Crop insurance scheme 2.0: Implementation issues and weaknesses

  • Blog Post Date 26 November, 2020
  • Notes from the Field
  • Print Page

Launched in 2016 and revamped earlier this year, the Pradhan Mantri Fasal Bima Yojana is Government of India’s flagship crop insurance scheme. However, it has been riddled with implementation challenges and non-payment of dues to farmers. In this note, Ashwini Kulkarni highlights some of the key issues in the design of the scheme – particularly its use of ‘crop-cutting experiments’ – and makes recommendations to enhance its effectiveness.

I will start with a cliché. A chain is as strong as its weakest link. When we apply this adage to the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) – Government of India’s flagship crop insurance scheme – we notice that the implementation chain is riddled with weak links. Launched in 2016 and revamped earlier this year, PMFBY aims to provide farmers with comprehensive insurance to protect them from crop failure and hence, stabilise their income. This is an area-based scheme: if the production in particular area turns out to be below a certain threshold, then all farmers in the area who are covered under the scheme will receive the claim amount.

Every agricultural season, state governments issue a notification specifying which crops are eligible, premium rates for the different crops, and a timeline for applications. The premium amount is borne by the central government, state government, and the farmer in the proportion of 49%, 49%, and 2%, respectively.

At the time of launch of the scheme, all farmers who availed crop loans from banks were automatically included. Farmers who did not have any crop loans at the time (non-loanees) had to apply for inclusion in the scheme on an individual basis. Now, all farmers have to apply by uploading the requisite documents (for example, land record) on an online portal and make electronic payment, upon which they receive a printed receipt.

Need for a safety net for vulnerable farmers

Most tribal farmers are small farmers, own farm plots with steep slopes and are dependent on the monsoon for their only season of farming. Our organisation ‘Pragati Abhiyan’, conducted a survey last year to collect information regarding how much knowledge farmers have about PMFBY. We interviewed 1,080 farmer families from 40 villages across three blocks of Nashik district. It should be noted that the sample is entirely from a tribal area so the findings may not be directly generalisable. Eighty one percent of the farmer families interviewed had less than five acres of farmland and the sources of earning were cultivation of own farm, farm labour, migration for manual work, and MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act). Farmers who did not avail of crop loans from banks accounted for 94% of this sample. Hence, almost all the farmers interviewed were non-loanee farmers. Thus, this situation demands that farmers be protected from the vagaries of nature and be assured of some cash in times of crop failure.

Accessibility issues

In mid-July this year, Subhash Navasu Wagh called me from Alwand, a tribal village 60 km away from Nashik in the state of Maharashtra. He is a young farmer who is literate and uses a smartphone. He said that he was unable to carry out the electronic transaction for payment of premium and upload his documents for the PMFBY this year and he was quite agitated about it. He said, “I was ready with all documents and required money in bank to make the application. How am I responsible if there was no electricity and no internet connectivity for several days? I tried using my phone. That did not work. Then I went to the nearest town (30km away) to the Customer Service Centre2 for two days in a row but could not upload the documents. The Customer Service Centre officer took all the documents and went to Nashik to upload it hoping he will get better connectivity. He came back after three days but his efforts were in vain”. Despite all of these endeavours and loss of working days, Subhash could not avail of the scheme. Is this a typical scenario? Yes and No. Yes, because most of the tribal, small farmers face these and more hardships. However, Subhash is an uncommon example of a farmer who owns a smartphone and knows how to use it.

This year was all the more difficult due to the Covid-19 pandemic and associated lockdown restrictions. There were no state transport buses available to travel from the village to the town or city; the number of days that were available after the notification of the scheme by the state government of Maharashtra for the Kharif3 season was only around a month, compared to over two months in all preceding years; and this a period of intense agriculture activity which demanded farmers’ time.

Organisational features

Formulated as ‘area-based insurance’ amid much media fanfare in 2016, the scheme seems to have been whisked away from the drawing board a bit too soon. Public and private insurance agencies bid with their premium rates for a district in a state. The lowest bidder is awarded the contract to provide insurance under the scheme for one agricultural season only. This discouraged them from investing in that district in terms of awareness activities or assigning personnel. They did not even set up an office! This year, the period for which the contract is given has been increased to three years in one district, and hence the same insurance agency can cover six seasons in the same area. This makes the arrangement more viable and reliable.

