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.
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.