11 months ago
On a date
25 Aug 16’
CROP INSURANCE IN INDIA: PMFBY, A BIG SUCCESS?
With the increase in uptake of crop insurance in India—a rumoured tripling of crop insurance premiums in 12-months—following the Modi government’s launch of the PMFBY scheme, we wondered if the scheme can yet be considered a success.
Yield-based policies, such as PMFBY, provide attractive coverage for farmers and policy holders—not least because the Indian central government and state governments heavily subsidise premiums to the tune of 98%. Old weather-based policies, whilst easy to structure and trigger (a shortfall in precipitation; lower than average temperature), left farmers exposed to unacceptable basis risk. In theory, yield-based policies are simpler to administer and provide a better service for their insureds, the farmers.
Reports this year estimate that 5% of the market will use the older weather-index policies, whilst 95% of the premium will be written under PMFBY. This represents a dramatic reversal of state from the previous year. Reports also estimate that the market has at least tripled, and some say quadrupled, to Rs 18,000 crores (~ $3bn USD). It appears that the new scheme has proved attractive. The empanellment of the four Indian Public Service Utilities will only add to that.
Nonetheless, praise has not been universal and concerns remain. Early sceptics warned that the scheme was not addressing many basic issues, including the risk that the scheme is practically just insurance for the farmer’s creditors. Others continue that criticism late in to the season. And there are reports that some state geovernments won’t be able to pay the bill the premium subsidies will lead to.
It seems that, whilst the Indian government has made strides towards a succesful implementation, there remain some questions to be answered. Though, on balance, a doubling of insurance penetration (by some measures), looks like a success…
Posted 11 months ago by admin