Use of crop-cutting experiments to determine crop loss

The most fundamental problem in the design of the scheme is the method used for determining crop loss in an area. The scheme outlines a series of crop-cutting experiments (CCEs), which are based on a method standardised by state agriculture universities. Consider a Gram Panchayat with two types of crops that are included in the scheme notification. This Gram Panchayat4 has to conduct four CCEs for each type of crop, adding up to eight CCEs in all. In our experience, one CCE with two observers and four farm labourers takes at least 30 minutes, excluding the travel time to and from farms and going from village to village. Nashik district has 1,373 Gram Panchayats and a total of eight crops have been notified for the district. Hence, a considerable amount of time and resources would be required to conduct all CCEs. Harvesting time lasts around two weeks, so all CCEs need to be completed within this period. Does this sound feasible?

One possibility is that CCEs are conducted only in areas where there is higher chance of crop loss, based on average rainfall data. However, crop loss could also be on account of dry spells or excess rainfall in a short period (which may still give average rainfall values that are ‘normal’), pest attacks, landslides in hilly areas, and so on. Also, there are not enough rain gauge stations to record rainfall data at the level of a cluster of Gram Panchayats. This has proven to be the basic limiting factor in proper implementation of this scheme. In the absence of a reasonable method to determine crop losses, how can the insurance claims be calculated and paid? Right from the beginning of this scheme there has been talk of using advanced technology for determining crop production. But that has not yet gone beyond a few pilots. It is crucial to resolve this problem satisfactorily.

This issue is reflected in farmers not getting their due despite crop loss, which has led them to voice their complaints. Last year saw an uproar among farmers who blamed the insurance agencies for non-payment/delay in payment to farmers. However, as per the scheme, it is the Department of Agriculture, Cooperation, and Farmers Welfare that is responsible for determining crop production and recommend payments to insurance agencies. The insurance agencies should only be blamed if the Department of Agriculture has given a list of areas where there are crop losses as per their observation (based on CCEs), and then the agencies deny the farmers their dues.

Scenario across states

Given such a scenario, there are several states who have been opting out of this scheme. The scheme is funded equally by the state and the Centre. From the beginning, Bihar had designed its own crop insurance scheme wherein there was no premium to be paid by farmers. Gujarat has announced a similar scheme this year. West Bengal rolled out its own version of the scheme from the Kharif season of 2019. This year, Madhya Pradesh, Telangana, and Jharkhand have opted out, and these states did not issue any notifications under the scheme in the Kharif season. The last date availing the scheme for the 2020 Kharif season was 31 July 2020.

According to a report by the Indian Express, Maharashtra had the highest enrolment under the scheme for the 2020 Kharif season – the experiences of farmers such as Subhash notwithstanding. This could mean that, if properly implemented, farmers – especially those practicing rainfed farming – do want some kind of agriculture insurance. Farmers still have some hope from the crop insurance scheme although state governments seem to be giving up.

Way ahead

One way out of this could be a simpler version of crop insurance, based only on rainfall data. The number of recording locations can be increased and all farmers with less than 10 acres of rain-fed farmland can be included. The criteria of whether the farmers had previously availed of any crop loan or which crops they cultivate, should not be considered. The process of farmers having to apply on an individual basis and paying the premium should also be done away with. Crop losses should be determined based on rainfall distribution (rather than average rainfall levels) using a specific formula for each crop, and claims, if applicable, should be paid within one month after harvest period. In such a version of crop insurance, even if the claim amount is lower, it would provide farmers with an assured and timely response that is paramount.

If crop insurance can reach tribal farmers in remote villages, cultivating rain-fed, single-season foodgrains and provide some income protection in cases of dry spells or sudden burst of intensive rains, this would indicate that the scheme has considerably reduced its weak links and the chain has become stronger.

I4I is now on Telegram. Please click here (@Ideas4India) to subscribe to our channel for quick updates on our content.


  1. This is defined on an annual basis. It is a moving average of the yield in the last seven years excluding the two worst years.
  2. These centres are designated by the government for provision of such facilities with respect to government schemes requiring digital transactions/document upload.
  3. Kharif crops are crops that are cultivated and harvested in the monsoon season in India.
  4. A gram panchayat is the cornerstone of a local self-government organisation in India of the Panchayati Raj system at the village or small-town level and has a sarpanch as its elected head.
No comments yet
Join the conversation
Captcha Captcha Reload

Comments will be held for moderation. Your contact information will not be made public.

Related content

Sign up to our newsletter