National Agricultural Insurance Scheme (NAIS) (Rashtriya Krishi Bima Yojana - RKBY) Objectives Top

The objectives of the RKBY are as under :To provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crop as a result of natural calamities, pests & diseases. To encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in Agriculture. To help stabilise farm incomes, particularly in disaster years.

Salient Features of the NAIS Scheme Top 1. Crops Covered:

The Crops in the following broad groups in respect of which i) the past yield data based on Crop Cutting Experiments (CCEs) is available for adequate number of years, and ii) requisite number of CCEs are conducted for estimating the yield during the proposed season:

Food crops (Cereals, Millets & Pulses), Oilseeds, Sugarcane, Cotton & Potato (Annual Commercial / annual Horticultural crops)

Other annual Commercial / annual Horticultural crops subject to availability of past Yield data will be covered in a period of three years. However, the crops which will be covered next year will have to be spelt before the close of preceding year.

2. States and Areas to be covered Top

The Scheme extends to all States and Union Territories. The States / UTs opting for the Scheme, would be required to take up all the crops identified for coverage in a given year. Exit clause: The States / Union Territories once opting for the Scheme, will have to continue for a minimum period of three years.

3. Farmers to be covered Top All farmers including sharecroppers, tenant farmers growing the notified crops in the notified areas are eligible for coverage.

The Scheme covers following groups of farmers: On a compulsory basis: All farmers growing notified crops and availing Seasonal Agricultural Operations (SAO) loans from Financial Institutions i.e. Loanee Farmers. On a voluntary basis: All other farmers growing notified crops (i.e., Non-Loanee farmers) who opt for the Scheme. 4. Risks Covered & Exclusions Top

Comprehensive risk insurance will be provided to cover yield losses due to non-preventable risks, viz.: i. ii. iii. iv. v. Natural Fire and Lightning Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc. Flood, Inundation and Landslide Drought, Dry spells Pests/ Diseases etc.

Losses arising out of war & nuclear risks, malicious damage & other preventable risks shall be excluded.

5. Sum Insured / Limit of Coverage Top

The Sum Insured (SI) may extend to the value of the threshold yield of the insured crop at the option of the insured farmers. However, a farmer may also insure his crop beyond value of threshold yield level upto 150% of average yield of notified area on payment of premium at commercial rates. In case of Loanee farmers the Sum Insured would be at least equal to the amount of crop loan advanced. Further, in case of Loanee farmers, the Insurance Charges shall be an additionally to the Scale of Finance for the purpose of obtaining loan. In matters of Crop Loan disbursement procedures, guidelines of RBI / NABARD shall be binding.

6. Premium Rates Top Season S.No Crops Premium rate

Kharif

Bajra & Oilseeds

3.5% of SI or Actuarial rate, whichever is less

Other crops (cereals, other millets & 2.5% of SI or Actuarial rate, whichever pulses) is less 2 Rabi Wheat 1.5% of SI or Actuarial rate, whichever is less 2.0% of SI or Actuarial rate, whichever is less Actuarial rates

Other crops (other cereals, millets, pulses & oilseeds) 3 Kharif & Rabi

Annual Commercial / annual Horticultural crops

Transition to the actuarial regime in case of cereals, millets, pulses & oilseeds would be made in a period of five years. The actuarial rates shall be applied at District / Region / State level at the option of the State Govt./UT.

7. Premium subsidy Top

50% subsidy in premium is allowed in respect of Small & Marginal farmers, to be shared equally by the Government of India and State/UT Govt. The premium subsidy will be phased out on sunset basis in a period of three to five years subject to review of financial results and the response of farmers at the end of the first year of the implementation of the Scheme. The definition of Small and Marginal farmer would be as follows:

Small Farmer:

A Cultivator with a land holding of 2 hectares (5 acres) or less, as defined in the land ceiling legislation of the concerned State/ UT.

Marginal Farmer:

A Cultivator with a land holding of 1 hectare or less (2.5 acres).

