‘Beed model’ of the crop insurance scheme Pradhan Mantri Fasal Bhima Yogna (PMFBY)
GS PAPER III: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Context: Maharashtra Chief Minister asked Prime Minister for state-wide implementation of the ‘Beed model’ of the crop insurance scheme Pradhan Mantri Fasal Bhima Yogna (PMFBY).
How does the insurance scheme work?
- Launched in 2016, the flagship PMFBY insures farm losses against inclement weather events.
- Farmers pay 5-2% of the premium with the rest borne by the state and central governments.
- It is a central scheme implemented by state agriculture departments as per central guidelines.
- For farmers, the low rate of premium and relatively decent coverage make the scheme attractive.
- Prior to 2020, the scheme was optional for farmers who did not have loans pending, but mandatory for loanee farmers. Since 2020, it has been optional for all farmers.
- In Maharashtra, over the years, more non-loanee farmers have enrolled, although it was optional for them.
Why does the state wants changes?
- Voices were raised in Maharashtra about the need to change the scheme.
- An open consultation of farmers raised voices against the scheme as there were issues of delay in claim settlement, failure to recognise localised weather events, and stringent conditions for claims were among the concerns.
- Another complaint was about alleged profiteering by insurance companies.
- For Maharashtra, where farmers predominantly depend of monsoon rains to water their crops, the scheme soon turned out to be non-profitable for insurance companies given the high payments they had to make.
- Payouts were close to or exceeded the premium collected in some years, leading to losses to insurance companies.
What is Beed model the state government wants implemented?
- Located in the drought-prone Marathwada region, the district of Beed presents a challenge for any insurance company.
- Farmers here have repeatedly lost crops either to failure of rains or to heavy rains.
- Given the high payouts, insurance companies have sustained losses. The state government had a difficult time getting bids for tenders to implement the scheme in Beed.
- During the 2020 kharif season, tenders for implementation did not attract any bids. So, the state Agriculture Department decided to tweak the guidelines for the district.
- The state-run Indian Agricultural Insurance Company implemented the scheme. Under the new guidelines, the insurance company provided a cover of 110% of the premium collected, with caveats.
- If the compensation exceeded the cover provided, the state government would pay the bridge amount.
- If the compensation was less than the premium collected, the insurance company would keep 20% of the amount as handling charges and reimburse the rest to the state government.
- In a normal season where farmers report minimal losses, the state government is expected to get back money that can form a corpus to fund the scheme for the following year.
- However, the state government would have to bear the financial liability in case of losses due to extreme weather events.
Why is the government pushing for it for the entire state?
- In the Beed model, the profit of the company is expected to reduce and the state government would access another source of funds.
- The reimbursed amount can lead to lower provisioning by the state for the following year, or help in financing the paying the bridge amount in case of a year of crop loss. For farmers, however, this model does not have any direct benefit.
1.png)
