Modi’s ambitious crop insurance scheme is failing. Here are the hard facts

In 2016, the Narendra Modi government replaced existing crop insurance schemes with the Pradhan Mantri Fasal Bima Yojana. The new scheme was advertised as incorporating the best features of earlier schemes while removing all their shortcomings.

Unveiling the guidelines of the PMFBY, Modi attributed low enrolment in crop insurance to farmers’ “lack of faith” in previous schemes. A rapid increase in enrolment was to be the hallmark of the PMFBY. The target was to cover 50% of the cropped area, about 98 million hectares, by 2018-’19.

But in 2017-’18, the second year of the PMFBY, the enrolment numbers fell sharply, taking the coverage to below 2015 levels. Against the target of 50% for 2018-’19, the coverage stands at less than 26% in 2017-’18.

Why did the coverage shrink? This analysis takes a closer look at the Modi government’s failure at expanding insurance coverage for farmers and the governance issues that it reveals.

What does the data show?

Prior to the introduction of the PMFBY in 2016-’17, the number of farmers and cropped area insured had been sequentially increasing. This trend continued through the first year of the PMFBY. What is noteworthy is the sharp fall in numbers in 2017-’18.

The government has been reluctant to put out the 2018 kharif enrolment data even several months after the end of the monsoon season. The reason for this reluctance can be found in a recent reply to a Right to Information query. As on October 10, 2018, according to the reply, enrolment was down 10% from even 2017 levels. This data does not include enrolment in Bihar, but even after data for that state is included, 2018 kharif enrolment will fall short of 2017.

Can growing coverage be equated with insurance gaining popularity?

In uninformed commentary, increasing coverage is equated with insurance gaining popularity with farmers. This is not necessarily true in the context of crop insurance in India because of the strong element of coercion exerted on farmers to take crop insurance cover.

Crop loans are given almost entirely by public sector financial institutions and cooperative banks which, following government directives, automatically deduct insurance premium from the loans they make to the farmer.

Compelling farmers to take insurance provides a dual benefit from the government’s point of view. First, it ensures a minimum number of captive customers to make crop insurance viable. Second, the insurance serves as collateral for the farmer’s loan, since any insurance payout in the event of crop loss is routed through the same financial institution.

The government counts farmers whose insurance premium is deducted compulsorily from a crop loan as “loanee farmers” and all the others as “non-loanee farmers”.

An increase in the number of crop loans or government pressure on banks for full compliance can increase the number of loanee farmers. But the real data of interest is the number of farmers who take insurance voluntarily.

Farmers enrolling voluntarily could be those who have never taken loans or who have taken loans in the past but not in the current season. Those who have never taken loans face several obstacles to enrolling, including access to insurers and the ability to produce documentation such as sowing certificates and land records. Those who have taken loans in the past presumably have access to all the above and should not find it a problem to enrol voluntarily if they so desire.

Has there been a ‘quantum jump’ in voluntary enrolment of farmers?

It seems the government is keen to show the PMFBY is more popular with farmers than earlier schemes. The agriculture secretary recently claimed that after the PMFBY was rolled out in 2016, there has been a “quantum jump” in voluntary enrolment. He was repeating a claim first made in a press release by the Ministry of Agriculture and Farmers’ Welfare on December 7, 2016.

The ministry claimed the number of non-loanee farmers which was only 1.5 million in kharif 2015 had jumped to 10.2 million in kharif 2016.

But data available publicly tells a different story. The graph below is based on the Comptroller and Auditor General’s performance audit of agriculture crop insurance schemes, 2017, barring data for 2017 and 2018, which is taken from answers to queries posed in the Lok Sabha in October and under the RTI Act.

Kharif accounts for roughly two-thirds of the insured farmers and cropped area.

Nearly 9.8 million non-loanee farmers were insured in kharif 2015 as per the 2017 audit. This is conformed in a recent paper by Ashok Gulati, former chairman of the Commission for Agricultural Costs and Prices, who attributes the data to industry sources.

The important takeaway from the chart is that non-loanee numbers have barely changed since 2015, remaining in the range of 10-11 million. There has been no “quantum jump”.

What explains the data discrepancy?

The numbers for 2015 reported by the agriculture ministry in December 2016 are completely at variance with those in the Comptroller and Auditor General’s report, which attributes its data to the Department of Agriculture Cooperation and Farmers’ Welfare. This means the ministry revised the 2015 numbers after the first season of the PMFBY in 2016.

