Your columnist was not aware that Pramod K Mishra, who retired as Union Agriculture Secretary a few years ago, and had made a strong case for refining the existing crop insurance scheme, besides giving the options of weather based crop insurance, and encouraging completion in this sector had undertaken a magisterial work on the subject at the IDS Sussex as a Visiting fellow ,thereby continuing a long tradition of Indian administrators’ academic interest in the subject which was started by Malcolm darling’s classic ‘the Punjab peasantry in prosperity and debt (Oxford ,1925). This was followed by MS Gill’s study on credit and co-operative societies in Punjab. Mishra’s research areas were Gujarat, Tamil Nadu and Orissa – and the study was undertaken a few decades later, there was a familiar tone to the conclusions with regard to the economics of farming and the challenges with regard to monsoon, markets and creditors.
This edition of AgriMatters is a tribute to his work under the title “Agriculture risk, insurance and Income: A study of the Impact and design of India’s comprehensive crop insurance scheme’, published in England by Aver bury. Perhaps this is the reason why the work has not been reviewed extensively in India. In the Foreword, Prof Michael Lipton elaborated upon the main hypothesis of his study: it is efficient and equitable for the public sector to procure /provide insurance – even with a subsidy – to overcome the problems posed by risk to agricultural development. Poor people cannot afford to take a big uninsured risk. Yet they seldom have access to private insurance, especially in dispersed rural areas where information is imperfect. So they tend to chose fairly safe, even if not very profitable activities- and therefore in many cases, to remain poor.
AgriMatters has often argued that major political economy question of a large agrarian country like India therefore is not on whether or not to undertake risk mitigation for farmers – but to find the most efficient way of doing it, and also to find the resources for doing the same. There are over 130 million farming families in the country and a vast majority of them are marginal and small holdings –growing a wide variety of crops in different agro climatic conditions under rained, partial irrigation and assured irrigation conditions in which monsoon still plays the salient role. These are the contexts in which the Comprehensive crop insurance Scheme in India was initiated in India in 1985. The CCIS is based on an “area-yield” insurance scheme in which both premium and indemnity are based on the average crop yield of a specified geographical area, rather than on farm level yield. Farmers continue to request for smaller units of geographical areas, like gram panchayats, or even Mouzas, but increasing the number of such units poses a problem for as the number of crops and varieties increase, many more samples have to be drawn, and the designated agencies find it difficult to give the results on time- as a result of which compensation payments are often delayed. However from the initial commencement in 1985, the CCIS has grown – both in scale and scope, and today it is compulsory for the banks to deduct the farmers’ share of the insurance premium from his loan amount just as it is sanctioned. However , while it looks very good on paper, the fact is that many branch managers do not deduct the insurance premium while disbursing credit, and there are also cases where having deducted the credit, they have forgotten to deposit the premium amount to the Insurance company which makes the situation absolutely complicated. Who is to be held responsible for the losses that occur when the premium has been collected by the bank, but not deposited with the insurer?
In his study Mishra has addressed two main hypothesis – is there a case for crop insurance, and is the social benefit of CCIS greater than its social cost. His conclusions are that whole the CCIS is not financially viable; the economic benefits far outweigh the costs. There is an increase in the net farm income, and both from the point of equity and distribution the small farmers’ access to credit has improved. Yet there is need for improvement in the design of the CCIS to achieve financial sustainability, wider coverage and better impact on poverty reduction. One major area of reform is that the premium should be based on actuarial rates so that in the event of a crop failure, the insurance agency does not have to wait for the central and the state governments to release their share of the subsidy. Mishra argues that the coverage should be comprehensive in the real sense- and not in name alone! It should include borrowers from institutional and non-institutional sources as well, and other rural households should also be made eligible. The package should consist of insurance against natural hazards like hail, excess rain and drought, death of livestock and poultry, equipment loss and breakdown etal. Without saying it in so many words, the author is suggesting that we move from the ‘area- yield’ approach for specific crops to a more encompassing, actuarial based weather based system in which the norms for settlement are more transparent , less time consuming, easier to understand and more broad based in coverage.
Before closing, it is important to mention that as early as 1920; a scheme for agriculture insurance had been formulated for Mysore state by JS Chakravarti, who was then the president of the Mysore state Life Insurance Scheme. He suggested in a paper published in the Mysore Economic journal that agricultural insurance in India should include: insurance of buildings, granaries and agricultural implements, cattle insurance and insurance for crops. His thoughts on the subject appear to be absolutely contemporary and he has covered almost all the aspects which are currently debated and discussed at workshops and seminars on risk mitigation and farmers income. He has discussed issues like ‘human element’, which we now call the ‘moral hazard’, the basis of insurance, the role of the state, measurement of rainfall, declaration of drought, nature of the insurance contract and a practical scheme for the Mysore state.
AgriMatters wonders why it has taken us so long to put these ideas into practice. Had we started work on this at the time of Independence, or at least when the Green revolution became the theme song of India’s development agenda, thousands of farmers lives could have been saved if risk mitigation strategies were in place.
But let us start now in all earnest. Better late than never.