UIIC AO 2016 - Essay - Crop insurance in India needs innovation and not subsidy

Hello and welcome to exampundit. Here is the 3rd Essay from the First Essay Contest. The topic is about Crop insurance in India needs innovation and not subsidy.

Optimus Prime –  Crop insurance in India needs innovation and not subsidy

Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched to boost the farming sector. Under this scheme, for kharif crops a premium of 2% and for Rabi crops premium of 1.5% is to be paid by the farmers. Whereas for horticultural crops premium will be 5%. This premium which is to be paid by the farmers is low and the remaining amount will be paid by the government on account of crop loss due to natural calamities.

Under this scheme, there is no upper limit on subsidy given by the Government. Whatever the amount may be, it will be paid by the Government. In Agriculture sector there has been a trend of subsidy and little investment. There are some ill effects of subsidy.

For example, a farmer gets subsidy for digging up tube well and further subsidy in electricity, due to this over consumption of ground water happens which creates groundwater crises. Similarly subsidy is given for fertilizers. Overuse of fertilizers affects soil health and plant growth. The insurance companies will provide crop insurance if they see positive outcome of it. The scheme should clearly address the terms and conditions for claims. Then reinsurance companies will be willing to absorb risks from general insurance companies.

The use of technology is an important feature of this scheme for quicker settlement of claims. Smartphones will be used to capture and upload data of crop cutting to reduce delays in claim settlement to farmers. Remote sensing will be used to reduce crop cutting experiments. This will encourage farmers to get crop insurance. So we can say that innovative ways and use of technology in settling claims will help the crop insurance in India rather than subsidy.

Arya Stark – Crop insurance in India needs innovation and not subsidy

Agriculture in India is highly susceptible to risks like droughts and floods. It is necessary to protect farmers from aftermaths of natural calamities and ensure their credit eligibility for the next season. For this purpose, the government of India have been implementing many crop insurance schemes since early 1980s. And with the gap of years it has updated these schemes with new changes. This year also the government of India launched the Pradhan Mantri Fasal Bima Yojana(PMFBY) which has replaced the earlier National Agriculture Insurance Scheme (NAIS). The revamped crop insurance scheme is welcome, but the scheme has some points which are important to consider, before implementation.

Although the low premium will drive more and more enrolment & make the insurance scheme more viable for insurers. But it remains to be seen, if the unit for crop loss has been reduced to the village level. And also there are no details of how the scheme will use to assess crop losses. Subsidising crop insurance premium is being risky and unsustainable in long run. While farmers may choose suboptimal cropping patterns, persons may lax on preventive caring measures. It may not show interest while collecting premiums as the deficit will be financed by the government, no matter how much the deficit promised in PMFBY.

Investment in agricultural infrastructure / research would be more equitable as opposed to subsidises to crop insurance and may yield more long term benefits. The subsidies sustainability is questionable in the long run. The fiscal costs of the subsidy are high. This particularly challenging in the wake of limits set by FRBM act,2003. Since subsidy covers the entire risk premium which is difference between the market decided rate and 1.5%/2%, This can subject to market fluctuations and can rise drastically in the future. The private companies may not opt for it because of the risks associated with monsoons which affect the expected produce. If the production failed, every farmer would claim the insurance from the company & then the company will bankrupt. 

There is need of innovation in the designing of crop insurance products to make it profitable for private companies. After all the company invests its money to generate income. More and more private companies will be attracted, if it proved to be profitable. It is more compatible to practice reinsurance worldwide, which make primary insurers to cover their local/regional risks by reinsurance using themselves with international reinsurers. The government’s objective is commendable but its solution response to the problems needs some correction to meet its objective in cost effective way. There is need to go by innovative approach in crop insurance scheme to ease the burden on the Indian economy.


Arnav Dragneo – Crop insurance in India needs innovation and not subsidy

Agriculture is the spine of every nation.Its the only source to feed the hungry nation and like any other nation India's agriculture sector takes the responsibility of feeding the huge population . The life of many Indian farmers has been miserable due to drought , floods and other natural calamities which have spread havoc and distress. Hence introduction of crop insurance have shun some light and hope to Indian farmers to prepare themselves from worse situations. Pradhan mantri Fasal Bima yojna launched recently by our prime minister which includes several benefits including subsidies to India's farmers with low premiums which will help farmers fight and save money and resources for next season. But is it enough to make farmers believe they are in safe hands?. India's farm sector is burdened with ill administration and far too little investment. Placing the availability of insurance and giving subsidy or premium does very little as many farmers are unaware of this circumstances.Its the responsibilities of government to open the options to innovate the existing insurance scheme and design it according to needs and situation. 

Insurance companies should hire agents(Agriculture officers) to communicate with farmers and figure out probable situation for positive actuarial outcome. Premiums should be realistic as too much loss for the government can bring the same fate happened before. A valued policies should be formulated according to the geographical condition and taking into account the future risk. Valued policy should also make sure farmers profit margin for a better economic results. Technological support can yeild solution to many drastic problems for example actuarial tools to demonstrate efficiency and gains for faster settlements , weather forecasting and passing the information to farmers and use of drones can ensure many benefits. 

A shift is need from a social crop insurance to a market based insurance schemes where the product design and premium can actually yield positive results and attract private insurance and reinsurance companies.Promotion of products , streamlining budget and assistance to farmers are some of the key features for the upliftment of the market. Hence ensuring mitigation of risk for the farmers and helping them for high yield is an attempt that should be welcomed.

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