10. Seasonality Discipline Top * The broad seasonality discipline followed for Loanee farmers will be as under: Activity Loaning period Kharif April to September Rabi October to Next March

Cut-off date for receipt Of Declarations Cut-off date for receipt Of yield data

November

May

January / March July / September

The broad cut-off dates for receipt of proposals in respect of Non-loanee farmers will be as under : a. Kharif season : 31st July b. Rabi season : 31st December

However, seasonality discipline may be modified, if and where necessary in consultation with State / UT and the Govt. of India.

11. Estimation of Crop Yield Top

The State/UT Govt. will plan and conduct the requisite number of Crop Cutting Experiments (CCEs) for all notified crops in the notified insurance units in order to assess the crop yield. The State / UT Govt. will maintain single series of Crop Cutting Experiments (CCEs) and resultant Yield estimates, both for Crop Production estimates and Crop Insurance. Crop Cutting Experiments (CCEs) shall be undertaken per unit area /per crop, on a sliding scale, as indicated below : A Technical Advisory Committee (T.A.C.) comprising representatives from N.S.S.O., Ministry of Agriculture (G.O.I.) and IA shall be constituted to decide the sample size of CCEs and all other technical matters.

12. Levels of Indemnity & Threshold Yield Top

Three levels of Indemnity, viz., 90%, 80% & 60% corresponding to Low Risk, Medium Risk & High Risk areas shall be available for all crops (cereals, millets, pulses & oilseeds and annual commercial / annual horticultural crops) based on Coefficient of Variation (C.V) in yield of past 10 years data. However, the insured farmers of unit area may opt for higher level of indemnity on payment of additional premium based on actuarial rates. The Threshold yield (TY) or Guaranteed yield for a crop in an Insurance Unit shall be the moving average based on past three years average yield in case of Rice & Wheat and five years average yield in case of Other crops, multiplied by the level of indemnity.

15. Financial Support towards Administration & Operating (A&O) expensescial Support towards Administration & Operating (A&O) expenses Top

The A&O expenses would be shared equally by the Central Government & respective State Government on sunset basis [ 100% in 1st year, 80% in 2nd year, 60% in 3rd year, 40% in 4th year, 20% in 5th year and zero thereafter ]. 16. Corpus Fund Top To meet catastrophic losses, a Corpus Fund shall be created with contributions from the Government of India and State / UT on 50:50 basis. A portion of Calamity Relief Fund (CRF) shall be used for contribution to the Corpus Fund.

The Corpus Fund shall be managed by Implementing Agency (IA).

17. Re-Insurance Cover Top Efforts will be made by IA to obtain appropriate reinsurance cover for the proposed RKBY in the international Reinsurance market. 18. Management of the Scheme, Monitoring and reviewagement of the Scheme, Monitoring and review Top

In respect of Loanee farmers, the Banks shall play the same role as under CCIS. In respect of non-Loanee farmers, Banks shall collect the premium along with the Declarations and send it to IA within the prescribed time limits. However, in areas where IA has requisite infrastructure, a non-loanee farmer will have option to send premium along with Declaration, directly to IA within the time limits. Selection of the Banks will be on the basis of Service Area Approach (SAA) of RBI or at the option of the Banks (where Co-operative Banks have good network). The Department of Agriculture, Agricultural Statistics, Directorate of Economics and Statistics, Department of Co-operation, Revenue Department of the State Government will be actively involved in smooth implementation of the Scheme. The Scheme will be implemented in accordance with the operational modalities as worked out by IA in consultation with Dept. of Agriculture & Co-operation. During each crop season, the agricultural situation will be closely monitored in the implementing States / Union Territories. The State / UT Department of Agriculture and district administration shall set up a District Level Monitoring Committee (DLMC), who will provide fortnightly reports of Agricultural situation with details of area sown, seasonal weather conditions, pest incidence, stage of crop failure {if any} etc.

The operation of the Scheme will be reviewed annually, and modifications as may be required would be introduced. Periodic Appraisal Reports on the Scheme would be prepared by Ministry of Agriculture, the Government of India / Implementing Agency.

19. Implementing Agency (IA) Agency (IA) Top

An exclusive Organization would be set up in due course, for implementation of RKBY. Until such time as the new set up is created, the G.I.C. of India will continue to function as the Implementing Agency.

