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Agricultural Insurance – an Effective Control Mechanism for Non-performing Assets of District Central Co-operative Banks in India
AGRICULTURE INSURANCE – AN EFFECTIVE CONTROL MECHANISM FOR NON-PERFORMING ASSETS IN DISTRICT CENTRAL CO-OPERATIVE BANKS OF INDIA
All the agriculture plans projects and schemes are subjected to yield risks. As these are highly dependable to weather, monsoon, rainfall and other natural calamities the amount of risk is unpredictable. In India most of the agriculturists don’t have the awareness about the agricultural insurance plans and schemes provided by the Government in mitigating losses arising out of agriculture. If there is any loss due to natural calamities they demand only the writing off the agriculture credit availed. They don’t avail the mitigating mechanisms, which are readily available to protect them from unexpected losses. This article provides a basic knowledge about the available insurance facility to mitigate the risk in agriculture.
RISKS IN AGRICULTURE:
Five general types of risk are identified. They are:
1.Production risk – derives from the uncertain natural growth processes of crops and livestock.
2.Price or market risk – refers to uncertainty about the prices that will be received for commodities.
3.Finanacial risk – rising interest rates, the prospect of loans being called by lenders, and restricted credit availability are also aspects of financial risk.
4.Institutional risk – due to uncertainties accumulated by government actions.
5.Human or personal risk – refers to factors such as problems with human health or personal relationships that can affect the farm business.
Among agricultural insurance products, crop is considered as the most important category. Other types include cattle, poultry, equipments used for agriculture etc.
INSURABILITY UNDER AGRICULTURAL INSURANCE:
The agricultural insurance policy prescribes certain conditions regarding the insurability under the policy. These include:
1.The risks should cause economic loss to the farmer covered under the policy.
2.The loss can be expressed specifically in monetary terms.
3.The risk of loss in the future can be estimated by analyzing the past data’s.
4.The loss must not be minor or negligible.
5.The insured farmer should have the financial capacity to pay the premium amount or should be eligible for government assistance.
TYPES OF CROP INSURANCE SCHEME:
The various types of risks, which are covered under the policy, include loss of the crops due to:
Natural fire and lightning, Storm, hailstorm, cyclone, typhoon etc, Flood, inundation and landslide, Drought, dry spells, Pests/ Diseases etc.
CATEGORIES OF FARMERS COVERED UNDER THE SCHEME:
The category of farmers who are covered under the policy includes:
1.All farmers growing notified crops and availing seasonal agricultural loans from financial institutions are covered on a compulsory basis. This category is referred to as loanee farmers.
2. All other farmers growing notified crops who opt for the scheme are covered on a voluntary basis.
Sum Insured:
Farmers are also allowed to insure their crop beyond the value of the yield level.
LEVELS OF INDEMNITY:
The indemnity under the scheme varies based on the nature of risks. The scheme identifies three types of risks viz., low risk, medium risk and high risk. If the yield variation is 14 percent or less, it is considered as low risk. If the yield variation is between 16 to 30 percent, it is termed as high risk. Three levels of indemnity are available viz, 90%, 80%, and 60% for low risks.
CLAIMS SETTLEMENT UNDER CROP INSURANCE:
The claims arising out of losses under the national crop insurance schemes are shared by the implementing agency (Agriculture Insurance Corporation Of India) and the government proportionately. This sharing is done for a period of five years till the actuarial rates get implemented. In case of food crops and oilseeds, any claims beyond 100% of premium will be borne by the government. All normal claims, i.e., claims up to 150% of premium will be met by implementing.
SUM INSURED
Farmers are also allowed to insure their crop beyond the value of the yield level.
LEVELS OF INDEMNITY
The indemnity under the scheme varies based on the nature of risks viz, low risk, medium risk and high risk. If the yield variation is 14 percent or less, it is considered as low risk. If the yield variation is between 16 to 30 percent, it is termed as medium risk and above 30 percent is termed as high risk. Three levels of indemnity are available viz, 90%, 80%, and 60% for low risks.
CLAIMS SETTLEMENT UNDER CROP INSURANCE:
The claims arising out of losses under the national crop insurance scheme are shared by the implementing agency (Agriculture Insurance Corporation Of India) and the government proportionately. This sharing is done for a period of five years till the actuarial rates get implemented. In case of food crops and oilseeds, any claims beyond 100% of premium will be borne by the government. All normal claims, i.e. claims up to 150 % of premium will be met by implementing agency and claims beyond 150% shall be paid out of corpus for a period of three years. After this period of three years, claims up to 200% will be met by the implementing agency and any claims above this will be met out of corpus fund.
