Pradhan Mantri Fasal Bima Yojana (PMFBY)

Pradhan Mantri Fasal Bima Yojana (PMFBY) is a flagship crop insurance scheme of the Government of India aimed at providing comprehensive risk coverage to farmers against crop failure. Launched in 2016, the scheme seeks to stabilise farm incomes, encourage adoption of modern agricultural practices, and ensure financial sustainability of the agricultural sector. In banking, finance, and the Indian economy, PMFBY holds particular importance due to its close integration with agricultural credit, insurance markets, and rural financial inclusion.
Agriculture in India is highly vulnerable to climatic uncertainties such as droughts, floods, cyclones, and pest attacks. PMFBY addresses these risks by providing affordable insurance protection and reducing the financial distress faced by farmers.

Concept and Objectives of PMFBY

Pradhan Mantri Fasal Bima Yojana is a crop insurance programme that provides coverage against yield losses arising from non-preventable natural risks. The scheme replaces earlier crop insurance models by offering wider coverage, lower premium rates for farmers, and faster claim settlement mechanisms.
The main objectives of PMFBY are:

• To provide financial support to farmers in the event of crop failure
• To stabilise farmers’ income and ensure continuity of agricultural activity
• To encourage farmers to adopt improved farming practices and technology
• To support credit flow to the agriculture sector

By reducing production risk, PMFBY strengthens the foundation of agricultural finance in India.

Coverage and Scope of the Scheme

PMFBY covers food crops, oilseeds, and annual commercial and horticultural crops notified by state governments. The scheme provides insurance coverage from pre-sowing to post-harvest stages against risks such as drought, flood, pests, diseases, and natural calamities.
Coverage is available to both loanee farmers, who avail crop loans from banks, and non-loanee farmers, who voluntarily enrol under the scheme. This broad coverage enhances inclusiveness and risk pooling.

Premium Structure and Government Subsidy

A key feature of PMFBY is its affordable premium structure for farmers. Farmers pay a fixed and low premium rate, while the remaining actuarial premium is shared by the central and state governments.
The premium rates are structured as follows:

• A nominal premium for Kharif crops
• A lower premium for Rabi crops
• A uniform premium rate for commercial and horticultural crops

The heavy subsidy component ensures affordability while maintaining adequate insurance coverage.

Role of Banks in PMFBY

Banks play a critical role in the implementation of PMFBY, particularly for loanee farmers. Crop insurance under PMFBY is compulsory for farmers who avail institutional crop loans. Banks facilitate enrolment, premium deduction, and transmission of data to insurance companies.
By linking crop insurance with agricultural credit, PMFBY reduces default risk for banks and enhances the viability of agricultural lending. This linkage strengthens the rural banking system and improves credit discipline.

Role of Insurance Companies

Insurance companies, both public and private, are responsible for underwriting crop risk, assessing losses, and settling claims under PMFBY. They work in coordination with state governments and financial institutions to implement the scheme.
Use of technology such as remote sensing, satellite imagery, and mobile applications has improved transparency and efficiency in loss assessment and claim settlement.

Regulatory and Institutional Framework

The implementation of PMFBY operates within the broader financial and regulatory framework of the Indian financial system. The Reserve Bank of India plays an indirect but significant role by regulating agricultural credit, priority sector lending, and banking practices linked to crop loans.
PMFBY complements RBI’s objective of promoting inclusive and sustainable agricultural finance by reducing systemic risks associated with farm lending.

Impact on Agricultural Finance

PMFBY has strengthened the agricultural credit system by mitigating risks faced by both farmers and lenders. With insurance protection in place, banks are more willing to extend crop loans, and farmers are less vulnerable to income shocks caused by crop failure.
This risk-sharing mechanism improves repayment capacity, reduces non-performing assets in agricultural lending, and supports the overall stability of rural finance.

Economic Significance in the Indian Economy

Agriculture remains a vital sector of the Indian economy, employing a large share of the population. PMFBY contributes to macroeconomic stability by cushioning farm incomes against climatic shocks and reducing the need for ad hoc debt relief measures.
Stable agricultural income supports rural consumption, demand for goods and services, and overall economic growth. By protecting farmers, PMFBY indirectly strengthens the rural economy and allied sectors.

Advantages of Pradhan Mantri Fasal Bima Yojana

PMFBY offers several advantages:

• Comprehensive risk coverage at affordable premium rates
• Income stability for farmers during adverse conditions
• Improved credit flow to the agriculture sector
• Use of technology for transparency and efficiency