The Crop Insurance Scandal
Ramaswami,
a farmer of Burugupally village in Mahbubnagar district of Andhra Pradesh,
has been paying the premium for crop insurance every year for ten years
now. His crop has failed completely twice in this period, and failed
substantially more than three times. This year as well, he can point
to the acres of dry and useless maize plants on his fields, destroyed
by the late rains and prolonged dry spells of this monsoon. He estimates
that he is unlikely to receive even ten per cent of the output he had
anticipated.
Yet
he has never received any insurance compensation at all for the repeated
crop failures, and even this year he is unlikely to receive any benefit
in return for the hefty insurance premium that he has paid so regularly.
And what is the reason? The average crop output is his mandal has not
fallen below 60 per cent of the average of the past four years, and
so he is not deemed to be eligible for compensation. This is so even
though the mandal and the district as a whole have been declared as
drought-affected areas.
Ramaswami is frustrated and cynical about crop insurance, and given
a choice he would certainly avoid paying the premium again. But he has
no choice. In order to get a crop loan from a commercial bank, he must
necessarily take on the insurance as well. The premium can be high -
it ranges from 2 per cent to 7 per cent depending upon the crop. The
premium is typically taken by the bank as an additional loan, on which
interest is charged; or in some cases the amount is even compulsorily
''pre-paid'', that is deducted from the amount transferred as loan to
the farmer.
The entire system of crop insurance in rural India is bizarre in the
extreme. The farmer is not compensated for individual crop loss, but
has to be treated as one of the entire group in the area, and the unit
for calculation is taken to be the mandal (or block in other states).
There is wide variation in soil types, cultivation conditions and even
rainfall within mandals, and so the average disguises a large range
of crop output. Some farmers may lose their entire crop even when the
average for the mandal is normal.
In these circumstances, linking compensation payments to the average
crop performance of the mandal is extremely unfair. It is akin to linking
payments of life insurance claims to the average death rate in a particular
area, rather than the death of the individual who has taken out the
policy.
What explains this extraordinary system, which adds to the burden on
farmers without providing any compensation to so many genuine cases?
The answer lies in the way in which the system of crop insurance was
introduced, and the inflexible manner in which it is currently being
pursued.
Some well-meaning policy-makers at the Centre decided some years ago
that anyone taking a crop loan from an institutional source should also
take on crop insurance. And so the public insurance companies were instructed
to provide crop insurance - which could be linked to the loans - to
farmers. This was an excellent idea, except that the insurance companies
were not provided with the additional staff that is necessary to supervise
and implement the provision of crop loans. In fact, they were encouraged
instead to ''downsize'' and reduce staff in order to cut costs, even
when serving rural areas.
As a consequence, because of shortage of staff, the public insurance
companies are simply not in a position to undertake the examination
of fields which would be required to provide an individual insurance
policy and deal with individual claims along the lines of other insurance
products. So they have fallen back on a system of averages, and that
too, of a relatively large area, and linked individual payments to the
average performance of the area.
Because of the requirements of assessing the potential and the crop-cutting
experiments required to assess the actual yield in any given year, the
insurance companies are even reluctant to bring the assessment unit
down to the individual village, since that would increase costs.
What makes matters worse in some areas is that in many parts of rural
India, rainfall conditions over the past few years have been well below
historical norms. In western Rayalaseema region of Andhra Pradesh, for
example, as in northern Telengana, the past five years have received
rainfall which is around 15-20 per cent below the historical (for the
past fifty years) average. These regions are already low rainfall areas,
with only between 500-600 mm per year, and so even small reductions
in the average can have very damaging effects.
The past few years have been exceptionally poor in rain in these areas,
and therefore also have been associated with much worse output. To take
this low performance as the reference period is to make the conditions
for compensation for farmers even more onerous.
The
crop insurance has therefore become no more than a loan insurance, which
insures the lenders at the cost of the farmers who have to pay the premium.
The unfair system, which is in sharp contrast to the other schemes of
insurance available in other sectors and for individuals, provides yet
another example of how so many systems in our economy are weighted against
cultivators.