Implementing agency makes the settlement of claims in the case of normal losses for annual commercial or horticultural crops. This includes the claims up to 150% of premium in the first three years and 200% of premium there after subject to satisfactory claims experience. The claims beyond 150% of premium in the first three years and 200% of premium there after shall be paid out of corpus fund for a period of three years. After this period of three years, claims up to 200% will be met by the implementing agency and any claims above this will be met by out of corpus fund. Implementing agency makes the settlement of claims in the case of normal losses for annual commercial or horticultural crops. This includes the claims up to 150% of premium in the first three years and 200% of premium there after subject to satisfactory claims experience. The claims beyond 150% of premium in the first three years and 200% of premium thereafter shall be paid out of corpus fund. However, the period of three years mentioned for this purpose will be reviewed on the basis of financial results after the first year of implementation. The period will be extended to five years in case of necessity.
PILOT CROP INSURANCE SCHEMES
The first pilot crop insurance scheme was introduced in the year 1978-79. This scheme functioned till 1985 when the comprehensive crop insurance scheme was formulated. The nine states where the pilot schemes were implemented were Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Bihar, Maharashtra, Assam, Karnataka and Rajasthan.
NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS)
(RASHTRIYA KRISHI BIMA YOJANA-RKBY)
The Objectives Of the Scheme:
Ø Provide insurance coverage and financial support to the farmers in the event of the failure of any of the notified crop as a result of natural calamities, pests & diseases.
Ø Encourage the farmers to adopt progressive farming practices, high value inputs and higher technology in Agriculture.
Ø Help stabilize farm incomes, particularly in disaster years.
RISKS COVERED
Under the scheme, comprehensive risk insurance is provided to cover yield losses due to non-preventable risks, viz.
a. Natural Fire and Lightning
b. Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc.
c. Flood, Inundation and Landslide.
d. Pests/Diseases etc.
PREMIUM SUBSIDY
A 50% subsidy in premium is allowed for Small and Marginal farmers, which is shared equally by the Central Government and State or Union Territory Government.
PILOT SCHEME ON SEED CROP INSURANCE (PSSCI)
Objectives of the scheme:
Ø To provide financial security and income stability to the seed Growers in the event of failure of seed crop.
Ø To build confidence in the existing seed growers and stimulate participation of new growers to undertake seed production program of newly released hybrid/ improved varieties.
Ø To provide stability to the infrastructure established by the State owned Seed Corporations/ State Farms.
Ø To give a boost to the Modern Seed Industry to bring it under Scientific Principles.
The Compensation payable is on the basis of the graded scales are as follows:
Ø Failure of seed crop within one and half months of sowing and until the crop is harvested, the compensation will be 80% of the sum insured corresponding to the rejected area.
Ø Failure of seed crop after one and half month of sowing and until the crop is harvested, the compensation will be 80% of the sum insured corresponding to the rejected area.
Damages to the harvested seed crop due to operation of the above- mentioned perils while lying on the field but before removal from the field for transportation to the processing plant are covered under the scheme.
FARM INCOME INSURANCE SCHEME:
The objectives of the scheme are as follows:
Ø To provide financial support to farmers, in the event of loss in income from adverse incidence of Crop Yield (On account of natural calamities, pests and diseases) and Market Price fluctuations.
Ø To encourage the farmers to adopt prudent and progressive farming practices, both in terms of agricultural technology, and market economics.
Ø To enhance food and livelihood security of the farming community.
Ø To help stabilize farm incomes, particularly in diseaster years.
Sum Insured
The Sum insured is computed on the basis of Guaranteed Income per hectare:
Guaranteed Income (per hectare) = Average Yield of past 7 years * Indemnity Level * Minimum Support Price (MSP) or current year.
Premium Subsidy
Ø Small/ Marginal farmers: 75% of Premium
Ø Other farmers: 50% of Premium
RURAL INSURANCE SCHEMES: CATTLE INSURANCE
COVERAGE:
The insurance scheme is offered to protect owners of animals mentioned above from any natural hazards and to provide compensation to the owners of the animal when loss occurs. The insurance cover can be obtained by regularly paying small amounts called premium to the insurance company. Thus by taking a cattle insurance policy big losses befalling the few cattle owners are shared by the insurance company thereby protecting the owner.
SUM INSURED:
The sum insured depends upon the type of animal and breed such as cow, buffalo, local breed, pure breed or crossbreed. The sum also depends on the age, sex and health of animal.
