Pradhan Mantri Fasal Bima Yojana (PMFBY)

In January 2016, the NDA Government has launched a new Crop scheme Pradhan Mantri Fasal Bima Yojana which tries to improve upon the models used so far.

Overview of the Crop Insurance Schemes so far

Despite of implementing several crop insurance schemes, farmers are yet to get enough protection from risks in farming. The reason for thousands of farmers killing themselves every year is not just because of climatic factors; it is also due to the protection from risks, in terms of crop insurance, is not reaching them when they need it the most. This is because all the crop insurance models put in place so far since 1970s have met with limited or no success.

In 1985, the Rajiv Gandhi government had first launched a crop insurance scheme in India called Comprehensive Crop Insurance scheme (CCIS). In 1997, an Experimental Crop Scheme was launched which lasted only for a year.

In 1999, the NDA government launched National Agricultural Insurance Scheme (NAIS) to protect the farmers against losses suffered by them due to crop failures on account of natural calamities like; floods, drought, hailstorms, cyclone, pests and diseases etc. However, insurance was available for select crops “notified” crops only. This scheme was open to all farmers but was made compulsory for those farmers who had taken some kind of farm loans. The farmers had to pay flat insurance premium depending upon crop type and this premium was subsidized by government.

There were several problems in NAIS model. Firstly, this scheme operated on a so called “Area Approach” which means that the states would notify the unit areas of insurance such as blocks, mandals, Tehsil etc. The states would notify the areas on the basis of past yield data. Since yield data is crucial for crop insurance, success of this scheme was dependent on the availability of the data. The reliable data was not available with most states. Secondly,  the states needed to notify the unit areas on the basis of part yield data and Crop Cutting Experiments (CCEs) every year well in advance. Most states did not follow these prerequisites.

The result was that Insurance companies started crying foul because payable claims turned out to be several fold higher than the premium charged and subsidy paid. Secondly, it was assumed that the states would share the premium subsidy but somehow most states were reluctant to do so.

Under UPA Government, the NAIS was modified and was called Modified NAIS or M-NAIS. In this scheme, the area approach was done away with and the premium would be calculated on actuarial basis. This implies that the higher risk crops would have higher premium. The number of crops under the scheme was increased. Previously, only Agriculture Insurance Company (AIC) of India was allowed to implement the scheme but now, private insurers were also allowed to implement the modified scheme. Further, the unit area was reduced to be the Gram Panchayat.

The MNAIS tried to modify several issues with the crop insurance but still failed to reduce the farmer distress. The key problems of this scheme was that – it covered risks partially, it had higher premium rates (3.5% for Kharif Crops and 1.5% for Rabi Crops), the coverage was capped (this implies that farmers could recover at best a fraction of the total loss).

In 2007, the UPA government launched another crop insurance scheme was Weather-based Crop Insurance Scheme (WBCIS). This was another scheme to protect farmers against vagaries of nature such as deficit and excess rainfall, high or low temperature, humidity, etc.

This scheme was launched to settle claims in shortest possible time. Both these schemes (MNAIS and WBCIS) were made compulsory for loanee farmers. While former indemnified the cultivators against shortfall in crop yield; later protected against adverse weather conditions.

Pradhan Mantri Fasal Bima Yojana

Pradhan Mantri Fasal Bima Yojana (PMFBY) is the new crop damage insurance scheme that has been approved by the Union Cabinet in January 2016. It will replace the existing two crop insurance schemes National Agricultural Insurance Scheme (NAIS) and Modified NAIS. The new scheme will come into force from the Kharif season starting in June this year.

Crops covered

The scheme covers kharif, rabi crops as well as annual commercial and horticultural crops. For Kharif crops, the premium charged would be up to 2% of the sum insured.  For Rabi crops, the premium would be up to 1.5% of the sum assured. For annual commercial and horticultural crops, premium would be 5 per cent. The remaining share of premium will be borne equally by the central and respective state governments.


There will be one insurance company for the whole state. Private insurance companies will be roped along with Agriculture Insurance Company of India Limited (AIC) to implement the scheme.

Losses covered

Apart from yield loss, the new scheme will cover post-harvest losses also. It will also provide farm level assessment for localised calamities including hailstorms, unseasonal rains, landslides and inundation.

Use of technology

The scheme proposes mandatory use of remote sensing, smart phones and drones for quick estimation of crop loss. This will speed up the claim process.

Other features

Within next 2-3 years, the scheme aims to bring 50% farmers under the scheme. The settlement of claims will be fastened for the full sum assured. About 25% of the likely claim will be settled directly on farmers account. There will not be a cap on the premium and reduction of the sum insured.

Comparison with earlier crop insurance schemes

The new scheme is different from earlier schemes on the account of following:

  • It is open to all farmers but NOT mandatory to anyone. It is optional for loanee as well as non-loanee farmers.
  • It has so far lowest premium. The existing premium rates vary between 2.5% and 3.5% for kharif crops and 1.5% for rabi crops—but the coverage was capped, meaning farmers could, at best, recover a fraction of their losses. The farmers’ premium has been kept at a maximum of 2 per cent for food grains and up to 5 per cent for annual commercial horticulture crops. For rabi crops, it is 1.5%. The balance premium will be paid by the government to provide full insured amount to the farmers. Since there is no upper cap on government subsidy, even if the balance premium is 90 percent, the government will bear it
  • This scheme provides full coverage of insurance. While NAIS had full coverage, it was capped in the modified-NAIS scheme.
  • It also covers the localized risks such as hailstorm, landslide, inundation etc. Earlier schemes did not cover inundation.
  • It provides post harvest coverage. The NAIS did not cover while the modified NAIS covered only coastal regions.
Critical Appraisal

Thus, new crop insurance scheme has the potential to deal with the vagaries of nature on Indian farming. The premium to be paid by the farmers is kept low when compared with earlier crop insurance schemes. However, the scheme will increase the financial burden on the government and necessary budget allocations should be made. Some states like Punjab may face financial constraints in encouraging famers to take up crop insurance. The scheme also does not address the demand of farmers to cover the risks and losses inflicted by wild animals like elephants and wild boars. The wild animals pose risks to farmers in peripheral areas of national parks and wild life sanctuaries. Besides, losses from nuclear risks, riots, malicious damage, theft, and act of enmity, are all categorized under ‘exclusions’ in the new scheme.

Challenges in Implementation

Success of any government scheme depends on its sincere implementation. The key problems such as poor land records, flawed land titles,  corruption etc. are common challenges any crop insurance scheme in India faces. Further, the success of the scheme depends on how sincerely it is implemented by the insurance companies. Further, we need to wait and watch as to how the scheme is monitored and supervised.