Crop insurance (PMFBY)

Background and evolution

Behind the scheme lies a basic problem of agricultural markets: risks such as drought affect whole regions at once, so private insurers cannot easily spread losses, and individual farm-level assessment is costly in a country of small holdings. Governments therefore subsidise premiums and rely on area-based estimates, which in turn create disputes when a farmer's own loss differs from the area average.

Indian farming is exposed to weather shocks, and a single failed season can push a household into debt. Crop insurance has existed in India since the 1980s, through the Comprehensive Crop Insurance Scheme, the National Agricultural Insurance Scheme (NAIS) of 1999 and a modified version introduced in 2010. These schemes suffered from low coverage, delays in claim settlement and premiums that were high in risky areas.

PMFBY was launched to fix these weaknesses by capping farmer premiums at low, uniform rates and having governments pay the actuarial balance, however high. It also aimed to use technology such as remote sensing, drones and smartphones to speed up yield estimation. This page looks at crop insurance as a risk-management and public finance tool and examines why many states have stayed out or set up their own models, rather than repeating general farm support issues covered on the PM-KISAN page.