Maharashtra CM has urged the Prime Minister for state-wide implementation of the ‘Beed model’ of the crop insurance scheme Pradhan Mantri Fasal Bhima Yojana (PMFBY).

Consider this question:

Q.Payouts released often exceed the premium collected in PMFBY. Discuss this limitation of the PMFBY where insurance firms refuse to bid in drought prone regions.

What is PMFBY?

• 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.
• 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.

Issues faced in Maharashtra

• Voices were raised in Maharashtra about the need to change the scheme.
• Delay in claim settlement, failure to recognize localized 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.
• 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.
• 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.

Greater role for States

• 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.

Challenges ahead

• The 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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