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REFERENCE NOTE .
No. 17 /RN/Ref./ November /2014
For the use of Members of Parliament

Not for Publication

CROP INSURANCE IN INDIA

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CROP INSURANCE IN INDIA

Agricultural production and farm incomes in India are frequently affected by
natural disasters such as drought, floods, cyclone, storm, landslide, earthquake etc.
Susceptibility of agriculture to these disasters is compounded by the outbreak of
epidemics and man-made disasters such as fire, sale of spurious seeds, fertilizers and
pesticides, price crashes, etc. All these events severely affect farmers through loss in
production and farm income, and are beyond the control of farmers. With growing
commercialization of agriculture, the magnitude of loss due to unfavourable
eventualities is increasing. In recent times, mechanisms like contract farming and
futures trading have been established which are expected to provide some insurance
against price fluctuations directly or indirectly. But, agricultural insurance is considered
an important mechanism to effectively address the risks to output and income resulting
from various natural and manmade events1.

HISTORICAL BACKGROUND
i) First Individual Approach Scheme 1972-1978
Different forms of experiments on agricultural insurance on a limited, ad-hoc and
scattered scale were started from 1972-73 when the General Insurance Corporation
(GIC) of India introduced a Crop Insurance Scheme on H-4 cotton and later included
groundnut, wheat and potato. The Scheme was implemented in Andhra Pradesh,
Gujarat, Karnataka, Maharashtra, Tamil Nadu and West Bengal. It continued up to
1978-79 and covered only 3,110 farmers for a premium of Rs.4.54 lakh against claims
of Rs.37.88 lakh.
ii) Pilot Crop Insurance Scheme (PCIS) 1979-1984
The Pilot Crop Insurance Scheme was launched by the GIC in 1979, which was
based on the Area Approach for providing insurance cover against a deficit in crop
yield below the threshold level. The Scheme covered cereals, millets, oilseeds, cotton,
potato and chickpea and it was confined to loanee farmers of institutional sources on a
voluntary basis. The PCIS 1979 was implemented in 12 states till 1984-85 and covered

National Centre for Agricultural Economics and Policy Research (NCAEP), Policy Brief on Problems and Progress in
Agricultural Insurance in India by S.S. Raju and Ramesh Chand, 2009, p.1-2

2
6.23 lakh farmers for a premium of Rs.195.01 lakh against claims of Rs.155.68 lakh
during the entire period.
iii) Comprehensive Crop Insurance Scheme (CCIS) 1985-99
The Comprehensive Crop Insurance Scheme (CCIS) launched in 1985 was the
first nation-wide Scheme. Previous Schemes were either experimental or Pilot Projects,
on a small scale and in a scattered manner. This scheme was linked to short-term credit
and was based on the homogenous area approach. The Central Government
introduced the CCIS during the year 1985-86. Till Kharif 1999, the Scheme was adopted
by 15 States and 2 Union Territories (UTs). Both, PCIS and CCIS were confined only to
farmers who had borrowed seasonal agricultural loans from financial institutions. The
main difference between PCIS and CCIS was that PCIS was on voluntary basis while
CCIS was compulsory for loanee farmers. The CCIS covered 763 lakh farmers for a
premium of Rs.404 crore against claims of Rs.2303 crore2.
A more comprehensive Scheme, National Agricultural Insurance Scheme was
launched in 1999 with aim to cover all farmers irrespective of loanee or non-loanee.
NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS)
The National Agricultural Insurance Scheme (NAIS), with the aim to increase
coverage of farmers, crops and risk commitment, was introduced in the country from
Rabi 1999-2000 replacing the erstwhile Comprehensive Crop Insurance Scheme
(CCIS). The main objective of the Scheme was to protect the farmers against the crop
losses suffered on account of natural calamities, such as, drought, flood, hailstorm,
cyclone, pests and diseases. The Scheme was implemented by the Agriculture
Insurance Company of India Ltd. (AIC).
The Scheme was available to all the farmers both loanee and non-loanee
irrespective of their size of holding. It envisages coverage of all the food crops (cereals,
millets and pulses), oilseeds and annual commercial/horticultural crops, in respect of
which past yield data is available for adequate number of years 3. The Scheme was
continued till Kharif 2013, however, some States are allowed to implement NAIS during
Rabi 2013-14 also4.

