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Evolution of Crop Insurance

Background and early attempts at Crop Insurance

Crop insurance as a concept for risk management in agriculture has emerged in India since the turn of the twentieth century. From concept to implementation, it has evolved sporadically but continuously through the century and is still evolving in terms of scope, methodologies and practices.

India is an agrarian country, where the majority of the population depends on agriculture for their livelihood. Yet, crop production in India is dependent largely on the weather and is severely impacted by its vagaries as also by attack of pests and diseases. These unpredictable and uncontrollable extraneous perils render Indian agricultural and extremely risky enterprise. It is here that crop insurance plays a pivotal role in anchoring a stable growth of the sector.





As far back as 1915 in the pre-independence era, Shri J.S. Chakravarthi of Mysore State had proposed a rain insurance scheme for the farmers with view to insuring them against drought. His scheme was based on, what is referred to today as the area approach. He published a number of papers in the Mysore Economic Journal enunciating the concept of Rainfall Insurance. In 1920 Shri Chakravarthi published a book titled “Agricultural Insurance: Practical Scheme suited to Indian Conditions”.


Apart from this, certain princely states like Madras, Dewas, and Baroda, also made attempts to introduce crop insurance relief in various forms, but with little success.





After the attainment of Independence in 1947, crop insurance gradually started to find mention more often. The Central Legislature discussed the subject in 1947 and the then Minister of Food and Agriculture, Dr. Rajendra Prasad gave an assurance that the government would examine the possibility of crop and cattle insurance, and a special study was commissioned for this purpose in 1947-48.


The first aspect regarding the modalities of crop insurance considered was whether the same should be on an Individual approach or on Homogenous area approach. The former seeks to indemnify the farmer to the full extent of the losses and the premium to be paid by him is determined with reference to his own past yield and loss experience. The 'individual approach' basis necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently long period, for fixation of premium on actuarially sound basis. The 'homogenous area' approach envisages that in the absence of reliable data of individual farmers and in view of the moral hazards involved in the 'individual approach', a homogenous area comprising villages that are homogenous from the point of view of crop production and whose annual variability of crop production would be similar, would form the basic unit, instead of an individual farmer.


The study reported in favour of a 'homogenous area' approach, as various agro-climatically homogenous areas treated as a single unit and the individual farmers in such cases pay the same rate of premium and receive the same benefits, irrespective of their individual fortunes. The Ministry of Agriculture circulated the scheme, for adoption by the State governments, but the States did not accept.


In October 1965 the Government of India decided to introduce a Crop Insurance Bill and a Model Scheme of Crop Insurance in order to enable the States to introduce crop insurance if they so desired. In 1970, the draft Bill and the Model Scheme were referred to an Expert Committee headed by Dr. Dharm Narain.


Thus for over two decades the issue of crop insurance continued to be debated and discussed.



First ever Crop Insurance scheme - 1972


From beginning of the seventy's decade, different experiments on crop insurance were undertaken on a limited, ad-hoc and scattered scale. The first crop insurance program was introduced in 1972-73 by the 'General Insurance' Department of Life Insurance Corporation of India on H-4 cotton in Gujarat. Later, the newly set up General Insurance Corporation of India took over the experimental scheme and subsequently included Groundnut, Wheat and Potato and implemented in the states of Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka and West Bengal.


This experimental scheme was based on "Individual Approach". It continued upto 1978-79 and covered only 3110 farmers for a premium of   4.54 lakhs against claims of  37.88 lakh.


It was realized that crop insurance programs based on the individual farm approach would not be viable and sustainable in this country.



Pilot Crop Insurance Scheme (PCIS) - 1979


Professor V. M. Dandekar, often referred to as the “Father of Crop Insurance in India”, suggested an alternate “Homogeneous Area approach” for crop insurance in the mid-seventies.




Based on this Area approach, the General Insurance Corporation of India (GIC) introduced a Pilot Crop Insurance Scheme (PCIS) from 1979. Participation by the State Govts. was voluntary. The scheme covered cereals, millets, oilseeds, cotton, potato, gram and barley. The risk was shared by GIC and the respective State Govt. in the ratio of 2:1. The insurance Premium ranged from 5 to 10 per cent of the Sum Insured.


This PCIS ran till 1984-85 by which 13 States had participated. The scheme covered 6.27 lakh farmers for a Premium of  1.97 crore against Claims of  1.57 crore.



Comprehensive Crop Insurance Scheme (CCIS) - 1985


Based on the learnings from PCIS, the Comprehensive Crop Insurance Scheme (CCIS) was introduced with effect from 1st April 1985 by the Government of India with the active participation of State Governments. The Scheme was optional for the State Governments. The CCIS was implemented on Homogeneous Area approach and was linked to short-term crop credit, that is, all crop loans given for notified crops in notified areas were compulsorily covered under the CCIS.


The salient features of the Scheme were:

1.     It covered farmers availing crop loans from Financial Institutions for growing food crops & oilseeds on compulsory basis. The coverage was restricted to 100% of crop loan subject to a maximum of ` 10,000/- per farmer.

