Insurers are frequently accused of delaying the payment of crop insurance benefits to farmers; the responsibility appears to lie with state governments, which fail to pay their half of the premium subsidy.
As of August 16, claims of Rs 2,287 crore remained unpaid to farmers under the Pradhan Mantri Fasal Bima Yojana (PMFBY), according to FE data, although states were yet to disburse their premium share of Rs 1,879 crore. Gujarat, Telangana, and Jharkhand were the worst defaulters, accounting for moreover 90% of the outstanding debt.
Moreover, even though this year’s summer harvest has begun, most states have yet to finalize last season’s yield data, which is a critical criterion for approving farmers’ claims.
Given that over 80% of crop insurance recipients are small and marginal farmers with less than 2 hectares, economists say that delays in premium subsidy payment and claim accumulation necessitate rapid policy action. Surprisingly, the parliamentary standing committee on agriculture recently proposed eliminating elements in the plan guidelines that penalize defaulting states.
The agriculture ministry has been instructed to repay the premium paid by farmers with interest within a stipulated timeframe, according to the committee’s report, “because delay in settlement of claims defeats the fundamental purpose of the scheme and farmers ultimately suffer.”
The committee also stated that it was convinced of the reasons cited by insurers for claim settlement delays, and recommended that the ministry “appropriately modify” the guidelines stating that states that delay subsidy release beyond specified timelines are ineligible to participate in future seasons. The change is required “to prevent states from withdrawing from the scheme,” according to the report.
The ministry previously informed the committee that no penalty had been imposed on any state government, even though under the revised guidelines for 2018-19, states are required to pay interest at a rate of 12% for delays in releasing their share of subsidy beyond the prescribed cut-off date of three months.
Under the YSR Free Crop Insurance scheme, the Andhra Pradesh government paid out 1,820 crores in May to over 15 lakh farmers who lost crops in the Kharif 2020 season. Andhra Pradesh is one of six states that have exited the PMFBY scheme and have no outstanding premium subsidy liabilities.
Gujarat, Telangana, Jharkhand, West Bengal, and Bihar have also dropped out of the scheme, citing the high cost of the premium subsidies. Many states have insisted that their subsidy portion be limited to 30%.
Last month, the Union government notified Parliament that it had no plans to take over the entire amount of premium subsidy because states play a key role in the scheme’s administration, including the selection of crops, locations, risks, and insurance providers.