Inculcating the culture of formal institutional credit for agriculture
Pradhan Mantri or PM Fasal Bima Yojana (PMFBY) was launched in 2016 as an insurance scheme for the agricultural products to take the major burden of risks of low yield from farmers. Among one of the many plights of Indian farmers, losses due to low yield owing to a variety of uncontrollable factors has been at the top of the list. To address the same, crop insurance schemes were put in place and due support was provided to ease out the process. It was designed by consolidating previously existing schemes. National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS) to ensure ‘One Nation, one Scheme’.
PM Fasal Bima Yojana (PMFBY) comes with provisions to cover for losses at various stages of the crop cycle. Pre-sowing losses, post-harvest losses in events of cyclonic rain and unseasonal rainfall and localised calamities. The loss is assessed by the local government bodies and claims are settled within two months. Crop Insurance works the same way as others, except for the fact that the premium charged by the farmers is as low as 1.5-2%. Remaining amount is taken care of by the state. Agriculture Insurance Company (AIC) and some Private Insurance companies have been designated to participate in this government sponsored scheme based on their capacities and expertise.
One of the major objectives of PM Fasal Bima Yojana (PMFBY), apart from protection against the losses, is to inculcate the culture of formal institutional credit for agriculture. That is the reason why this scheme was made available mandatorily to the ones availing loan from the bank. It is voluntary for the non-loanee farmers. Credit flow to this sector will improve, resulting in improved competitiveness and cushioning against production losses. Secondary objectives include ensuring stable income for the farmers and keeping the agricultural sector attractive as a source of income. With improved levels of involvement in this sector, various technological implementations would gain traction.
The PM Fasal Bima Yojana (PMFBY) scheme utilises innovative technologies like Satellite Imagery, vegetation indices, along with mobile applications like Farmer App and CCE App to improve the speed and accuracy of estimation of losses. In order to overcome area discrepancies, digitization of land records is being promoted by the government.
The Scheme shall be implemented on the basis of a ‘Region Approach’ i.e., Defined Areas for each notified crop for widespread calamities, assuming that all insured farmers in an Insurance Unit are defined as ‘Notified Area’ for a crop, face similar risk exposures, incur largely equivalent production costs per hectare, earn comparable farm income per hectare, and experience similar risk exposures.
The specified area (i.e. insurance unit area) is the level of the Village/Village Panchayat by whatever name these areas may be named for major crops and may be a unit of size above the level of the Village/Village Panchayat for other crops. The Insurance Unit can be a Geo-Fenced/Geo-mapped area with a homogeneous risk profile for the notified crop in due time.
FocusAgritech’s Outlook
Multiple technological checkpoints have been put in place for this scheme to avoid misuse of this otherwise laudable scheme. Mandatory Aadhar linkage to prevent duplication, satellite imagery for loss assessment among others has been delivering desired results. An elaborate effort is also being made for the publicity and mass adoption of insurance schemes with earmarked expenditure of 0.5% of Gross premium per company per season. PMFBY will not only ensure more stable income for the farmers but also inch us closer to the objective of rural financial inclusion.
Companies to Watch: Cropin, ICICI Lombard, HDFC Ergo, Agriculture Insurance Company of India Ltd, Reliance General Insurance Company Ltd., Future Generali India Insurance Company Ltd., Tata-AIG General Insurance Company Ltd., Universal Sompo General Insurance Company Ltd.
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