New crop insurance scheme to ensure lower premiums

The union cabinet today approved a crop insurance scheme that would replace the existing ones to ensure that farmers pay lower premium and get early claims for the full sum insured.

A decision on the much-awaited scheme was reportedly taken at the cabinet meeting headed by Prime Minister Narendra Modi.

The new crop insurance scheme, to be implemented from the kharif season this year, will replace the existing two schemes National Agricultural Insurance Scheme (NAIS) and Modified NAIS which have some inherent drawbacks.

The impact of unseasonal rains and two straight years of drought on agriculture that sustains over two-thirds of India's 1.25 billion people has dented Modi's popularity in the countryside, contributing to a humiliating loss for the premier in elections last year in the largely rural state of Bihar.

Agriculture minister Radha Mohan Singh said last week that New Delhi will launch the crop insurance scheme in the fiscal year starting 1 April.

Under the new scheme, farmers' premium has been kept at a maximum of 2 per cent for foodgrains and oilseeds and up to 5 per cent for horticulture / cotton crops.

The much-awaited scheme -  Pradhan Mantri Fasal Bima Yojana (PMFBY) - will replace the existing two schemes National Agricultural Insurance Scheme as well as Modified NAIS which have had some inherent drawbacks.

''The cabinet has cleared the agriculture ministry's proposal on new crop insurance scheme,'' sources said.

It has approved farmers' premium between 1.5 to 2 per cent for foodgrains and oilseeds crops, and up to 5 per cent for horticultural and cotton crops, they said.

The farmers' premium would be 1.5 per cent for rabi foodgrains and oilseeds crops, while 2 per cent for kharif foodgrains and oilseeds crops. For horticutural and cotton crops it has been fixed at up to 5 per cent for both the seasons.

According to reports, PMFBY will increase the insurance coverage to 50 per cent of the total crop area of 194.40 million hectare from the existing level of about 25 - 27 per cent crop area. The expenditure is expected to be around Rs9,500 crore.

In PMFBY, there will not be a cap on the premium and reduction of the sum insured, they said. Besides, 25 per cent of the likely claim will be settled directly on farmers account and there will be one insurance company for the entire state as well as farm level assessment of loss for localised risks and post harvest loss.

Private insurance companies, along with the Agriculture Insurance Company of India Ltd, will implement the scheme. All claim liability will be on insurer and the government would give upfront premium subsidy.

The new scheme is significant as the country is facing drought for the second straight year due to poor monsoon rains and the government wants to enhance insurance coverage to more crop area to protect farmers from vagaries of monsoon.