Indian agriculture is characterized by the vagaries of nature such a scarcity conditions, excessive rains, cyclones, hailstorms, floods etc. Many times, crops are totally lost and farmers are in great trouble. This happens of and on resulting in instability of income to the farmers. It becomes a gamble. To overcome this, the concept of crop insurance has come in Govt. of India started the crop insurance scheme in 1985 in collaboration with the General Insurance Corporation of India. This Scheme continued till 1999. This Schemes had some weaknesses and limitations.

In view of the suggestions made by many, the old scheme was discontinued and a new `National Agricultural Insurance Scheme’ has been introduced from Rabi season of 1999. A few salient features of the schemes are:

1. Any farmer irrespective of whether he has taken loan or not, can participate on this Scheme.

2. The earlier limit of sum assured of Rs. 10,000/- is no more there.

3. The courage of the scheme has been widened to include additional new crops.

4. Tenant farmer can also participate in this scheme.

5. These is concession to the extent of 50% in the premier to be paid by the small and marginal farmers.

Risk and uncertainty

Insurance against certain natural hazards mainly depends on kinds of events, which are classed as

1. Risks and

2. Uncertainties.

1. Risks: Pure risks involve complete knowledge of the future events. Since knowledge of the future is complete, the losses and gains, which grow out of risk, can be predicted with certainty and can be incorporated into the firm’s cost schedule. Therefore pure risk is a cost.

2. Uncertainty: Uncertainty is a subjective prediction in contrast to pure risk, a probability of outcome cannot be estimated in an empirical or quantitative sense for uncertainty is always present when the knowledge of the future is less than perfect.

Risk can be incorporated into firm’s (farmer’s) cost structure and is therefore insurable; while uncertainty is not insurable and cannot be reduced to cost.

An eventuality, which is an uncertainty from the individual point of view, can be classed as a risk, if large number of observations is available and outcome is predictable. Death, fire losses, hailstorms, famines and similar outcomes are absolutely uncertain for an individual. However, the probability of these outcomes is measurable when the number of cases or observations are sufficiently large and randomly or independently distributed Insurance Company can predict statistical probability of these events with the degree of certainty such that the phenomenon called as risk and hence can be insured.

Insurance is the means by which the risks are shared between many individuals or institutions who face them, so that the event of contingency befalling an individual is compensated for his loss out of the premiums paid by all the insured against it.

Insurance is also the pooling of enough small predictable risks so that the annual losses for the group are predictable. What is burdensome for the individual becomes constant annual loss for the Insurance Company. Insurance involved the periodical payment of relatively small sum by the insured that is facing the large risk and that if the risk is realized, he will be compensated in exchange of amounts provided for in his insurance policy. The burden of risk is borne by a large group through their contributions in the form of premiums to provide for a fund from which compensation is paid. Insurance is a "group activity to prevent catastrophe for the individual ". Not only must the insurance be spread over large number of persons, but also the object being insured must be independent category and cannot be manipulated by human efforts. Insurance does not abolish losses through association, it distributes these from individual to the group.

Following principles are involved in the insurance

1. Principle of sharing loss

2. Principle of pooling risks

3. Transfer of risk

4. Principle of large numbers.

Nature of Insurance

1. Insurance is a self help

2. Insurance is no charity

3. Insurance is no gambling

4. Insurance does not eliminate risk

5. Insurance is a cost.

6. Insurance is productive

7. Insurance is social service

Risk and uncertainties in agriculture:

Risks :The risks in agriculture are those events which are natural and independent or of random occurrence. The events are broadly grouped as meteorological and biological.

1. Meteorological – Hailstorm, windstorm, drought (famine), floods, landslides, cyclones, snowfall, hotwave, coldwave, typhoon, hurricane, tornado, etc.

2. Biological – Occurrence of various pests and diseases and locusts invasion

3. Others – Natural fires, lightening and accidents. These risks are insurable.

UNCERTAINTY: Price fluctuations. Prices are not insurable. 

RASHTRIYA KRISHI BIMA (RKYB)

OBJECTIVES:

The objectives of the RKYB are as under:-

1. To provide insurance coverage and financial support to the farmers in the event of failure of an of the notified crop as a result of natural calamities, pests and diseases.

