What is the recent proposal of NITI Aayog with respect to Pradhan Mantri Fasal Bima Yojana (PMFBY)? Examine the concerns associated with such move. (200 words)
Refer – Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 6 years
KEY POINTS
· NITI Aayog has recently proposed that 75% of the premium paid by farmers under the PMFBY will be returned to them, if they don’t file claims for crop damages for 4-6 consecutive agricultural seasons.
· The government thus reckon that such a move would attract more farmers into the insurance fold.
Concerns
· Delay in State’s share – The problem with the scheme lies is not high premiums that farmers pay but in the delay on part of the states in paying their share of the premium.
· Farmers are receiving the due payments against their claim with a significant lag. Such lags erode farmers’ trust in the scheme.
· Rising claims – Incurred Claim Ratio (the overall value of every claim a company has paid divided by the total sum of premium collected during the same period) has been rising and set to increase further in the coming years.
· The government will have to spend more with the increase in higher coverage, once the proposed amendment is worked out.
· Even then, higher coverage is not an end-in-itself unless farmers get their dues paid back quicker.
· Financial Sustainability – For this, the Centre has taken steps to improve compliance by insurers and the state governments.
· Farmers need to be paid 12% interest by both the insurance companies and State governments for any delay in settlement of claims beyond 2 months and 3 months respectively.
· However, these steps will not be financially sustainable for either the insurance companies or state governments.
· Risk Sharing – The insurance companies can’t take more hits on their margins, since 65% of the net sown area in India constitutes rain-fed crops, demonstrating the over-reliance on monsoons for crop growth.
· The recent Economic Survey has also noted that non-irrigated areas are twice as dependent on rainfall as irrigated land areas are.
· Hence, the proposed change is likely to not find favour among insurers, since agriculture is a high-risk activity and it will increasingly get worse with climate change impact worsening.