20. Benefits expected from Scheme Top The Scheme is expected to:

Be a critical instrument of development in the field of crop production, providing financial support to the farmers in the event of crop failure. Encourage farmers to adopt progressive farming practices and higher technology in Agriculture. Help in maintaining flow of agricultural credit. Provide significant benefits not merely to the insured farmers, but, to the entire community directly and indirectly through spillover and multiplier effects in terms of maintaining production & employment, generation of market fees, taxes etc. and net accretion to economic growth. Streamline loss assessment procedures and help in building up huge and accurate statistical base for crop production.

Issues related to the NAIS A look into some of the issues related to NAIS which has been identified by the Planning Commission, 2007 and in other related studies (Raju and Chand, 2008) is discussed below: a) Reducing the insurance unit to the village panchayat level The insurance unit under NAIS was taken on the basis of homogeneous area, and the insurance unit were Mandal/ Taluk/ Block or equivalent unit, in most instances. Since these are large administrative units, considerable differences in yield and level of impact of natural calamities arise. Reducing the unit for determining claim to level of village in the case of large villages and to cluster of villages in the case of small villages, will help in increasing 14 the popularity of the scheme. However, the most ideal approach is individual approach which would reflect crop losses on a realistic basis, and has been regarded most desirable. b) Threshold yield/ guaranteed yield Under the scheme, the Guaranteed Yield, on which indemnities are calculated, are estimated based on the moving average yield of the preceding three years for rice and wheat, and preceding five years for other crops, multiplied by the level of indemnity. In areas where there are consecutive adverse seasonal conditions, it pulls down the average yield. Therefore, the best suggested method is to consider the best five, out of the preceding ten years yield. c) Extending risk coverage to prevented sowing/planting in adverse seasonal conditions In many instances, sowing/ planting is prevented due to adverse seasonal conditions and the farmer not only loses his initial investment, but also loses the opportunity value of the crop. The NAIS does not cover such loses which comes under crop related seasonal risk. Pre-sowing risk particularly prevented/ failed sowing/ re-seeding on account of adverse seasonal conditions should be covered, wherein up to 25 per cent of sum insured could be paid as compensation, covering the input cost incurred till that stage. d) Coverage of post-harvest losses Post-harvest losses include the crops getting damaged by cyclones, floods, etc., when left

in the field for drying after harvest which is practiced for some crops like paddy. Under NAIS, the coverage of risk is only upto harvesting, and such post-harvest loss are not compensated. Extending the insurance cover for a specific time period after harvest will help to help the farmers deal with such risk. e) On-account settlement of claims One of the most important set back in NAIS was the long gap between the occurrence of loss and actual claim payment, which was around 8-10 months. Claims settlement usually has to wait for the results of the Crop Cutting Experiments (CCEs) and the release of requisite funds from the central and state governments. It has been suggested to introduce on-account settlement of claims, without waiting for the receipt of yield data, to the extent of 50 per cent of likely claims, subject to adjustment against the claims assessed on the yield basis. f) Increasing awareness among non-loanee farmers For loanee farmers, the premia is deducted at the time of loan disbursement and claim settlements being credited to the farmers loan account. In most of the cases, an illiterate or

The awareness and participation of non-laonee farmers is worse. Initiating, major pilot studies to develop good communication with the farmers and increasing the awareness 15 among the farmers, is hence very important; to enhance the knowledge of the farmers regarding crop insurance and at the same time, increase its penetration rate. MODIFIED NATIONAL AGRICULTURAL INSURANCE SCHEME (MNAIS) The Government of India has modified the NAIS and launched Modified National Agricultural Insurance Scheme (MNAIS) with some additional features which were lacking in the NAIS, in addition to those available under NAIS, in selected States / districts from Rabi 2010-11. The features of the pilot MNAIS launched is discussed below: FARMERS COVERED: All farmers including sharecroppers, tenant farmers growing the notified crops in the notified areas are eligible for coverage.