2. To encourage the farmers to adopt progressive farming practices, high value inputs and higher technology in Agriculture.

3. To help stabilize farm incomes, particularly in disaster years.

SALIENT FEATURES OF THE SCHEME:

1. CROPS COVERED:

The Crops in the following broad groups in respect of which

1. the past yield data based on Crop Cutting Experiments (CCEs) is available for adequate number of years, and

2. requisite number of CCEs are conducted for estimating the yield during the proposed season;

1. Food crops (Cereals, Millets & Pulses)

2. Oilseeds

3. Sugarcane, Cotton & Potato (Annual Commercial/annual Horticultural crops)

Other annual Commercial / annual Horticultural crops subject to availability of past Yield data will be covered in a period of three years. However, the crops which will be covered next year will have to be spelt before the close of preceding year.

2. STATES AND AREAS TO BE COVERED:

The Scheme extends to all States and Union Territories. The States / Uts opting for the Scheme, would be required to take up all the crops identified for coverage in a given year.

Exit clause: The States/ Union Territories once opting for the Scheme, will have to continue for a minimum period of three years.

3. FARMERS TO BE COVERED:

All farmers including sharecroppers, tenant farmers growing the notified crops in the notified areas are eligible for coverage.

The Scheme covers following groups of farmers:

1. On a compulsory basis; All farmers growing notified crops and availing Seasonal Agricultural Operations (SAO0 loans from Financial Institutions i.e. Loanee Farmers.

2. On a voluntary basis: All other farmers growing notified crops i.e. Non Loanee farmers ) who opt for the Scheme.

1. RISKS COVERED & EXCLUSIONS:

Comprehensive risk insurance will be provided to cover yield losses due to nonpreventable risks viz:

1. Natural Fire and Lightning.

2. Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, etc.

3. Flood, Inundation and Landslide

4. Drought, Dry spells

5. Pests/Diseases, etc. 

Losses arising out of war and nuclear risks, malicious damage and other preventable risks shall be excluded.

1. SUM INSURED/ LIMIT OF COVERAGE:

The Sum Insured (SI) may extend to the value of the threshold yield of the insured crop at the option of the insured farmers. However, a farmer may also insure his crop beyond value of threshold yield level upto 150% of average yield of notified area on payment of premium at commercial rates.

In case of Loanee farmers, the Sum Insured would be atleast equal to the amount of crop loan advanced. Further, in case of Loanee farmers, the Insurance Charges shall be an additionality to the Scale of Finance for the purpose of obtaining loan. In matters of Crop Loan disbursement procedures, guidelines of RBI/NABARD shall be binding.


2. PREMIUM RATES:

S. no	Season	Crops	Premium rate
1	Kharif	Bajra & Oilseeds	3.5% of SI or Acturial rate, whichever is less
		Othercrops (cereals, other millets & pulses)	2.5% of SI or Actuarial rate, whichever is less
2	Rabi	Wheat	1.5% of SI or Actuarial rate, whichever is less
		Other crops (other cereals, millets, pulses & oilseeds)	2.0% of SI or Actuarial rate, whichever is less
3	Kharif and Rabi	Annual commercial/annual Horticultural crops	Actuarial rates

Transition to the actuarial regime in case of cereals, millets, pulses & oilseeds would be made in a period of five years. The actuarial rates shall be applied at District/Region/State level at the option of the State Govt./UT.

3. PREMIUM SUBSIDY:

50% subsidy in premium is allowed in respect of Small & Marginal farmers, to be shared equally by the Government of India and State/UT Govt. The premium subsidy will be phased out on sunset basis in a period of three to five years subject to review of financial results and the response of farmers at the end of the first year of the implementation of the Scheme.

The defination of Small and Marginal farmer would be as follows:

SMALL FARMER: A Cultivator with a land holding of 2 hectares (5 acres) or less, as defined in the land ceiling legislation of the concerned State/UT.

MARGINAL FARMER: A Cultivator with a land holding of 1 hectare or less (2.5 acres).

