Posted by: Vikram | October 21, 2008

Crop Insurance in India: Farmer’s need a better deal

This post is on a fairly technical subject, but one of extreme importance. Being a farmer is an extremely risky and increasingly life-threatening occupation. Farmer’s already involved in hard and risky work are either forced to take their lives due to machiavellian moneylenders or being shot dead by police at the behest of our land-grabbing politicians. India’s notoriously harsh and unpredictable weather are the fundamental cause of the risk. Add traditional caste structures and a weak and increasingly unsupportive state and the life of an Indian farmer starts looking quite tough. India has had crop insurance schemes since the 1970s, first introduced in Gujarat. The Comprehensive Crop Insurance Scheme (CCIS) was introduced in 1985 and replaced by the National Agricultural Insurance Scheme (NAIS) in 1999.

The paper (Vyas, Singh EPW, November 4 2006) from which I got my data says that through farm insurance

a) the uncertainty faced by individual farmers is transferred to the insurer, and for availing this benefit, the insured farmers pay a risk premium; b) a large number of participating farmers covering a large area over a period of time enable horizontal spread of risks over a wide area, and vertical spread over many years; c) the risk premium reflects the group risk assumed by the insurer; and d) an indemnity is to be paid to the individual farmer when a loss is incurred due to causes beyond his control

Insurance for farmers helps greatly in reducing risk horizontally across the states (a drought in Rajasthan is mitigated by a bumper crop in Andhra Pradesh) and vertically across big and small farmers. In fact, states which have accepted the scheme require that any farmer borrowing from any financial instis take insurance too. Unfortunately, data from the scheme so far shows that only 4 % of the Rabi (winter) crop and 11 % of the more risk-prone Kharif (monsoon) crop holdings are insured. On the positive side, the %age of the holdings covered is more than the %age of area covered indicating better penetration among the small land-holders, the most vulnerable farmers. Most of the crops covered were food crops (summer paddy, wheat) indicating that food security is the primary concern for India’s small farmers.

Inspite of its limited success, the NAIS has paid Rs. 5783.02 crores in claims since 1999, 30 % of which was paid to small/marginal farmers, possibly saving many lives. India’s rural financial instis and the effectiveness of its crop insurance programs need to be strengthened if the deep problems its agriculture faces are to be solved.


  1. @ Vikram : Insurance in India is under developed in almost every field. In fact most Indians associate the word Insurance with “Investment”. The concept of risk management and mitigation has still not been fully understood by the people and I think most insurers have done a lousy job in each and every segment. Specifically to this type of insurance I think there is money to be made here. If farmers can afford expensive seeds and take out loans to buy farm equipment they can also pay quite considerable premiums. Over all it can work but only if the commercial insurers deploy all their publicity and promotional stunts.

  2. Sounds much better than loan waivers! It should be popularized.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s


%d bloggers like this: