Thursday, January 31, 2019

Crop insurance is losing credibility


This piece was published in scroll.in on 31/1/2019. Reproduced below with charts and tables

Is crop insurance losing credibility?

The Modi government replaced the existing crop insurance schemes with the Pradhan Mantri Fasal Bima Yojana in 2016. The new scheme was advertised as incorporating the best features of the earlier schemes while removing all their shortcomings.

Unveiling the guidelines of the PMFBY, Prime Minister Narendra Modi attributed the low enrolment in crop insurance to farmers’ “lack of faith” in the earlier schemes. A rapid increase in enrolment was to be the hallmark of the PMFBY. The target was to cover 50% of the area under crops, about 98 million hectares, by 2018-19.

But in 2017-18, the second year of the PMFBY, the enrolment numbers fell sharply, taking the coverage to below 2015 levels. Against the target of 50% for 2018-19, the coverage stands at less than 26% in 2017-18.

Why did the coverage shrink? This analysis takes a closer look at the Modi government’s failure at expanding insurance coverage for farmers and the governance issues that it reveals.

What does the data show?

Prior to the introduction of the PMFBY in 2016-17, the number of farmers and crop area insured had been sequentially increasing. This trend continued through the first year of the implementation of the PMFBY. What is noteworthy is the sharp fall in numbers in 2017-18.

The government has been reluctant to put out 2018 kharif (monsoon crop) enrolment data even several months after the end of the season. The reason for this reluctance becomes apparent from a recent reply to an Right to Information query dated October 10, 2018. Enrolment as of date was down 10% from even 2017 levels. This data did not include enrolment in Bihar, but even after Bihar data gets included, 2018 kharif enrolment will fall short of 2017.

Can increasing coverage be equated with insurance gaining popularity?

In uninformed commentary, increasing coverage is equated with insurance gaining popularity with farmers. This is not necessarily true in the context of crop insurance in India because of the strong element of coercion exerted on farmers to take crop insurance cover.

Crop loans are given almost entirely by public sector financial institutions and cooperative banks which, following government directives, automatically deduct insurance premium from the loans they make to the farmer.

Compelling farmers to take insurance offers dual benefits from the government’s point of view. First, it ensures a minimum number of captive customers to make crop insurance viable. Second, the insurance serves as collateral for the farmer’s loan, since any insurance payout in the event of crop loss is routed through the same financial institution.

The government counts farmers whose insurance premium is deducted compulsorily from a crop loan as ‘loanee’ farmers and all others as ‘non-loanee’ farmers.

A rise in the number of crop loans or government pressure on banks for full compliance can result in a rise of ‘loanee’ farmers. But the real data of interest is the number of farmers who take insurance voluntarily.

Farmers enrolling voluntarily could be those who have never taken loans or those who have taken in the past, but not in the current season. Those who have never taken loans face several obstacles to enrolling, including access to insurers and the ability to produce documentation such as sowing certificates and land records. Those who have taken loans in the past presumably have access to all the above, and should not find it a problem to enrol voluntarily if they desire.

Has there been a “quantum jump” in the voluntary enrolment of farmers?

It appears that the government is extremely keen to show that the PMFBY is more popular with farmers than earlier schemes. The Agriculture Secretary recently claimed that after the implementation of the PMFBY in 2016, there has been a “quantum jump” in voluntary enrolment. He was repeating a claim first made by the Ministry of Agriculture and Farmers Welfare on December 7, 2016 (press release).

The Ministry claimed that the number of ‘non-loanee’ farmers which was only 1.5 million in kharif 2015 had jumped to 10.2 million in kharif 2016.

But data available in the public domain tells a different story. The graph below is based on the CAG Audit of Agriculture Crop Insurance Schemes, 2017 (CAG report 2017), barring the data for 2017 and 2018, which are taken from answers to queries posed in the Lok Sabha (7-8-2018) and under the RTI Act (10-10-2018). Kharif accounts for roughly two third of the insured farmers and crop area.

There were 9.8 million ‘non-loanee’ farmers insured in kharif 2015 as per the CAG report. This is also confirmed by Ashok Gulati, former Chairman of the Commission for Agricultural Costs and Prices, in a recent paper where he attributes his data to industry sources.

The important takeaway from the chart is that ‘non-loanee’ numbers have barely changed since 2015, remaining in the range of 10-11 million. There has been no “quantum jump”.

What explains the data discrepancy?