POULTRY INSURANCE POLICY
Poultry means domesticated species of birds reared for eggs, meat or feathers and includes chicken, ducks, geese, turkey, etc. The poultry insurance policy provides indemnity against death of birds due to accident or diseases. The policy covers death due to fire, lightning, flood cyclone, earthquake, etc. The term poultry includes layers, broilers and parent stock.
PERSONAL ACCIDENT INSURANCE SOCIAL SECURITY SCHEME FOR POOR FAMILIES:
The scheme was introduced by the central government with a vision of rehabilitating poor families affected by death of its earning member who is not covered for compensation under any insurance scheme or any law/statute. The scheme was operated through GIC and its subsidiaries in co-ordination with the respective state governments. Now the public sector companies and state governments are handling the scheme. Initially it is introduced only in certain select districts.
SERICULTURE INSURANCE (MULBERRY SILKWORM CROP INSURANCE)
The scheme is applicable to univoltine/bivoltine/pure or hybrid races of mulberry silkworm crops. The scheme covers the worm from egg stage to cocoon i.e., from the time the eggs are purchased by the farmers till the cocoons are harvested.
MARKET AGREEMENT ON AQUACULTURE (SHRIMP) INSURANCE SCHEME
The Scheme is applicable to duly licensed arms or farms in accordance with the government notification growing brackish water shrimp/fresh water prawns by adopting extensive/modified extensive/semi-intensive system only.
HONEY BEE INSURANCE
The honeybee insurance covers beehives and/or colony belonging to cooperative societies. Bee colonies of Indian honeybee and Italian honeybee only shall be covered under the scheme. It covers accidental loss or damage to be hives and / or colony including terrorism. Paying an additional premium can also cover theft risk. The policy can be availed by co-operative societies, banks (for their members), loaners, units etc. The scheme provides both basic cover and additional cover. The Honeybee Insurance Policy will pay 80% of the claim amount by considering the total cost.
RABBIT INSURANCE
The insurance scheme is available for rabbits, which are aged between 3 months and 3 years. The premium is payable at 7% of the sum insured per annum.
ELEPHANT INSURANCE
Elephants are categorized in to temple elephant and others. Temple elephants include those aged between 5 and 60 years. The premium under this category is charged at 4.50% of the sum insured. The other category includes those aged between 5 and 60 years and above 60 and up to 65 yrs. The premium per annum is 5.00% and an additional premium of 0.5% is charged for each additional year.
SHEEP AND GOAT INSURANCE
The sheep and goat insurance policy coverage and other procedures are almost the same as that of the cattle policy. The sum insured and the indemnity amounts are same as the cattle insurance policy.
PIG INSURANCE
Poor people usually do pig rearing and thus the insurance policy assumes significance. In India, Uttar Pradesh is at the foremost position in the production of pork. The insurance coverage is available for those people who buy pigs under the IRDP schemes.
CAMEL INSURANCE
Insurance of camels assumes significance in places where they are used for different types of draught work. Camels are used for transportation purposes in hot, arid and sandy regions. One fourth of the world’s camel population is in India and thus the policy has significance in the country. The policy excludes all the common risks mentioned in the cattle insurance policy.
AGRICULTURAL PUMP SET INSURANCE
Agricultural pump set insurance policy is applicable to centrifugal pump sets and submersible pump sets. The maximum capacity of the pump set that is covered under the policy is 25 H.P. The policy gives cover only for those sets which are used for agricultural purposes and are made by approved manufacturers.
INDIAN AGRICULTURISTS POINT OF VIEW
1. The premium payable is not refundable. So they feel that it is a waste of money.
2. The government agencies do not educate them properly.
3. They feel that this is for the benefit of the government and the Insurance Companies only.
4. They feel that the premium payable is not affordable.
5. They feel that it is the responsibility of the government to clear off their losses.
6. They believe that the government will and should take up the responsibility every year.
7. They believe that the agricultural losses are impossible to mitigate.
So most of the borrowers of agricultural credit do not have the habit of repayment. It accumulates the overdue and ends in non-performing assets for the District Central Co-operative Banks (DCCBs) in India. In order to save the DCCBs the government agencies should come forward to educate the needs and uses of available agricultural insurance plans and schemes to mitigate their risks. All such facilities must me simplified and the premiums must be made affordable for the poor farmers. This will definitely reduce or share the risk of losses to both government and the poor agriculturists in India. “IT WILL BE AN EFFECTIVE MECHANISM TO CONTROL THE NON-PERFORMING ASSETS OF DCCSs IN INDIA”.