4. SHARING OF RISK:

Risk will be shared by IA and the Government in the following proportions:

1. Food crops & Oilseeds; Till, complete transition to Actuarial regime in a period of five years takes place, claims beyond 100% of premium will be bone by the Government. Thereafter, all normal claims, i.e. claims upto 150% of premium will be met by IA and claims beyond 150% shall be paid out of Corpus Fund for a period of three years. After this period of three years claims upto 200% will be met by IA and above this ceiling out of the Corpus Fund.

2. Annual Commercial crops/annual horticultural crops: Implementing Agency shall bear all normal losses. I.e. claims upto 150% of premium in the first three years and 200% of premium thereafter subject to satisfactory claims experience. The claims beyond 150% of premium in the first three years of 200% of premium thereafter shall be paid out of Corpus Fund. However, the period of three years stipulated for this purpose will be reviewed on the basis of financial results after the first year of implementation and the period will be extended to five years if considered necessary.

To meet Catastrophe losses, a Corpus Fund shall be created with contributions from the Government of India and State Govt./UT in 50:50 basis. A portion of Calamity Relief Fund (CRF) will be used for contribution to the Corpus Fund.

9. AREA APPROACH and UNIT OF INSURANCE:

The Scheme would operate on the basis of `Area Approach’ i.e. Defined Areas for each notified crop for widespread calamities and on an individual basis for localized calamities such as hailstorm, landslide, cyclone and flood. The Defined Area (i.e. unit area of insurance) may be Gram Panchayat, Mandal, Hobli Circle, Phirka, Block, Taluka, etc. to be decided by the State /UT Govt. However, each participating State/UT Govt. will be required to reach the level of Gram Panchayat as the unit in a maximum period of three years.

Individual based assessment in case of localized calamities, would be implemented in limited areas on experimental basis, initially and shall be extended in the light of operational experience gained. The District Revenue administration will assist implementing Agency in assessing the extent of loss.

10. SEASONALITY DISCIPLINE:

1. The broad seasonality discipline followed for Loanee farmers will be as under:

Activity	Kharif	Rabi
Loaning period	April to September	October to next March
Cut-off date for receipt of Declarations	November	May
Cut-off receipt of yield data	January/March	July/September

 

2. The broad cut-off dates for receipt of proposals in respect of Non-loanee farmers will be as under:

1. Kharif season : 31^st July

2. Rabi season: 31^st December.

However, seasonality discipline may be modified, if and where necessary in consultation with State/UT and the Govt. of India.

• ESTIMATION OF CROP YIELD:

The State/UT Govt. will plan and conduct the requisite number of Crop Cutting Experiments (CCEs) for all notified crops in the notified insurance units in order to assess the crop yield.

The State /UT Govt. will maintain single series of Crop Cutting Experiments (CCEs) and resultant Yield estimates, both for Crop Production estimates and Crop Insurance.

Crop Cutting Experiments (C.C.E) shall be undertaken per unit area / per crop, on a sliding scale, as indicated below:

S. No	UNIT AREA	Minimum number of C.C.E.s required to be done
1	Taluka/ Tehsil/ Block	16
2	Mabdal/Phirka/ any other smaller unit area comprising 8-10 villages	10
3	Gram panchayat comprising 4-5 villages	08

A Technical Advisory Committee (T.A.C) comprising representatives from N.S.S.O Ministry of Agriculture (G.O.I) and IA shall be constituted to decide the sample size of CCEs and all other technical matters.

• LEVELS OF INDEMNITY & THRESHOLD YIELD:

Three levels of Indemnity viz. 90%, 80% & 60% corresponding to Low Risk. Medium Risk & High Risk areas shall be available for all crops (cereals, millets, pulses & oilseeds and annual commercial/ annual horticultural crops) based on Coefficient of Variation (C.V.) in yield of past 10 years data. However, the insured farmers of unit area may opt for higher level of indemnity on payment of additional premium based on actuarial rates.

The Threshold yield (TY) on Guaranteed yield for a crop in an Insurance Unit shall be the moving average based on the past three years average yield in case of Rice & Wheat and five years average yield in case of Other crops, multiplied by the level of indemnity.

• NATURE OF COVERAGE AND INDEMNITY:

If the Actual Yield (AY) per hectare of the insured crop for the defined area (on the basis of requisite number of Crop Cutting Experiments (CCEs) in the insured season, falls short of the specified `Threshold Yield’ ( TY), all the insured farmers growing that crop in the defined area are deemed to have suffered shortfall in their yield. The Scheme seeks to provide coverage against such contingency.

