India’s Transformative State Crop Insurance System


India is the second largest agricultural economy in the world after China, accounting for 7.4% of total global agricultural production and accounting for around 20% of the country’s GDP.

It’s not just the economy that depends on agriculture. About half of the country’s workforce is employed in the sector and 70% of rural households still depend primarily on agriculture for their livelihoods.

With such reliance on agriculture to drive economic growth and make ends meet, farmers across the country are under increasing pressure, especially in light of the increasing number of extreme events in recent years. In July 2021, floods in India’s second most populous state, Maharashtra, damaged standing crops, while a lack of rain in August combined with significantly higher than usual rains at the end of the monsoon have wreaked havoc in many states.

Agricultural risk has increased steadily over the years due to various factors including a growing population, water scarcity and climate change. In 2016, the Indian government introduced the crop insurance scheme known as Pradhan Mantri Fasal Bima Yojana (PMFBY) to expand crop insurance coverage and address the agricultural protection gap faced by farmers in case of unfavorable meteorological phenomena.

Transforming livelihoods through transparency and technology

Since then, the new insurance scheme has created a much more stable and robust system to support farmers when they need help the most. The combination of advanced technology, expanded coverage and new, more efficient processes replaced the old approach of crop insurance and compensating farmers for their losses.

Sums insured have increased significantly, leading to a huge increase in market insurance premiums by nearly 400% from 2015 to 2016. Generating premium income of Rs 31,500 crore (US$4bn) in 2021, has enabled the India to emerge as the world’s third largest crop insurance market, behind the United States and China.

At the heart of PMFBY is the Crop Insurance Portal, putting an end to archaic paper declarations. In turn, the digitization of the process has ensured better data consistency, farmer-level data, reduced duplication of payments, and end-to-end transparency to ensure payments reach the final recipient.

In some states, the application of technology has gone even further with the integration of land records which has enabled real-time verification of insurable interests and duplicate registrations. Additionally, a mobile app has taken the program to even higher levels, allowing instant capture of crop cutting experiences (CCE), facilitating near real-time claim calculations.

The benefits of the scheme are significant, but most important is that payments to farmers have been accelerated by orders of magnitude, accelerating the growth of the Indian crop insurance market from around $550 million in 2016 to $4 billion. dollars in 2021, increasing crop value coverage. to about 27 billion US dollars.

Obstacles and challenges encountered

Although the program has undoubtedly been a success, there is still a long way to go. In particular, an awareness gap needs to be filled for more farmers to enroll in the program. Farmers should also be informed about the procedures for initiating complaints to ensure they can get compensation quickly and how to use the online portal. The program itself also needs fine-tuning to ensure that delays in the system, especially those that lead to delays in paying claims, are ironed out.

The government and its insurance partners grapple with the central issue of the narrow window of time to assess crop damage or loss at each harvest. Currently, it is between 30 and 45 days, making it difficult for state governments and insurance companies to conduct the required number of crop cutting experiments (CCEs) for the final yield and performance assessment. to help farmers deal with their complaints. Therefore, the next goal from the technological point of view is to use alternative data sources such as satellite data (optical and radar) and meteorological data to optimize the number of CCEs and estimate crop yields.

India’s expansive farmer compensation ecosystem is the result of an innovative public-private partnership with globally recognized insurance experts.

Plans for full system digitization are well underway, using state-of-the-art technologies such as satellite and drone data to perform casualty assessments. This will provide greater transparency, reduce the burden on government and insurance companies, and speed up claims.

This technological leap will also help to cope with India’s harsh weather conditions, which are unpredictable and often very different from country to country.

There is no doubt that the PMFBY has been a major success for everyone connected with the Indian agricultural sector, replacing the piecemeal, state-by-state approach before 2016. The main objective of the program has always been to promote financial inclusion and ensure the prosperity of farmers. While there is work to be done to make the program even more effective, the way forward is still through digitalization and technology to make the program more transparent and farmer-friendly.



The opinions expressed above are those of the author.



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