2
3

Ibid.
India. Department of Agriculture & Cooperation, Annual Report, 2013-14, p.88

Rajya Sabha Unstarred Question No. 3214 dated 8.8.2014

3
The Scheme was optional for States/Union Territories (UTs) and it had been
implemented by the 25 States and 2 Union Territories in one or more seasons. Since
the inception of the Scheme 2084.78 lakh farmers for a premium of Rs.8,67,121 lakh
against the claim of Rs.25,37,558 lakh were covered until 2012-13. The total area
insured was Rs.3137.70 lakh hectares during the same period 5 .
The State-wise details of coverage under National Agricultural Insurance
Scheme is available at Annexure-I.
MODIFIED NATIONAL AGRICULTURAL INSURANCE SCHEME (MNAIS)
To improve further and make the Scheme easier and more farmer friendly, a
proposal on Modified National Agricultural Insurance Scheme (MNAIS) was prepared
and was approved by Government of India for implementation on pilot basis in 50
districts from Rabi 2010-11 season6.
During the Five seasons of its implementation in 17 States, the MNAIS covered
45.80 lakh farmers for a premium of Rs.1,08,800 lakh against the claim of Rs.86,400
lakh until Rabi 2012-13. The total area insured was 46.79 lakh hectares during the
same period7.
The State-wise details of coverage under Modified National Agricultural
Insurance Scheme is available at Annexure-II, Table-A.
PILOT WEATHER BASED CROP INSURANCE SCHEME (WBCIS)
With the objective to bring more farmers under the fold of Crop Insurance, a Pilot
Weather Based Crop Insurance Scheme (WBCIS) was launched in 20 States in 2007.
Apart from Agriculture Insurance Company of India, some private companies have also
been allowed to implement the Scheme. The WBCIS is intended to provide insurance
protection to the farmers against adverse weather incidences, such as deficit and
excess rainfall, high or low temperature, humidity etc. which are deemed to impact
adversely the crop production. It has the advantage to settle the claims within shortest
possible time. The WBCIS is based on actuarial rates of premium but to make the

5
6

op.cit. Annual Report, 2013-14, p.89

op.cit. Annual Report, 2013-14, p.90

India. Department of Agriculture & Cooperation, Report of the Committee to Review the Implementation of Crop
Insurance Schemes in India, , 2014, p.39-40

4
Scheme attractive, premium actually charged from farmers has been restricted at par
with NAIS8.
The WBCIS was implemented in 18 States and 469.38 lakh farmers were
covered for a premium of Rs.7,51,920 lakh against the claims of Rs. 52,860 lakh under
the Scheme from 2007-08 to 2012-13. The total area insured was 632.01 lakh hectares
during the same period9.
The State-wise details of coverage under Pilot Weather Based Crop Insurance
Scheme (WBCIS) is available at Annexure-II Table-B.
PILOT COCONUT PALM INSURANCE SCHEME (CPIS)
The Coconut Palm Insurance Scheme (CPIS) was approved for implementation
on pilot basis for the years 2009-10 and 2010-11 in the selected areas of Andhra
Pradesh, Goa, Karnataka, Kerala, Maharashtra, Odisha and Tamil Nadu. Later on, it
was extended to West Bengal also. The pilot was implemented during the years
2011-12 and 2012-13 and continues to be under implementation during the year
2013-14 also. Fifty percent of the premium is contributed by Government of India,
25 percent by the concerned State Government and the remaining 25 percent by the
farmer. The CPIS is administered by the Coconut Development Board (CDB).
Under the Scheme, 51,108 farmers were covered for a premium of Rs.167.69
lakh against the claims paid of Rs.214.05 lakh till December 2013. And the total area
covered during the same period was 25,938 hectares10.
The State-wise details of coverage under Pilot Coconut Palm Insurance Scheme
(CPIS) is available at Annexure-III.
NATIONAL CROP INSURANCE PROGRAMME (NCIP)
To make the Crop Insurance Schemes more farmer friendly, a restructured
Central Sector Scheme in the name of National Crop Insurance Programme (NCIP)
was introduced from Rabi 2013-14. The existing MNAIS, WBCIS and CPIS were
merged under this programme with various improvements and changes for

