Crop insurance and farm risk: PMFBY and the limits of protection

Farming income is exposed to risks farmers cannot control: drought, flood, hail, pests, disease and price crashes. A single bad season can push a household into debt, force distress sales of assets, or pull children out of school. Insurance is one way to share that risk: farmers pay a small premium, insurers and governments cover losses, and income becomes less volatile. But crop insurance is hard to design, because losses are correlated across a whole region in a drought, yields vary by plot, and verifying individual losses for millions of small farms is costly.

India's main crop insurance scheme is the Pradhan Mantri Fasal Bima Yojana, or PMFBY, launched on 18 February 2016 and implemented from the Kharif 2016 season. It covers risks from pre-sowing and prevented sowing through mid-season adversity, localised calamities and post-harvest losses for notified crops, with farmers paying a capped premium share and the Centre and states subsidising the rest. The scheme replaced earlier national and modified national agricultural insurance schemes, aiming for one national design, lower farmer premiums and faster claim settlement through technology, including satellite data and the National Crop Insurance Portal.

In practice, PMFBY has faced persistent problems. Claims have sometimes been delayed by disputes over yield assessment through crop-cutting experiments, by states delaying their premium share, and by insurers withdrawing from loss-prone areas. Some states have opted out for periods, citing high costs or poor service, and coverage remains uneven across crops and regions. Reforms in 2020 made the scheme voluntary for all farmers, including loanee farmers, and allowed states greater flexibility, but the core tension remains: actuarial premiums that reflect true risk are unaffordable for small farmers, while subsidised premiums create fiscal costs and weak incentives for insurers to serve risky areas well.

Insurance alone cannot stabilise farm income. It must sit alongside irrigation, diversification, credit, storage and price policy, because a payout after a failed crop does not restore a lost season's employment or food security. Critics also note that area-based assessment, which pays when average yields in an area fall, can miss individual losses, while individual assessment is expensive and prone to dispute. For civil studies, PMFBY is a case study in state capacity: a well-designed scheme fails if yield data, premium payments and grievance redress do not work at district and village level.