Fiscally-stressed states have over the years turned averse to footing the premium bill for the Pradhan Mantri Fasal Bima Yojana (PMFBY), resulting in insurers not honouring the farmers’ claims on time.
Recently, two states – Maharashtra and Rajasthan – have now written to the Centre seeking the ‘Beed district formula’ to run the crop insurance scheme for the upcoming kharif season.
What is Beed district formula?
- The states reckon that given the normal monsoon predicted for this year, there could be a ‘surplus’ in gross premiums to be collected by insurers and the Beed district formula, also called the ’80-110 Plan’, would in such case ensure that premium above a threshold is refunded to the state government.
- Under the 80-110 plan, the insurer’s potential losses are circumscribed – the firm won’t have to entertain claims above 110% of the gross premium.
- The state government has to bear the cost of any claims above 110% of the premium collected to insulate the insurer from losses.
- The premium surplus (gross premium minus claims) exceeding 20% of gross premium is refunded by insurer to the state government.
- For instance, under the ’80-110 Plan’, in case the claims reach 60% of premium collected, the insurance company will have to refund 20% to the state government and if the claims are 70%, the refund to state will be 10%. In case of claims above 80%, the state will not get any refund.
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.
- Under PMFBY, premium to be paid by farmers is fixed at 1.5% of the sum insured for rabi crops and 2% for kharif crops, while it is 5% for cash crops. The balance premium is split equally between the Centre and states. Many states have demanded their share of the government-paid premium be capped at 30%, with the balance 70% borne by the Centre.
- 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.
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 district formula, 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.
Economy Current Affairs : Click Here