op.cit. Annual Report, 2013-14, p.92

op.cit. Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p.42 &
44
9

10

op.cit. Annual Report, 2013-14, p.93

5
implementation throughout the country. However, on the basis of requests received,
some States have been allowed to implement NAIS during Rabi 2013-1411.
The coverage of NCIP in terms of farmers and area insured has been projected
to the level of 50 percent each from the existing level of about 25 percent and 20
percent respectively by the terminal year 2016-17 of the Twelfth Plan. The coverage
under CPIS is projected at 25 percent of coconut growers during 2013-14 with increase
of 5 percent each year during remaining years of Twelfth Five Year Plan12.
ISSUES RELATED TO CROP INSURANCE
Agriculture in India is varied, diversified and prone to a variety of risks. Most
farmers are small and marginal ones. In most areas, agriculture is rain fed, leading to a
greater degree of yield variability and risk. Crop Insurance, which aims at addressing
yield riskthough necessary for a vast majority of farmersis subject to structural,
design and financial problems. Problems of asymmetry of informationmoral hazard
and adverse selectionand co-variability are more pronounced in crop insurance than
in other forms of insurance. Consequently, crop insurance schemes face many
problems. In response to such problems, Schemes based on the area approach were
introduced in the 1980s. More recent Insurance Schemes are based on weather, and
adopt an area approach. Due to the vastness of the country, large number of small and
marginal farmers, and adoption of area-based approaches, several agencies and
organizations are involved in crop insurance programmes. Hence, coordinated efforts
are critical for effective implementation of crop insurance scheme13.
A four members Committee headed by Dr. P. K. Mishra, former Secretary,
Department of Agriculture and Cooperation was constituted in September 2013 to
examine the loopholes in the implementation of the Crop Insurance Schemes.
The Committee examined the various issues related to Crop Insurance such as:-

11
12

Discrepancy in area insured.

Delay in receiving crop cutting data and quality and reliability of such data.
Weather data.
Crop loan practices.
Crop insurance premium.
Settlement of Claims.

Rajya Sabha Unstarred Question No. 1098 dated 18.7.2014

op.cit. Annual Report, 2013-14, p.87

13

op.cit. Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p.III

Role of Banks and Agricultural Insurance

Companies in the operation of

schemes and
Awareness of farmers regarding various features of the Schemes14.
RECOMMENDATIONS FOR IMPROVEMENT
After examining the various existing Schemes, the Committee has recommended
following measures for improvement in the field of Crop Insurance:
A web portal should be developed for all States to make land record data be
available to financial institutions.
Premium rates to be revisited for MNAIS.
Reserve Bank of India (RBI) and National Bank for Agriculture and Rural
Development (NABARD) should effectively monitor the compliance of their
circulars regarding compulsory crop insurance for loanee farmers.
Insurance companies and banks should play a pro-active role in insuring
effective implementation of crop insurance schemes.
State Governments should insure the use of GPRS-enabled and camera fitted
mobile phones etc. while conducting crop cutting experiments.
An Atlas of critical weather elements for different agro-climatic regions and
An Agricultural Insurance Act should be formulated to take care of specific needs
of the crop insurance and agricultural insurance in general15.
CONCLUSION
The shift from a social crop insurance program with ad-hoc funding from the
Government of India to a market-based crop insurance program with actuarially sound
premium rates and product design is a major step forward. The improved product and
active involvement of private sector insurance markets are expected to lead to
significant benefits for farmers, including faster claims settlement, a more equitable
allocation of subsidies and lower basis risk. For the product to be pro-poor, small and
marginal farmers must purchase the MNAIS product voluntarily, and insurers and
government must experiment with cost-effective ways of increasing outreach 16.

14
15

Ibid. p.VII-VIII
Ibid. p.IX-X

16

World Bank, Policy Research Working Paper on Improving Farmers Access to Agricultural Insurance in India by
Olivier Mahul, Niraj Verma and Daniel J. Clarke, 2012, p.18

7
Use of latest technology such as GPRS-enabled and Camera fitted Mobile
Phones may be used to implement Crop Insurance Schemes more effectively. A
comprehensive programme of capacity building in line with the needs of stake holders
such as State Government functionaries, insurers and Central Government agencies
associated with Crop Insurance Schemes should be organized. Programmes of creating
awareness and insurance literacy among farmers should be prepared by Insurance
Companies and Banks, in collaboration with the concerned State Governments 17.

17

op.cit. Report of the Committee to Review the Implementation of Crop Insurance Schemes in India, 2014, p. IX

Annexure-I

State-wise details of coverage under

National Agricultural Insurance Scheme (NAIS)
from Rabi 1999-2000 to Rabi 2012-13
(Rs.in lakh)
Sl.
NO.

State / UTs

Farmers
Insured
(no.)

Area
Insured
(h.)

2,85,78,464

Sum Insured

2.

A&N Island

3.

Assam

4.

