Monday, April 13, 2015

A Baisakhi gift for the farmer

A Baisakhi gift for the farmer !

Unseasonal rains are breaking the back of Indian farmers. The prime minister has taken the first step by deciding to raise the existing norms of compensation by a hefty 50 per cent — from the existing Rs 9,000 per hectare for irrigated crop, Rs 4,500 per ha for unirrigated crop and Rs 12,000 per ha for perennial crop. Further, the compensation will be given to all those who have suffered even one-third loss, relaxing the existing criterion of minimum damage of at least 50 per cent. Also, procurement quality norms for wheat have also been relaxed. All these steps are in the right direction and the Narendra Modi government needs to be commended for that.
But the central question remains: Is this enough to bring back smiles on the faces of Indian farmers? And the short answer is “Not really”. To understand better as to why Indian farmers will not be happy with this otherwise positive decision of the government, consider the following facts.
In this rabi season, the biggest crop that has suffered is wheat. The yield of wheat on irrigated tracts is between four to five tonnes per ha. Even if one takes four tonnes as the wheat yield on irrigated area, at a minimum support price of Rs 14,500 per tonne, the gross value turns out to be Rs 58,000 per ha. His out-of-pocket expenses, generally, are half of this gross revenue. One can now see that even a 50 per cent increase in the existing compensation norms of Rs 9,000 per ha will not recover the out-of-pocket expenses he has incurred on various inputs. How he is going to survive for the next four to six months is beyond imagination. No wonder, under extreme desperation, many of them take unfortunate and extreme steps.
Obviously, compassion and slogans of “Jai Jawan, Jai Kisan” are not enough. We need better insurance policies that are rational and sustainable as business models. The current set of insurance policies under the National Agriculture Insurance Scheme (NAIS), Modified NAIS, and the Weather-Based Insurance Scheme (WBIS) have failed miserably to protect our farmers. The compulsory deduction of premiums from loans to farmers, who take institutional credit, basically protects the banks from potential bad debts, but not the farmers. The Modified NAIS and WBIS have very high premium rates, hovering around 10 per cent of the sums insured, based on three years’ average data collected for the kharif and rabi seasons. No wonder, as per the NSSO’s situation assessment survey of farmers for 2012-13, less than 5 per cent of farmers (presumably beyond loanee farmers’ accounts) opted for crop insurance. With 95 per cent farmers exposed to the risks of nature, insurance policies have a long way to go.
Why are crop insurance premiums so high in India? One key reason is the small scale of coverage, less than 15 million hectares (mha), in any typical crop season. In a country where the net sown area is around 140 mha and the gross cropped area hovers between 190-200 mha, insuring only 15 mha or so is peanuts. We need a major overhaul of our crop insurance system, and this is a good time to do so, converting a crisis into an opportunity to set a more robust and sustainable system in place. Before I suggest one, it will be good to take a quick look at how the world is insuring its crops and farmers from the vagaries of nature. Maybe we can learn something from international best practices.
The US and China are the world’s biggest crop insurers. In the US, the state supports almost 70 per cent of premiums paid by farmers. In China, the state used to support 50-65 per cent of premiums, which was raised to almost 80 per cent in 2013. So the first lesson for Indian policymakers is that the state will have to pitch in heavily. Assuming that we need to have a minimum coverage of 100 mha, insurance experts tell us that premiums will fall to less than 5 per cent of sums insured, and may stabilise around 2.5 to 3 per cent. Even assuming that premiums will fall from 10 to 5 per cent, as the scale of insured area increases from, say, 15 mha to 100 mha, and if the sum insured is, say, Rs 30,000 per ha (Rs 40,000 per ha for irrigated crop and Rs 20,000 per ha for unirrigated crop, with equal weights), the premium required will be Rs 15,000 crore for 100 mha covered (or Rs 1,500 per ha).
If the state is ready to bear, say, two-thirds of this, one-third can be charged to the farmer. On a per hectare basis, the farmer’s share will be only Rs 500 per ha as premium for an insurance cover of Rs 30,000 per ha — and this is very much a workable business model. If state governments are also taken on board under “cooperative federalism”, the Centre’s share can be reduced to 50 per cent (Rs 750 per ha); while the state government’s share can be 25 per cent (Rs 375 per ha) and the farmer’s 25 per cent (Rs 375 per ha).
From where will the state get resources of Rs 10,000 crore to insure 100 mha? Then Prime Minister Atal Bihari Vajpayee, when he was to construct national highways and introduce the Pradhan Mantri Gram Sadak Yojana, put a 2 per cent cess on fuel. A similar idea can be used for comprehensive insurance, by putting a 2 per cent cess on farm input industry (tractors and farm implements, fertilisers, pesticides, and even agri-credit) and a 3 to 5 per cent duty on exports of water-guzzling crops and produce, such as rice, sugar, buffalo meat, etc.
Private-sector insurance agencies can be invited to bid for the share of insurance at the lowest premium and fastest settlement of claims at the block level, without any plot-to-plot assessment. Farmers’ accounts can be linked to pixel-based mapping of their fields and satellites can be used, with agronomic experts to gauge the extent of damages.
If the Modi government can do this, it will be the best Baisakhi gift to Indian farmers on April 13. It can bring back smiles on their faces and insure them for all the years to come.
The writer is Infosys chair professor for agriculture at ICRIER

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