The Scheme covers following groups of farmers: a) On a compulsory basis: All farmers growing notified crops and having sanctioned credit limits for Seasonal Agricultural Operations (SAO) loans from Financial Institutions for notified crop (s) i.e. Loanee Farmers. b) On a voluntary basis: All other farmers growing notified crops (i.e., Non-Loanee farmers) who opt for the Scheme. These farmers could be: (i) Individual owner-cultivators (ii) Farmers enrolled under contract farming, directly or through promoters / organizers (iii) Groups of farmers / societies serviced by Fertilizer Companies, Pesticide firms, Crop Growers associations, Self Help Groups (SHGs), Non-Governmental Organizations (NGOs), and Others (iv) Corporate farms INSURANCE UNIT (IU) For a major crop like paddy, the IU will be village or Gram panchayat, while for Minor crops; the IU would be between Gram panchayat and block / tehsil. To facilitate implementation of this Scheme at village level, the requirement of minimum number of CCEs to be conducted at village / village panchayat level has been brought down from 8 to 4 CCEs for all crops except groundnut. LEVELS OF INDEMNITY & THRESHOLD YIELD Three levels of Indemnity, viz., 90%, 80% & 70% corresponding to Low Risk, Medium Risk & High Risk areas shall be available for all crops. The Threshold yield (TY) or Guaranteed yield for a crop in a Insurance Unit shall be the average of seven years [excluding a maximum of two years in which a calamity such as drought etc. was declared by the concerned authority of Government], multiplied by the level of indemnity.16 RISKS COVERED

(A) STANDING CROP (Sowing to Harvesting) Comprehensive risk insurance is provided to cover yield losses due to non-preventable risks. If the Actual Yield (AY) per hectare of the insured crop for the defined area [on the basis of requisite number of Crop Cutting Experiments (CCEs)] in the insured season, falls short of the specified Threshold Yield (TY), all the insured farmers growing that crop in the defined area are deemed to have suffered shortfall in their yield. The Scheme seeks to provide coverage against such contingency. Indemnity shall be calculated as per the following formula: Shortfall in Yield X Sum Insured for the farmer Threshold yield [Shortfall = Threshold Yield - Actual Yield for the Defined Area] ON ACCOUNT PAYMENT OF CLAIMS In case of adverse seasonal conditions during crop season, claim amount up to 25 percent of likely claims would be released in advance subject to adjustment against the claims assessed on yield basis. The on account payment will be considered only if the expected yield during the season is less than 50 percent of normal yield. The criteria for deciding on-account payment of claims shall be based on agro-meteorological data / satellite imagery or such other indicators to be decided by the Insurer, and will be implemented in States and for crops for which such proxy indicators can be established. (B) PREVENTED SOWING / PLANTING RISK In case farmer of an area is prevented from sowing / planting due to deficit rainfall or adverse seasonal conditions, such insured farmer who failed to sow / plant (but otherwise has every intention to sow / plant and incurred expenditure for the purpose), shall be eligible for indemnity. The indemnity payable would be a maximum of 25% of the sum-insured. The eligibility for payment would be decided at IU level, and the insurance cover gets terminated once the unit qualifies for the prevented sowing / planting risk.

(C) LOCALISED RISKS In case there is loss due to localized calamities i.e. hailstorm and landslide, the loss would be assessed on individual farm basis and compensation so paid shall be adjusted from the losses payable due to loss in yield on area approach basis.17 (D) POST HARVEST LOSSES Coverage is available only for crops like paddy, which are allowed to dry in the field after harvesting, against specified perils of cyclone in coastal areas, resulting in damage to harvested crop. The coverage is available upto a maximum period of two weeks from harvesting. Assessment of damage will be on individual basis. PREMIUM RATES & SUBSIDY Premium rates are to be worked out on actuarial basis. However, the premium paid by the farmer is subsidized on the following lines: S. No Premium slab Subsidy to Farmers 1 Up to 2% Nil 2 >2 - 5% 40% subject to minimum net premium of 2% 3 >5 10% 50% subject to minimum net premium of 3% 4 >10 15% 60% subject to minimum net premium of 5% 5 >15% 75% subject to minimum net premium of 6%. Premium subsidy shall be available to farmers up to Compulsory coverage or value of Threshold Yield, whichever is higher for loanee farmer and value of TY for non loanee farmers. The difference between the Actuarial (Gross) Premium and the Premium payable by the farmer is shared equally between the Government of India and State Government. SHARING OF RISK: All claims will be borne by the Insurance Companies.