Bihar

60,36,983

73,77,698

11,90,402

30,383

2,11,347

24,31,008

5.

Chhattisgarh

97,74,546

1,97,81,274

10,22,157

26,108

38,240

16,71,623

6.

Goa

7.

Gujarat

8.
9.

7,893

4,049
2,52,864

12,973

1,32,98,937

3,05,76,316

Haryana

6,35,688

7,68,865

Himachal Pradesh

3,02,530

2,24,894

44,520

63,165

734
62,238

1,60,398

Farmers
Benefitted
(no.)

Andhra Pradesh

2,532

56,06,783

Claims
Paid

1.

3,38,936

4,37,62,477

Premium
Collected

17
1,756

279
35,52,734
83,459
47,603 995
9,044

4,41,990
8
1,329

5
1,37,461

65,81,020

2
4,54,035

438
61,056

702
48,85,981

2,413

4,024

1,29,217

995

1,669

1,06,683

10.

J&K

11.

Jharkhand

60,88,264

35,92,539

3,25,861

8,078

52,166

21,78,175

12.

Karnataka

1,29,11,992

2,05,74,232

1,58,22,723

46,848

1,77,698

51,33,480

13.

Kerala

14.
15.
16.

Manipur

19,629

24,372

6,478

160

668

18,946

17.

Meghalaya

29,619

30,925

5,019

245

47

2,668

18.

Mizoram

11

119

19.

Odisha

20.

Puducherry

21.

Rajasthan

22.

Sikkim

23.

Tamil Nadu

24.

Tripura

25.

UP

26.

Uttarakhand

27.

West Bengal

M.P.

2,80,38,512

6,86,84,709

43,68,005

1,24,207

1,72,917

46,77,299

Maharashtra

3,27,51,138

2,84,01,545

20,54,414

81,370

2,25,068

95,33,989

Total

1,44,47,590
37,402
15,58,674
1,893
59,61,793
19,573

1,44,78,255
53,434
3,13,79,980
1,324
77,82,617
12,671

2,21,37,563

2,95,55,100

3,86,068

3,62,836

23
19,37,570
9,246
16,20,309

48,386

16,11,269
2,927
29,76,571
84,106

1,36,558

176
45,754

254

2,500

4,292

3,89,798

134

1,646

123

4,37,915

121

76,878

167

2,62,166

41,164
81
60,756
1,903

1,11,29,748

56,10,472

11,15,589

46,638

20,84,78,523

31,37,69,515

2,93,52,675

8,67,121

26,61,382

293

Source: India. Department of Agriculture & Cooperation, Annual Report, 2013-14, pp.89-90

1,54,814
58
1,00,973
4,145
94,707

7,037
52,00,566

25,37,558

75,684

86
25,01,663
3,432
42,27,898
1,18,698
23,36,616
5,45,49,758

Annexure-II
Annexure-III
Table - A
State-wise details of coverage under Modified National Agricultural
Insurance Scheme (MNAIS) from Rabi 2010-11 to Rabi 2012-13

Statewise details of coverage under Pilot Coconut Palm Insurance Scheme (CPIS)
till December 2013
(Rs. in lakh)

Sl.
No.
1.

State

No. ofArea (Ha) SumTotalClaimsFarmers

farmersInsuredPremium Paidbenefitted
51713.33558.472.970.000

2.

Andhra
Pradesh
Goa

3.

Karnataka

4.

Kerala

5.

Odisha

6.

Maharashtra

5,963

3,802.78

7.

Tamil Nadu

2,314

3,308.23

8.

Source : India. Department of Agriculture & Cooperation, Report of the Committee to Review the Implementation of
West
BengalSchemes in India, 2014,
969p.40
342.66
426.83
2.14
0.00
Crop Insurance

Total

240

625.26

692.50

3.32

1.63

14

684

635.66

1,035.52

5.84

1.49

36

92.25

193.27

6.85

0.00

3,575.18

25.15

8.24

174

5,680.24

29.28

9.42

129

40,330 17,188.20 16,505.84

91

21.71

43.53

51,108 25,937.83 28,518.12

167.79

214.05

Source: India. Department of Agriculture & Cooperation, Annual

2013-14, p.93
Table Report,
-B

State-wise details of coverage under Weather Based Crop Insurance Scheme

(WBCIS) from Kharif 2007 to Kharif 2013

Source : India. Department of Agriculture & Cooperation, Report of the Committee to Review the Implementation of
Crop Insurance Schemes in India, , 2014, p.44

4,338

0
4691