Digitizing the Fasal Bima Yojana: Promising move by the Government, if done well.
A recent union cabinet decision to digitize the PMFBY may help revolutionize agriculture in India. Insurance is a potent instrument to manage financial risk, and in the field of agriculture, the Pradhan Mantri Fasal Bima Yojana (PMFBY), was set up to do exactly that for farmers. However, multiple interactions with farmers have indicated that the scheme may not have lived up to its expectations. Farmers are in general not happy with the inefficiencies in the claim settlements processes as well as the perceived non-applicability of the product to their requirements. The above-mentioned decision holds lot of promise to remedy this situation, if done well.
About two weeks back the union cabinet took an important decision with regard to the PMFBY. On one hand it extended support for the scheme by another year, while it has also decided to set up a Rs 824.77 Crore ‘Fund for Innovation and Technology’ (FIAT). This fund is expected to support two key technologies — (i) YES TECH (Yield Estimation System using Technology), which will use remote sensing data for accurate yield estimation and (ii) WINDS (Weather Information and Network Data Systems) to set up Automatic Weather Stations (AWS) at block levels and Automatic Rain Gauges (ARGs) at Panchayat levels to get hyper local weather data. Following is why the latter is encouraging news.
Crop Insurance typically seeks to financially secure a farmer from losses to a standing crop due to weather related disruptions. The crop is insured by a general insurance company, while the premiums are paid by the farmer, but subsidized by the Central and State Governments. The product not only helps a farmer manager her financial risk, but it also serves to encourage her to make larger investments on her farm. I had argued in a blog a few days ago that Indian farmers seldom make large capex investments in their farms, unless they are reasonably assured of a return. As a result, very few farmers in India make use of new age technologies on their farms; consequently, they continue to operate sub-optimally. A 2024 McKinsey Global Farmer Insights survey, spoke to more than 1,000 respondents in India, and only 11% of them were willing to adopt technology, as compared to more than 50% adoption rates by peers in Latin America, North America and Europe. Crop Insurance, if done well, is one way in which farmers can be encouraged to invest in technology adoptions on their farms, as their bottom lines are protected.
As mentioned above, farmers have generally been reluctant to voluntarily buy crop insurances. Not surprisingly, a big chunk of the total farmer’s share of premiums collected under the PMFBY scheme come from mandatory direct debits out of disbursements made to farmers under the Kisan Credit Scheme. Typically, following two reasons are cited for farmers being unwilling to buy Insurance.
1. Inefficient crop loss assessment, resulting in insufficient claim settlement by insurance companies. The crop loss assessment are primarily done through a system called Crop Cutting Experiments. While technically these are scientific methods, when done manually, and on a large scale, they are prone to errors and also leaves scope for corruption. In this case, such errors may have a direct bearing on the insurance claim settlement of farmers.
2. Non-representative loss assessment. Farmers say that assessments and associated weather tracking is done in an area of a radius that is too large to be representative of their own situation. For instance, rainfall at a block may not necessarily mean it rained in the village as well. Hence, such instruments are often being seen as a gamble, instead of being considered as a serious risk management instrument by farmers.
The above proposed measure by the Government hopes to address both these issues. With a remote sensing-based yield assessment, loss assessments are expected to be more accurate; while hyper local weather data will help make a finer assessment of risks being faced by farmers and hence, appropriate products could be developed. There was a need for someone to make an upfront capital investment to enable such assessments, and it is good news if the Government has come forth to do so.
There are also other potential benefits of this infrastructure being put in place. Some of them are as follows.
1) Make national level cropping and yield estimates more efficient. Some will remember how our traditional CCE based yield estimates let us down at the onset of the Russia-Ukraine war in February 2022. With the war disrupting Ukraine’s annual wheat exports (Ukraine is the world’s largest wheat exporter), India had initially announced stepping in to make good this shortfall. But the Government soon realized that its CCE based estimates were way too optimistic, and an open export policy would have led to serious domestic shortages. What followed was a hasty retraction of the earlier open export policy on wheat. Digitizing yield estimates will make our national agriculture production estimation exercise more precise and likely make export-import policy decisions more consistent.
2) More localized crop advisory. This technology fits in perfectly with the Government’s stated aim to set up an Agristack. This is expected to be a unified database of agriculture data linked to farmers based on their land holdings. Such a database can enable agriculture departments, academia and the private sector to develop personalized crop advisories for farmers. For instance, a combination of farmer level crop health data (collected maybe by satellites using a hyperspectral band), panchayat level rain data and temperature can help an AI model generate a pest attack prediction, helping farmers take timely preventive action.
3) A more personalized insurance experience. To take a crude analogy, if my car has a damage, I would want my car insurance to cover the damage, regardless of whether other cars in the area have suffered a damage or not. Crop Insurance claims at the moment are decided through an assessment of damage levels in a given area. More farmer level data will help companies develop more personalized insurance product, that accurately identify their risk levels. And as time goes, this customization can only increase.
4) Innovative types of weather insurance products. Localized rain and weather data can help structure more innovative products like say weather index-based insurance products at a more local level. Currently, experience of trying to structure a parametric insurance product for farmers has been that the area grid for the benchmark weather index that the insurance company proposes is too wide for the farmer’s requirements, while taking a narrower grid would make the cost high and unviable for the farmer. With the government’s asset investments, data thus generated could potentially be used by Insurance companies to structure more localised parametric insurance products.
This large project will have to think about ground level challenges as well. For instance, how would the automatic rain gauges and block level weather stations be protected from vandals? Or, how frequently and effective would equipment maintenance be done, including changing of spares. It is not uncommon to see assets set up through a grant go dysfunctional because the maintenance budget was not factored in. Another issue is the cost and effort that may go into geotagging all farms. The presumption here is that the plan is for every land parcel to be mapped to its owner and digitally tracked. This may be a one-time exercise, but given the number of land holdings in India, it will be a large exercise and expensive.
At the same time, it may be interesting for the Government to look at possibilities of building a more inclusive model. For instance, instead of the Government making the full expenditure upfront, could the community and its institutions (GPs, FPOs etc.) be made to share ownership in such assets, and then be paid for the data collected by assets that they co-own? It is too early to draw conclusions, as more information is awaited. But agri practioners in India may be in for exciting times ahead.
Opinions expressed in this article are my own. They do not represent that of the organization I work with.