Clues to the nature of the revision are available in the RTI response of October 10 which shows the number of non-loanee farmers in Maharashtra to be under 0.2 million in 2015-’16 as against 8.2 million reported by Maharashtra’s government officials.

A 2005 Bombay High Court judgement prohibits the deduction of premium from farmers taking loans in Maharashtra without their consent. Farmers giving their consent as well as those taking crop loans and insurance from different institutions are all reported as non-loanee farmers by insurers. According to Maharashtra government officials, a very high percentage of insured farmers have been counted in the non-loanee category in the state for many years.

Maharashtra typically accounts for more than half of non-loanee farmers across India in any year. It appears the ministry has changed the definition of “non-loanee” as applicable to Maharashtra in a way that has resulted in the “quantum jump”.

Questions about the numbers quoted in the agriculture ministry’s press release of December 2016 have been raised by the Centre for Science and Environment in its 2017 report on PMFBY and directly with government officials, with no answers forthcoming. If the numbers supplied to the Comptroller and Auditor General were wrong and the ministry has revised them since, doesn’t it owe a public clarification?

What does the sharp fall in enrolment in 2017 indicate?

Now, let’s return to the matter of the fall in coverage. An embarrassed government has gone to great lengths to dispel the idea that this could be attributed to farmers’ dissatisfaction with the PMFBY.

It has advanced two reasons. One is that when states announce farm loan waivers, farmers keep payments on old loans pending, making them ineligible for new loans. This would mean a lesser number of farmers applying for new crop loans.

Two, the introduction of Aadhaar seeding in the loan approval process has eliminated the practice of farmers taking multiple loans for the same crop. These reasons could account for the lower number of insurance policies linked to loans, that is, the lower number of loanee farmers, the government claims.

An analysis of kharif data shows the number of insured farmers came down not only in Maharashtra and Uttar Pradesh, which announced farm loan waivers, but in seven other states. These nine states account for over 80% of the farmers insured in kharif 2016.

Jharkhand, Odisha, Karnataka, Tamil Nadu and Telangana bucked the trend, but these accounted for just a little over 10% of the insured in that season.

The loan waiver argument advanced by the government begs the question: why is it that farmers who did not get loan-linked insurance (since they did not take loans) not voluntarily opt for insurance if this was to their benefit?

Rather than an increase in non-loanee enrolment, Madhya Pradesh, Maharashtra and West Bengal saw a significant fall. Other states saw negligible change.

News reports suggest that farmers are unhappy with the PMFBY because of delays in the settlement of claims and the lack of avenues for redress. There are even instances of farmers taking collective action to oppose mandatory deduction of insurance premiums. The drop in 2017 enrolment may have more to do with this than the government cares to acknowledge.

Has governance improved with PMFBY?

The quality and timely availability of data in the public domain is a window to the quality of supervision by the government. How does the government measure up on this account?

There are blatant errors in the data put out by the agriculture ministry. For example, the number of farmer beneficiaries in Rajasthan in kharif 2016 is indicated as 18.7 million on the PMFBY website though the total number of insured farmers in the state is only 10.1 million. The total number of kharif 2016 beneficiaries is shown as 25.8 million though the real number is around 10 million. These errors have been repeated in a reply to a question raised in Parliament in August 2018. It appears no one in the ministry even glances at the data.

Insurance premium deducted from farmers is almost exclusively handled by public sector financial institutions and service centres. Yet, final kharif 2018 enrolment figures have not been released, though the official period for claims settlement is over. The government took eight months after enrolment would have been completed to provide figures for rabi 2017-’18.

It is imperative for farmers that their claims of crop loss for any season are settled before the start of the next season – and the PMFBY guidelines on claims settlement recognise this. Yet, the government is unable to provide even provisional claims data for rabi 2017-’18 when we are in the midst of rabi 2018-’19, indicating huge delays in settling claims. The delays are of course confirmed by reports from the ground.

The delayed availability of data, frequent revisions and blatant errors all point to poor systems and oversight of the crop insurance programme by the Modi government.

Farmers may have lacked faith in earlier insurance schemes, but the PMFBY has done nothing to restore it.

This is the first part of a two-part series on the Pradhan Mantri Fasal Bima Yojana.

Kannan Kasturi, an independent researcher, writes on matters of public interest and public policy.