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Tuesday, 14 April 2015 00:43
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A government-funded scheme is required

Though the government has increased the compensation for farmers by a seemingly hefty 50%—the eligibility for the compensation has also been lowered—as former CACP chairman Ashok Gulati has pointed out, this is nowhere near enough since this will not cover the farmers’ input costs. In which case, as Gulati suggests, India needs to completely overhaul the manner in which crops are insured. While India does have an insurance scheme in place, it has not really helped as the premiums are too high—just around 5% of farmers have crop insurance. Which is why India needs to follow the model used in other countries, and indeed this is the model the government is also using when it comes to life insurance for the poor—the government pays the insurancepremium for the poor. In the case of countries like China and the US, between 70-80% of the premium is paid for by the state; there is no reason why India shouldnot adopt the same model. Indeed, if the government were to pay for the bulk of the insurance, insurance companies would know that they would get a lot more farms to insure and, as a result, the premium is almost certain to drop from thecurrent 10% to a lot less.

As for where the funding will come from, apart from getting the states to share the burden, Gulati suggests putting a cess on the farm input industry—pesticides and tractors, for instance—as well as on exports of water-guzzling crops like rice andsugar; the latter will also have a salutary impact since this may also reduce the cultivation of these crops in the long run. Some part of the disaster relief fund mandated by the 14th Finance Commission can also be used to help makeinsurance premium payments since most disasters have a significant agriculturecomponent. And in order to avoid the hassles associated with getting an inspection done, after which the claim is settled, a better way to go about this is to use satellites to generate reports on larger areas and, on the basis of this, make payments directly. At a time of agricultural stress, and the possibility of greater problems were the monsoon to also be deficient, the earlier the governmentincreases the cropped area under insurance—after paying at least two thirds of the insurance premium—the better. It will also help counter the opposition rhetoric that the government is pro-corporate and not pro-farmer.Indeed, as ageneral rule, the government needs to use more modern techniques to both save money as well as run more effective policies. Even if the government is not in a hurry—sadly, it doesn’t seem to be—to move from physical rations to Aadhaar-based cash subsidies, using futures would be a better way to ensure a buffer. So, instead of keeping double or triple the buffer stock it needs, FCI could buy crop futures in global markets to give it the cover needed in case of a poor crop—given the cost of India’s extra buffer runs into several tens of thousand crore rupees, it is not clear why this has not been thought of all these years.

 

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