According to official sources, over 80,000 farmers had preferred insurance claim against crop failure under the national agriculture insurance scheme. While the claims of farmers from the neighbouring districts of Ramanathapuram and Virudhunagar had been settled, claims of those from Sivagangai district were yet to be settled, according to an officer of the Sivagangai District Central Co-operative Bank, quoted by the press. Most of the crop insurance claims were normally routed through the bank, upon settlement. Of the farmers who sought crop insurance settlement through the bank, some had raised loans from the bank while most had not. 60,000 small and marginal farmers had not borrowed from the bank while 3,685 farmers had. The non-borrowing farmers had paid, in all, Rs 77.64 lakhs by way of premium. Another officer of the bank was quoted as saying that only 50 per cent of the claims had been settled during the previous year. Incidentally, the district’s agriculture department submitted a report to the Central government, after conducting an exhaustive study of the farmers’ plight, saying that the yield had been zero per cent from the previous year. Hence the farmers should be compensated. The revenue department of the district had also endorsed the findings of the department of agriculture.

The distressed farmers of Sivagangai are hoping that the settlement of insurance claims will rescue them. Sivaji, president of Sethambal Panchayat said that almost all farmers in the region had been affected by crop failure. The government must settle their insurance claims soon so the small and marginal farmers could be spared of penury and debt trap.

As we said in these columns (vide, 'Suggestions on farm loan waiver', dated April 26, 2008), at the end of the day, farm loan waiver cannot address the grievances of the farming community. The farmers should have something to fall back upon whenever adversity strikes them and in India, this happens fairly regularly. By providing a token relief every 15 or 20 years in the form of loan waiver, the government is not doing anything tangible for the farming community.

The government has to establish institutional linkages to provide the products the farming community misses sorely. For example, it should upgrade the crop insurance programme from yield-based insurance to rainfall/weather index - based insurance. This can provide some kind of a permanent solution to the beleaguered farmers. Presently the Agriculture Insurance Company of India Ltd (AIC) implements the said crop insurance programme under the National Agricultural Insurance Scheme (NAIS). AIC has also designed a weather-based crop insurance scheme that the Rajan Committee Report talks of. It is completely different from NAIS. Weather-based crop insurance aims at mitigating the hardship of the insured farmers against the likelihood of financial loss on account of anticipated crop loss resulting from incidence of adverse conditions of weather parameters like rainfall, temperature, frost, humidity, etc.

While crop insurance specifically indemnifies the farmer against shortfall in crop yield, weather-based crop insurance is based on the fact that weather conditions affect crop production even when a farmer has taken all the care to ensure a good harvest. Farmers are compensated to the extent of losses deemed to have been suffered by them, using the weather triggers. In other words, weather-based crop insurance uses weather parameters as ‘proxy’ for crop yields in compensating the cultivators for deemed crop losses. It is not yield guarantee insurance. This type of insurance is characterised by faster settlement of claims. The government’s financial liabilities could be budgeted up-front and close ended, as it supports the premium subsidy.

Weather based Crop Insurance Scheme (WBCIS) operates on the concept of 'Area Approach' ie, for the purposes of compensation, a ‘Reference Unit Area (RUA)’ is deemed to be a homogeneous unit of insurance. The 'Area Approach' is the opposite of 'Individual Approach', where claim assessment is made for every individual insured farmer who has incurred a loss. However, the premium rates are capped for the farmer; and the premium (rates) beyond the cap are shared by the central and state governments on 50:50 basis.

Under the NAIS, farmers are provided risk cover against shortfalls in crop yields but quality losses are not considered. It is characterised by delays in settlement of claims. Government’s financial liabilities are open ended, as it supports the claims subsidy. The government could have utilised a part of the Rs 70,000 crores plus (spent on loan waiver) to help AIC set up a separate catastrophe pool. The shift to weather-based crop insurance will gradually help reduce fiscal support, once a sizeable corpus for the pool is built up. Although the authorised share capital of AIC is Rs 1,500 crores, its paid-up share capital is a paltry Rs 200 crores. A part of the largesse announced for the farmers could have been easily used to further capitalise AIC in the long-term interests of our beleaguered farmers.

The government could also have utilised a part of the Rs 70,000 crores plus to put in place a network of credible warehouse agents, including assayers, so that warehouse receipts could be issued. This could help the farming community in availing of increased post-harvest credit and reducing price risks. Of course, prompt passage of the Warehousing Regulation and Development Authority Bill is needed but this does not warrant any investment on the part of the government (vide, 'Financial Sector Reforms-V' dated April 15, 2008 and 'Financial Sector Reforms-VII' dated April 17, 2008). Procurement of the kind that ITC achieves through its e-Choupals could also have been activated with this kind of corpus. But, for our government and Chidambaram, missing the wood for the trees has become a habit!