2.     The Premium rates were 2% for Cereals and Millets and 1% for Pulses and Oil seeds. 50% of the Premium payable by Small & Marginal farmers was subsidized by Central and State Governments in equal proportion.

3.     Premium & Claims were shared by Central & State Government in 2:1 ratio.

4.     The Scheme was optional to State Governments.

5.     The maximum Sum Insured was 100% of the crop loan, which was later increased to 150%.

6.     CCIS was a multi-agency scheme, involving Government of India, Departments of State Governments, Banking Institutions and GIC.



15 States and 2 UTs had participated in the CCIS during its tenure from Kharif 1985 to Kharif 1999. These were Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Meghalaya, Orissa, Tamil Nadu, Tripura, West Bengal, Andaman & Nicobar Islands and Pondicherry. The States of Rajasthan, Uttar Pradesh, Jammu & Kashmir, Manipur and Delhi had initially joined the Scheme but opted out after few year


In this entire period, the Scheme covered 7.63 crore farmers under an area of 12.76 crore hectares, for a Sum Insured of  24,949 crore at a premium of  403.56 crore.  

Correspondingly, the total claims outgo was  2303.45 crore, thus having a Claim Ratio of 1 : 5.71. About  59.78 lakh farmers were benefitted, and the majority of the claims were paid in the States of Gujarat -  1086 crore (47%); Andhra Pradesh -  482 Crores (21%); Maharashtra -  213 Crores (9%); & Orissa -  181 Crores (8%).


CCIS was eventually discontinued after Kharif 1999, to be replaced by the improved and expanded “National Agriculture Insurance Scheme” (NAIS), which is being continued till date.

Experimental Crop Insurance Scheme (ECIS) - 1997


While the CCIS was being implemented, attempts were made to modify the existing CCIS from time to time as demanded by the States. During the Rabi 1997-98 season, a new scheme, viz. Experimental Crop Insurance Scheme (ECIS) was introduced in 14 districts of 5 States. The Scheme was similar to CCIS, except that it was meant only for all small / marginal farmers with 100% subsidy on Premium. The Premium subsidy and Claims were shared by the Central and respective State Governments in the ratio of 4 : 1. The Scheme was discontinued after one season due to its many administrative and financial difficulties.


During its one season, the ECIS covered 4,54,555 farmers for a Sum Insured of  168.11 crore at a Premium of  2.84 crore against which the Claims paid were  37.80 crore.

Pilot Scheme on Seed Crop Insurance (PSSCI) - 2000


A Pilot Scheme on Seed Crop Insurance (PSSCI) was introduced in Kharif 2000 season in 11 States to provide financial security & income stability to the Seed Growers in the event of failure of seed crop.

It was also the objective to provide stability to the infrastructure established by the State owned Seed Corporations and State Farms, and to give a boost to the modern seed industry by bringing it under scientific principles.

All seed-producing organizations, under Govt. or private control, producing certain classes of seed for identified Crops/States/Areas were eligible. All farmers growing the Foundation & Certified seed crops in the identified States /Areas, who had offered the seed crop for certification and had got registered with the concerned Certification Agency were eligible for coverage. 

Farm Income Insurance Scheme (FIIS) - 2003


NAIS protects the farmers only against the yield fluctuations. The price fluctuations are outside the purview of this scheme. Farmers' income is a cumulative function of yield and market prices. In other words, a bumper harvest tends to bring down the market prices of grains and vice versa.


Therefore, despite normal production, farmers often fail to maintain their income level due to fluctuations in market prices. To take care of variability in both the yield and market price, the government introduced a pilot project, viz. Farm Income Insurance Scheme (FIIS) during Rabi 2003-04 season.


The objective of the scheme was to protect not only the income of the farmer, but also to reduce the government expenditure on procurement at Minimum Support Price (MSP).


FIIS was implemented on the basis of 'homogeneous area' approach in respect of rice and wheat crops only. The scheme was compulsory for loanee farmers and voluntary for non-loanee farme` The premium rates were actuarial, determined for each State at the District level, to be subsidised by the Govt. of India.


Claims would arise if the actual income (current yield X current market price) was lower than the guaranteed income (7 years' average yield X level of indemnity [80% or 90%] X MSP).


The Scheme was implemented during 2 seasons only, viz. Rabi 2003-04 season in 18 Districts of 11 States for wheat/rice, and Kharif 2004 season in 19 Districts of 4 States for rice alone. In all, the scheme covered  4.15 lakh farmers for an area of 4.02 lakh hectares for a Sum Insured (i.e. guaranteed income) of  420 crore, collecting a premium of  28.5 crore and paid claims of  28.75 crore.



From Rabi 1999 season, the CCIS was discontinued and replaced by the National Agriculture Insurance Scheme (NAIS), which is being implemented to date as the flagship yield based crop insurance program of the Government.


Parallelly, the implementation and administration of crop insurance schemes, which were being done by General Insurance Corporation of India (GIC), was taken over by Agriculture Insurance Company of India Ltd. (AIC) since its commencement of business from 1st April 2003.