That insurance penetration amongst India’s farming community is abysmal is a known fact. Out of the gross cropped area of 195.26 million hectares in the country, only 42.82 million hectares or 22 per cent was covered under crop insurance in 2014. While the coverage was higher in some states — especially Rajasthan and also Chhattisgarh, Odisha, Bihar and Karnataka — it was hardly a tenth or less for the likes of Gujarat, West Bengal and Uttar Pradesh (see table).
But the low spread of agricultural insurance — one in every five hectares — isn’t the only issue. Equally important is the inadequacy of cover, in terms of the sum insured (SI) or the maximum amount that insurance would pay in the event of crop damage.
According to the Commission for Agricultural Costs and Prices (CACP), the average SI per hectare under the existing national agricultural insurance scheme was just Rs 18,464 (Rs 19,141 in kharif and Rs 16,927 in rabi) in 2013-14. This is way below the gross value of output (GVO) for most crops. Take paddy, where the GVO on an all-India average yield of 36 quintals and minimum support price (MSP) of Rs 1,310/quintal in 2013-14 worked out to Rs 47,160 per hectare. Or tur (arhar), where these numbers stood at 8.5 quintals, Rs 4,300/quintal and Rs 36,550 per hectare, respectively.
If policy claims cannot cover even half of the value of produce when the crop suffers heavy damage, it only shows why farmers aren’t really interested in taking insurance protection. And it also explains the poor spread of crop insurance in a country that has experienced five full-fledged drought years (2002, 2004, 2009, 2014 and 2015) in this century alone.