Revision summary
Indian farming is exposed to monsoon failure, floods, hail and pests, so households and crop loans need a rule-based risk cover. Ad hoc calamity relief is too slow and uneven to replace insurance. PMFBY (kharif 2016) charges low farmer premiums with the balance shared by governments. It uses area-yield assessment, with farm-level cover for specified local and post-harvest losses, including prevented sowing. Technology and a claim timeline were meant to fix delays that plagued NAIS and MNAIS.
Model answer
Introduction
Indian agriculture still depends on the monsoon, and on local floods, drought, hail and pests. A bad season wipes out seed, credit and household consumption. Crop insurance socialises that yield risk so the farmer can borrow and plant again. Pradhan Mantri Fasal Bima Yojana (PMFBY), launched for kharif 2016, is the Union's redesigned, cheaper, area-based cover after the National Agricultural Insurance Scheme and the modified NAIS.
Body
Need for crop insurance
- Rainfed farms are a large share of area; delayed or failed monsoon cuts output with little irrigation buffer.
- Climate variability has raised extreme rainfall, unseasonal showers at harvest, and pest outbreaks, which ordinary savings cannot absorb.
- Formal crop loans need a risk cover; without insurance, default and distress sale of land or cattle follow a failed year.
- Calamity relief from the State is ad hoc and delayed. Insurance, if it pays on a measured yield shortfall, is a rule-based safety net.
- Small and marginal farmers cannot self-insure across plots and years. Pooling risk at village or block scale is the public answer.
- Earlier schemes suffered high premium, delayed claims, narrow crop lists and basis risk. That history is why a new product was required, not why insurance itself was unnecessary.
Salient features of PMFBY
- Low farmer premium: 2 per cent of sum insured for kharif food and oilseeds, 1.5 per cent for rabi food and oilseeds, and 5 per cent for annual commercial and horticultural crops; the rest is shared by Union and State.
- No capping of sum insured in the original design, so cover can match the scale of finance rather than a truncated older formula.
- Area-yield approach for widespread calamities, using notified areas (village panchayat as the unit where possible) and crop-cutting experiments; localised calamities (hail, landslide, inundation) and post-harvest losses for specified crops can be assessed at the farm or individual level.
- Cover from pre-sowing to post-harvest (including prevented sowing and mid-season adversity) for notified crops in notified areas.
- Use of technology: smartphones, remote sensing and online portal for faster yield data and claim processing, with a stated timeline for payout.
- Compulsory for loanee farmers in notified areas in the original 2016 design; optional for others; implemented by empanelled insurance companies with banks as the main enrolment channel.
- Aims at higher enrolment, faster claims and less distortion than NAIS/MNAIS, where premiums were high and delays common.
Cautions
- Basis risk remains if the panchayat yield is good and one farmer's plot is not.
- Success needs timely crop-cutting, State premium share, and awareness so non-loanee smallholders also enrol.
Flow diagram
flowchart TD V[Monsoon disaster risk] --> N[Need for crop insurance] N --> P[PMFBY 2016] P --> R[Low farmer premium] P --> A[Area yield plus local calamity] P --> T[Technology timely claims] T --> S[Sow again with credit]
Conclusion
Vulnerability to nature makes crop insurance a development tool, not a luxury. PMFBY cut the farmer's premium, widened the risk window, and promised technology-based, quicker claims. It will meet the need only if enrolment is real, experiments are honest, and payouts arrive before the next sowing.
Quick related
Students also ask
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In the view of the declining average size of land holdings in India which has made agriculture non - viable for a majority of farmers should contract farming and land leasing be promoted in agriculture? critically evaluate the pros and cons.
Next question on this syllabus topic (2015 · Q3). View answer →
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Does PMFBY pay every farmer whose own field failed?
Not always. Widespread drought uses area yield, so a farmer can still face basis risk. Some local calamities are assessed individually.
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Why was a new scheme needed in 2016?
Because older insurance was costly for farmers, narrow in cover, and slow to pay, so enrolment and trust stayed low.
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