Agriculture Insurance and PMFBY (UPSC Economy)
UPSC guide to Pradhan Mantri Fasal Bima Yojana: design, premium structure, 2020 reforms, implementation challenges, and 2024-26 updates.
Agriculture in India is exposed to weather shocks, pests, and price risks. Historically, only around 20-25% of cultivated area was insured, and claim settlement was erratic. The Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in April 2016, was designed as the world’s largest crop insurance programme by the number of insured farmers, replacing earlier schemes (NAIS, MNAIS, WBCIS). It has since been reformed multiple times, with 2020 marking a major overhaul that made enrolment voluntary and capped Centre’s premium share.
Background: Evolution of Crop Insurance in India
- Comprehensive Crop Insurance Scheme (CCIS, 1985) – area-based, linked to loans.
- National Agricultural Insurance Scheme (NAIS, 1999) – wider coverage but delayed payouts.
- Modified NAIS (MNAIS) and Weather-Based Crop Insurance Scheme (WBCIS) – 2010.
- PMFBY (2016) – subsidised premium, Village Panchayat as insurance unit, technology-based yield estimation.
Details about Pradhan Mantri Fasal Bima Yojana (PMFBY)
Objective: Provide insurance coverage to farmers in case of failure of any notified crop as a result of natural calamities, pests, and diseases.
Risks covered:
- Prevented sowing / planting due to adverse weather.
- Standing crop losses due to non-preventable risks: drought, dry spell, flood, inundation, landslides, widespread pest and disease attacks, fire, lightning, cyclone, hailstorm.
- Post-harvest losses (up to 14 days after harvesting) for crops kept in cut-and-spread condition.
- Localised calamities (hailstorm, landslide, inundation, cloud burst).
- States may add coverage for wild animal attacks.
Risks excluded: War, nuclear risks, malicious damage, and other preventable risks.
Premium to be paid by farmers:
| Season / Crop | Farmer's Premium |
|---|---|
| Kharif crops | 2% of sum insured |
| Rabi crops | 1.5% of sum insured |
| Commercial & horticultural crops | 5% of sum insured |
The balance premium is split equally between Centre and States (90:10 in the North East).
Coverage: Loanee and non-loanee farmers, sharecroppers, and tenant farmers (where land leasing is legally recognised).
Implementation Challenges in PMFBY
Tenant farmer exclusion: Negligible coverage of sharecroppers and tenants due to lack of legal recognition of land leasing.
Limited notified crops: Only selected crops are insured by states, discouraging mixed cropping and diversification.
Low awareness: Only about 30% of farmers are aware of PMFBY benefits.
Delayed claim settlement: Many farmers wait months or years; delays linked to delayed government subsidy payments to insurers.
High actuarial premium: Some states have faced premium rates above 30% for risk-prone crops.
Crop Cutting Experiment (CCE) loopholes: Poor quality of CCE data due to manpower shortage and verification challenges. PMFBY now mandates technology use (satellites, drones, smart sampling) but rollout has been uneven.
Key Reforms Introduced in February 2020
Cap on Centre's premium subsidy: Centre contributes its share only where premium is up to 30% for unirrigated areas/crops and 25% for irrigated areas/crops. Above these thresholds, the additional premium is borne by the state.
Voluntary enrolment: Earlier mandatory for loanee farmers — now voluntary for both loanee and non-loanee farmers.
Higher Centre share in North East: Centre: State ratio raised from 50:50 to 90:10.
Flexibility for states: States can opt in/out of PMFBY each season and design risk covers (full, basic, sowing failure, mid-season, localised, post-harvest).
Timely premium by states: States delaying subsidy beyond prescribed timelines cannot implement the scheme in the next season.
Implications of Reforms
- Higher subsidy burden on states above the premium ceiling.
- Reduced area covered following voluntary enrolment, pushing up actuarial premium for those who stayed.
- Exit of several states (Andhra Pradesh, Bihar, Gujarat, Jharkhand, Punjab, West Bengal) — some later returned or moved to state-specific schemes.
Way Forward
Promote competitive pricing: At least two insurance companies per cluster to give farmers choice.
Awareness: Mandatory Information, Education and Communication (IEC) activities funded by 0.5% of gross premium collected by insurers.
Faster claim settlement through DIGICLAIM, auto-payout linked to satellite and weather triggers.
Expand coverage: More notified crops, mixed cropping, and tenant-farmer inclusion via digital land records and SWAMITVA-like verification.
Redesign as risk-reduction tool: Link insurance with climate advisory, Modified Weather-Based Crop Insurance (mWBCIS), and index-based covers.
Participatory CCE: Capacity building of state governments, PRIs, and farmers in loss assessment.
Latest Developments (2024-26)
Updated context: The Cabinet in January 2025 extended PMFBY and Restructured Weather Based Crop Insurance Scheme (RWBCIS) till 2025-26 with an outlay of around Rs 69,515 crore. A new Fund for Innovation and Technology (FIAT) with Rs 824 crore was created for technology-led schemes such as YES-Tech (yield estimation via remote sensing), WINDS (weather station network), and DIGICLAIM (automated settlement).
In FY 2023-24, more than 4 crore farmer applications were enrolled. Claims exceeded Rs 1.5 lakh crore cumulatively since inception. Telangana adopted a state-funded Rythu Bima and Rythu Bandhu model instead of PMFBY. Andhra Pradesh re-joined PMFBY after earlier exit.
The Union Budget 2025-26 reaffirmed commitment to crop insurance and flagged integration with the DPI for agriculture and Agri Stack. The Dhan Dhaanya Krishi Yojana includes an explicit insurance component for 100 low-productivity districts.
UPSC Relevance
GS Paper III topics directly connected: issues related to subsidies, MSP, and agriculture; minimum support prices and safety nets; inclusive growth; food security.
Possible questions:
- Critically evaluate the performance of PMFBY. Suggest measures to improve claim settlement and farmer trust.
- How have the 2020 reforms impacted coverage and fiscal burden under crop insurance schemes?
- Discuss the role of technology (satellites, drones, AI) in modernising crop insurance.
Essay and interview angles include climate risk, agricultural resilience, and public-private risk-sharing. Aspirants should remember premium structure, scheme outlay, state opt-outs, and YES-Tech/DIGICLAIM.