The numbers for 2015 reported in the agriculture ministry’s press release are completely at variance with numbers available in the CAG report. The CAG attributes its data to the Department of Agriculture Cooperation and Farmers Welfare. This means the Ministry has revised 2015 numbers after the implementation of the first season of PMFBY in 2016.

Clues as to the nature of revision are available in a recent RTI response from the Ministry dated October 10, 2018 which shows the number of ‘non-loanee’ farmers in Maharashtra to be under 0.2 million in 2015-16 instead of a number of 8.2 million gathered from Maharashtra government officials.

A 2005 Bombay High Court judgement prohibits the deduction of premium from farmers taking loans in Maharashtra without their consent. Farmers providing consent as well as those taking crop loans and insurance from different institutions all get reported as ‘non-loanee’ (voluntary) farmers by insurers. According to Maharashtra government officials, a very high percentage of insured farmers have been counted in the ‘non-loanee’ category in the state for many years.

Maharashtra typically accounts for more than half of the ‘non-loanee’ farmers across India in any year. It appears that the Ministry has changed the definition of ‘non-loanee’ as applicable to Maharashtra in a way that has resulted in the “quantum jump”.  

Questions about the numbers quoted in the agriculture ministry’s press release of December 2016 have been raised by the Centre for Science and Environment in its 2017 report on PMFBY  and also directly with government officials with no answer forthcoming. If the figures supplied to the CAG were wrong and the ministry has revised it since then, does it not owe a public clarification?

What does the sharp fall in enrolment in 2017 indicate?

We now return to the issue of fall in coverage that was raised earlier. An acutely embarrassed government has gone to great lengths to dispel the idea that this could be attributed to farmers’ dissatisfaction with the PMFBY.

It has advanced two reasons. One is that when states announce farm loan waivers, farmers keep payments on old loans pending, making them ineligible for new loans. This would mean a lesser number of farmers applying for new crop loans. Two, the introduction of Aadhar seeding in the loan approval process has eliminated the earlier practice of some farmers taking multiple loans for the same crop. Both these reasons could account for the lower number of insurance policies linked to loans, that is, the lower number of ‘loanee’ farmers, it claims.

An analysis of kharif data shows the number of insured farmers came down not only in Maharashtra and UP, which announced farm loan waivers, but in seven other states. These nine states account for more than 80% of the farmers insured for kharif 2016.

Jharkhand, Orissa, Karnataka, Tamil Nadu and Telangana bucked the trend, but these accounted for only a little over 10% of the insured in that season.

The loan waiver related argument advanced by the government begs the question: why is it that the farmers who did not get loan-linked insurance (as they did not take loans) not voluntarily opt for insurance if this was to their benefit?  

Rather than seeing an increase in ‘non-loanee’ enrolment, states such as MP, Maharashtra and West Bengal saw a significant fall. Other states saw negligible change.

Reports (like this one) in the media suggest that farmers are unhappy with the PMFBY because of delays in settlement of claims and the lack of avenues for redressal. There are even instances reported of farmers taking collective action to oppose the mandatory deduction of insurance premium from their crop loan accounts because claims have not been settled for a previous season. The drop in 2017 enrolment may have more to do with this than the government cares to acknowledge.

Has governance improved with PMFBY?

The quality and timely availability of data in the public domain is a window to the quality of supervision by the government. How does the government measure up on this account?

There are blatant errors in the data put out by the agriculture ministry. For example, the number of farmer beneficiaries in Rajasthan for kharif 2016 is indicated as 18.7 million in the PMFBY website while the total number of insured farmers in the state is only 10.1 million. The total number of kharif 2016 beneficiaries is shown as 25.8 million though the real number is around 10 million.This error has been repeated in a reply to a question raised in Parliament in Aug 2018. It appears that no one in the ministry even glances at the data.

Insurance premium paid for by (deducted from) farmers is almost exclusively handled by public sector financial institutions and service centres. Yet final kharif 2018 enrolment figures have not been released, though the official period for claims settlement is over. The government took 8 months after enrolment would have been completed to provide figures for rabi 2017-18 (Lok Sabha 7 Aug 2018).

It is imperative for farmers that claims of crop loss for any season are settled before the start of the next season, and the PMFBY guidelines on claims settlement recognize this. Yet the government is unable to provide even provisional claims data for rabi 2017-18 when we are in the midst of rabi 2018-19, surely indicating that there are huge delays in settling claims. The delays are of course confirmed by reports from the ground.

The delayed availability of data, frequent revisions and blatant errors all point to poor systems and oversight of the crop insurance program by the central government.

Farmers may have lacked faith in earlier insurance schemes, but the PMFBY has done nothing to restore it.