Comment

Protecting agriculture is the primary responsibility of the government simply because this sector provides food to 100% of the people and employment, close to 60% of them.

But, the support system is neither effective nor adequate for the sustainable development of agriculture. The ongoing episode of the delay in arranging the payment of insurance claims for those who hit by the crop loss in kharif 2008 in the states like Andhra Pradesh, which suffered double whammy —- floods and drought — has once again brought to focus the gross inadequacy of insurance protection to the food givers.

The centre has not take up its responsibility to provide its share of contribution towards the insurance claims on priority, even during this hour of disaster when the farmers are undergoing the trauma of drought in many states; almost half of India is drought affected (299 of 612 districts in the country have been declared, by September end, to be drought affected, by 12 states).

This is not to say that the releasing of centre’s share would bring great relief to the farmers in distress (the total dues to the farmers in whole of India amount to about Rs. 2,136 crore, which includethe shares of central and state governments and of an insurance company), but, it indicates the reticence of the government towards the problem.

Despite tall claims by the government, the crop insurance scheme in vogue, known as
National Agricultural Insurance Scheme (NAIS), could not bring a tangible relief to the farming community.

As per the Agricultural Insurance Company (AIC)’s data, 3.56 crore farmers in the country have benefited during the 19 crop seasons since rabi 1999 to rabi 2008-09, that is, ever since the NAIS came into operation.

Total number of farmers cumulatively covered were 13.47 crore. Total claims, paid and payable, amounted to Rs 14,772.79 crore against the premium collected of Rs 4,426.48 crore.

That means the aggregate claims/premium ratio was 3.33; claims preferred were 3.3 times higher than the premium received. The coverage of farmers, in the country, has been in the region of 9% to 16%, while the operational area covered did not exceed 4%.

Although the scheme is compulsory for the farmers taking loans from the banks and voluntary for others, the number of farmers covered under crop insurance has not been sizeable for the reason that not many are getting loans from banks and those who do not get loans do not want to increase their cost of cultivation by insuring their crops through paying high premium amounts.

The premium rates are very high —- they range between 1.5% and above 20% depending on the crop and season. Although the government gives subsidy to the small and marginal farmers, there is a sunset clause for the benefit.

Started at 50% in the beginning the present rate of premium subsidy is just 10% whereas developed countries like the US and Canada provide a premium subsidy of 60% to 70% to all farmers.

The crop insurance premium paid by the farmers is more than compensating the interest subsidy given by the government, for instance a paddy grower taking loan from banks during two seasons in a year has to pay 2.5% in kharif and another 2% in rabi season, which means the hiking of annual cost of borrowing by 4.5% in addition to interest and other costs. This cost is still higher in case of commercial crops.

The evolution of crop insurance schemes shows the approach of the government towards charging realistic rates of premium from farmers without regard to the fact that the farming activity is not leaving enough surpluses to them to meet the burden.

The claims burden of Rs 2,303 crore against the premium collected amount of Rs 404 crore for running comprehensive crop insurance scheme (CCIS), the scheme that preceded NAIS, for 15 years, during 1985-1999, was considered to be heavy due to unrealistic rates of premium; the claims premium ratio was found to be 5.72.

But a closer look shows that the burden was not that heavy as it was made out to be. The burden on the central government for covering as many as 7.63 crore farmers, under the scheme, was Rs 1,535 crore ( just Rs 102.33 crore per year) and Rs 803 crore on 19 state and 3 Union territories which have implemented the scheme, that is, Rs 2.43 crore per state/Union territory per annum.

The impact of the earlier two schemes were not very significant —- the one that started in 1972, first ever scheme in India and continued up to 1979 covered only 3,110 farmers in whole of India and the other that succeeded it and in operation between 1979 and 1984 covered 6.23 lakhfarmers.

All these efforts of the successive governments, all these years since Independence, to achieve the twin goals, ensuring the viability of the insurance schemes while bringing succour to the farmers through their extensive coverage all over India, an ambition to eat the cake and have it too, have failed to ensure either of them.

The claims to premium ratio continues to be high, coverage of farmers is not adequate, relief provided even to the limited extent is not timely —- it is taking some eight months to one year for settling the claims.

The lesson to be leant, therefore, is that the actuarial calculations and premium rates decided on the business principles are not relevant for agriculture since most of the farming in India is on small scale —- the average size, of about 11.92 crore operational holding in the country, is 1.33 hectares and the incomes from farming generally are below subsistence level.

So, totally a different scheme and approach is necessary if protecting both the farming and the farmer is the real goal.