Indemnity shall be calculated as per the following formula: Shortfall in Yield Threshold yield Sum insured for the farmer (Shortfall = Threshold Yield – Actual Yield for the Defined Area) 13A .

INDEMNITY IN CASE OF LOCALISED RISKS:

Loss assessment and modified indemnity procedures in case of occurrence of localized perils, such as hailstorm, landslide, cyclone and flood where settlement of claims will be on individual basis, shall be formulated by IA in coordination with State/UT Govt.

The loss assessment of localized risks on individual basis will be experimented in limited areas, initially and shall be extended in the light of operational experience gained. The District Revenue administration will assist IA in assessing the extent of loss.

• PROCEDURE FOR APPROVAL & SETTLEMENT OF CLAIMS:

Once the Yield Data is received from the State /UT Govt. as per the prescribed cut-off dates, claims will be worked out and settled by IA.

The claim checks along with claim particulars will be released to the individual nodal banks. The Banks at the grass root level, in turn, shall credit the accounts of the individual farmers and display the particulars of beneficiaries on their notice board.

In the context of localized phenomenon viz. hailstorm, landslide, cyclone and flood, the IA shall evolve a procedure to estimate such losses at individual farmer level in consultation with DAC/ State/ UT Settlement of such claims will be on individual basis between IA and insured.

 

• FINANCIAL SUPPORT TOWARDS ADMINISTRATION & OPERATING (A&O) EXPENSES:

  The A & O expenses would be shared equally by the Central Government & respective State Government on sunset basis (100% in 1^st year, 80% in 2^nd year, 60% in 3^rd year, 40% in 4^th year, 20% in 5^th year and `zero’ thereafter.)

• CORPUS FUND:

To meet Catastrophic losses, a Corpus Fund shall be created with contributions from the Government of India and State / UT on 50:50 basis. A portion of Calamity Relief Fund (CRF) shall be used for contribution to the Corpus Fund.

The Corpus Fund shall be managed by Implementing Agency (IA)

• REINSURANCE COVER:

Efforts will be made by IA to obtain appropriate reinsurance cover for the proposed RKBY in the international Reinsurance market.

• MANAGEMENT OF THE SCHEME, MONITORING AND REVIEW:

In respect of Loanee farmers, the Banks shall play the same role as under CCIS.

In respect of non-Loanee farmers, Bank shall collect the premium alongwith the Declarations and send it to IA within the prescribed time limits. However, in areas where IA has requisite infrastructure, a non-loanee farmer will have option to send premium alongwith Declaration, directly to IA within the time limits.

Selection will be implemented in accordance with the operational modalities as worked out by IA in consultation with Dept. of Agriculture and Co-operation.

During each crop season, the agricultural situation will be closely monitored in the implementing States/ Union Territories. The State/UT Department of Agriculture and district administration shall set up a District Level Monitoring Committee (DLMC), who will provide fortnightly reports of Agricultural situation with details of area sown, seasonal weather conditions, pest incidence, stage of crop failure (if any), etc.

The operation of the Scheme will be reviewed annually, and modifications as may be required would be introduced. Periodic, Appraisal Reports on the Scheme would be prepared by Ministry of Agriculture, the Government of India/ Implementing Agency.

• IMPLEMENTING AGENCY (IA):

An exclusive Organization would be set up in due course, for implementation for RKBY. Until such time as the new set up is created, the G.I.C. of India will continue to function as the Implementing Agency.

• BENEFITS EXPECTED FROM SCHEME:

The Scheme is expected to

• Be a critical instrument of development in the field of crop production, providing financial support to the farmers in the event of crop failure.

• Encourage farmers to adopt progressive farming practices and higher technology in Agriculture.

• Help in maintaining flow of agricultural credit.

• Provide significant benefits not merely to the insured farmers, but, to the entire community directly and indirectly through spillover and multiplier effects in terms of maintaining production & employment, generation of market fees, taxes, etc. and net assertion to economic growth.

• Streamline loss assessment procedures and help in building up huge and accurate statistical base for crop production.

Agri-Knowledge
(Agri Economics)