by the Government, Weather Insurance is a promissing field but its suuccess depends upon quality of weather data, proper correlation studies and affordable premium rates.

13. Progress of Implementation of WBCIS • As per announcement in the Union Budget 2007-08, Pilot WBCIS has been implemented in Kharif 2007; Rabi 2007-08 and has been decided to continue its implementation in Khairf 2008. • In Kharif 2007, Pilot WBCIS was implemented in 70 hoblies out of total 770 hoblies in Karnataka. 43790 farmers over 50075 hact. area with sum insured of Rs. 53 crore were covered. • In Rabi 2007-08, the scheme has been implemented over larger area. More than 6 lakh farmers, over an area of about 9 lakh hact. have been covered. • In Kharif 2008, further expansion in the implementation has been envisaged. The scheme is proposed to be implemented in 15 States. • To increase coverage under the scheme and to provide competitive services to farmers private insurance companies have been involved for implementation besides public sector Agriculture Insurance Company of India Ltd. (AIC).

14. Views of State Governments are solicited on the following : • How to increase coverage under NAIS as the present coverage is only about 15% of the total farmers in the country? • Improvements required in the existing NAIS. Are the improvements under proposed MNAIS adequate? • Preparations of the State Governments for implementation of MNAIS and WBCIS. • Whether WBCIS can be implemented as an alternative to NAIS? Or as complement/ supplement to the area yield insurance. • Would States like to have their own insurance scheme within certain guidelines of GOI.

15. THANK YOU