Explained: What is the Beed model of crop insurance Maharashtra is pushing for?


On Tuesday, Maharashtra Chief Minister Uddhav Thackeray met Prime Minister Narendra Modi and asked him 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 1.5-2% 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. A premium of Rs 1,300 can insure an hectare of soyabean for Rs 45,000. 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.

A total of 422 lakh farmers in the country had enrolled for the scheme paying a combined premium of Rs 3,018 crore (farmers’ share only) and insuring 328 lakh hectares in 2019-20. Till date, 184.9 lakh framers have receive claims worth Rs 20,090 crore (according to the Fasal Bhima Yogna website; some kharif claims are yet to be finalised.)

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Why does the state wants changes?

Even before the of Shiv Sena-NCP-Congress government came to power, voices were raised in Maharashtra about the need to change the scheme. Dr Anil Bonde, the then state Agriculture Minister, had held an open consultation of farmers where the loudest voices against the scheme were from BJP supporters. 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. As the table shows, 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.

Last kharif season, Beed reported premium collection of Rs 803.65 crore (farmers’ share was Rs 60.82 crore while the rest was borne by the state and central governments). Kharif claims stood at Rs 8.61 crore, and thus insurance companies reimbursed the state with Rs 6341.41 crore of premium after deducting Rs 160.63 crore as handling charges.

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?

The reason why Maharashtra is pushing for this scheme is that in most years, the claims-to-premium ratio is low with the premium being paid to the company. 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.

Chances of the model being implemented for the present kharif season appear slim. Questions remain on how the state government is going to raise the excess amount, and how the reimbursed amount would be administered.



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