Despite increasing allocated funds, the Union government has been unable to significantly improve the penetration of crop insurance in terms of enrolled farmers and insured areas.

The ailing PM Fasal Bima Yojana (PMFBY) Needs a structural redesign. The scheme, in its present structure, could be a good profit-making policy for insurance companies.

India’s agriculture sector, which provides employment to 50% of the labour force and contributes about 17% of the gross domestic product, currently faces multiple challenges. Smaller land holdings, unfavourable climate changes events, dismal public and personal investment, low monthly incomes, a high proportion of indebted farmers and unfavourable terms of trade between farmers and non-farmers are just some of the foremost problems.

Against this backdrop, PMFBY was announced within the Kharif 2016 season to strengthen the agriculture insurance scheme and increase farmers’ income by reducing the non-preventable agriculture risk and indebtedness of farmers.

It was available for all farmers, including sharecroppers and tenant farmers who cultivate the notified crops within the notified areas. The entire notified crops for PMFBY was over previous crop insurance schemes. However, like other preceding schemes, it had been initially compulsory for those farmers who had taken institutional credit (loan farmers). It had been protecting agriculture from non-preventable risks like drought, floods, and pests from the sowing period to the harvesting period until Kharif 2020.

Insurance companies in PMFBY charge an actuarial premium rate with no ceiling. However, farmers must pay a hard and fast percentage of the sum insured as a premium. The difference between the actuarial premium rate and also the premium rate paid by farmers, i.e., premium subsidy, is equally shared between the state and central governments. Despite having a set rate of premium for farmers, the premium amount paid by farmers and premium subsidy increases with a rise within the sum insured by farmers. The premium subsidy also increases when total insured farmers, total area insured, and therefore the number of crops notified by the states for crop insurance increase.

The total number of insured farmers within the Kharif season increased from 40.8 million to 42.4 million and within the Rabi season, it increased from 17.8 million to 19.8 million between 2016-17 to 2019-2020, respectively.

According to the matters Situation Assessment of Agriculture Households (SAAH) report for 2018-19, the overall number of agriculture households within the country are about 93 million. It shows that but 50% of farmers are covered under this scheme. Out of total insured farmers, the share of loanee farmers is quite 90%.

The share of non-loanee farmers is low and concentrated in some states like Maharashtra and West Bengal. the entire insured area in Kharif 2016-17 was 386 lakh hectares, which declined to 324 hectares in Kharif 2018-19. However, the overall insured area within the same period within the Rabi season was 191 lakh hectares. The commission on Agriculture (chair: P.C. Gaddigoudar) in its report on PMFBY, highlighted that the insured area as a percentage of the sown area has declined from 29% to 25% between 2016-17 to 2019-20.

 Between 2016-17 to 2020-21, the budget estimate and actual expenditure on PMFBY had continuously increased. the particular expenditure on PMFBY as a percentage of actual agriculture and allied sector expenditure is bigger than the estimated budgetary expenditure on PMFBY as a percentage of the budgetary estimate of agriculture and allied sector between 2016-17 to 2019-20.

It shows that the central government systematically underestimates the general expenditure on the scheme, which may be one of all the explanations for the delay in claim settlement. Added to the present, the govt budget runs on accrual accounting instead of cash accounting, increasing the delay in payment further