Govt plans financial penalties to push crop insurance

Almost 30% or a third of the agriculture ministry’s budget, is spent on premium for the PMFBY every year

More than two years after its formal launch, the Centre is planning to impose financial penalties on state governments, banks and insurance companies for violating the guidelines of the Pradhan Mantri Fasal Bima Yojana (PMFBY), including delay in claim settlement.

It is also looking to incentivise states that promptly pay their share of premium, disburse claims to farmers on time and use technology for crop cutting, officials said.

PMFBY is an yield-based programme, where farmers are charged two per cent for all kharif crops, 1.5 per cent for all rabi crops and five per cent for commercial and horticulture crops.

Almost 30 per cent or a third of the agriculture ministry’s budget, is spent on premium for the PMFBY every year.

The penalties on states could be in the form of a levy on the premium amount due or asking them to bear a higher share of the premium than the current 50:50 between Centre and states.

In the case of banks, the government could lower the four per cent service charge it gives from farmers’ share of premium.

And in the case of better performing banks, this might even be rattled.

Against the mandatory two months, the government has found the average time for settlement of claims under PMFBY has been five to six months.

Earlier, too, the Centre had warned states and other stakeholders of financial penalties for delay in claim settlement, but it was never seriously implemented. This time, officials said, the matter was being seriously considered.

The Dalwai committee on Doubling Farmers Income by 2022 has identified delay or non-payment of claims as a major challenge for the crop insurance scheme.

Under PMFBY, the difference between the premium paid by the farmer and the actuarial fair premium is subsidised by the government (shared by central and state governments on a 50:50 basis).

According to a section of the government, financial penalties could discourage states from the programme.

Already, Bihar has opted out of the scheme and Punjab hasn’t been a part.

“I do not think imposing financial penalties on states or anyone else would serve any purpose.

"If states were not following fiscal discipline and a majority of them were with the ruling party, what would penalties do?” asked former agriculture secretary Shiraz Hussain.

For the 2017 kharif season, around Rs 19,400 crore has been collected as premium against admissible claims worth Rs 166 billion.

Around Rs 11,000 crore worth of claims have been settled or are in the process of being settled.

The largest chunk of these, around Rs 5,400 crore, has been settled in Madhya Pradesh alone, for crop damage in kharif 2017. The state has polls in the next few months.

The government also plans to give greater freedom to states under the scheme and make the use of technology and drones in some segments of PMFBY mandatory.

“In the case of states that use 100 per cent technology in all fields of PMFBY, be it disbursal of claims or linkage to Aadhar, we have proposed a five per cent additional incentive,” a senior official said.

Photograph: Amit Dave/Reuters