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With an in­crease in the up­take of crop in­sur­ance in In­dia – a ru­mored tripling of crop in­sur­ance pre­mi­ums in 12 months – fol­low­ing the Modi gov­ern­men­t’s launch of the PMFBY scheme, can the scheme 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 sub­sidize pre­mi­ums by 98 percent. Old weather-based poli­cies, while easy to struc­ture and trig­ger (such as a short­fall in pre­cip­i­ta­tion or 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.

PMFBY-a-success

Re­ports this year es­ti­mate that five percent of the mar­ket will use the older weather-in­dex poli­cies, whilst 95 percent of the pre­mium will be writ­ten un­der PMFBY. This rep­re­sents a dra­matic re­ver­sal compared to the pre­vi­ous year. Re­ports also es­ti­mate that the mar­ket has at least tripled, and some say quadru­pled, to Rs 18,000 crores (approximately USD $3 billion). It ap­pears that the new scheme has proved at­trac­tive. The participation of 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 PMFBY is prac­ti­cally just an in­sur­ance scheme for the farmer’s cred­i­tors, with others con­tinuing that crit­i­cism late in to the sea­son. There are also reports that some state govern­ments won’t be able to pay the costs of the pre­mium sub­si­dies.

It seems that, whilst the In­dian gov­ern­ment has made strides to­wards a suc­cess­ful im­ple­men­ta­tion, there re­main some ques­tions to be an­swered. On balance, through a dou­bling of in­sur­ance pen­e­tra­tion (by some mea­sures) in just 12 months, this is surely a sign of success.

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