Crop insurance is the key PDF Print E-mail
Friday, 24 April 2015 01:19
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At some point, the government needs to fix this

The meteorological department’s first prediction of a below normal monsoon—93% of the long period average—is a worrisome start to the fiscal for the Modi government. The Met’s prediction of just a 28% chance of a normal monsoon is even worse than that last year, when a 35% chance of a normal monsoon was predicted in the first round. Since the monsoon accounts for almost 75% of the country’s annual rainfall, any major shortfall will hit the economy in a bigway. Rating agency CRISIL has argued that a deficient monsoon could shave off 50 basis points from India’s GDP forecast of 7.9% for FY16. The real impact, however, will be far greater than just the fall in headline GDP growth. For one, with foodinflation likely to result, there is a question mark over the rate-cut cycle—if thegovernment is quick to dump wheat and rice stocks from FCI’s godowns, unlike last year, though, the impact could be reduced somewhat. Two, with thegovernment under attack for being pro-corporate, the greater farmer distress is almost certain to result in policies that are seen to be more pro-farmer and pro-poor. Which means the government could go slow on the land Bill as well as other hard reforms measures. It is to be hoped, if the monsoon does turn out to be a poor one—and a lot depends on whether the rainfall is poor in areas that have poor irrigation—the government does not give in to the inevitable demand for crop loan waivers.

What is not clear, however, is why the government has not moved aggressively so far on trying to increase the level of crop insurance in the country. Since the main reason for the poor coverage—around 5% of farmers are covered by insurance—is the high premiums, the government needs to pay 70-80% of the premium as happens in some other countries like China and the US, and perhaps get state governments to also chip in. While having larger areas to cover and less effort to collect the premium, rates are also certain to fall. While the amount needed in annual premiums could be as high as R15,000 crore if even two-thirds of the cropped area is insured, ICRIER professor Ashok Gulati—also a key advisor to the government—has offered a solution in levying a cess on agricultural equipment like tractors and on exports of water-guzzling crops. Instead of assurances to lookafter farmer interests, the Modi government needs to work on this.


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