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Agriculture Insurance

What is Agriculture Insurance
India is an agrarian society with 75% of the population depending on it, for their livelihood. Agriculture or crop insurance has assumed importance with large scale damage caused due to pest attacks, crop diseases and vagaries of weather. The objective is 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. The list of crops being covered for insurance differs from state to state. Generally quite a few Kharif and Rabi season crops are covered. These crops are insured at the community/block/gram panchayat levels. Agriculture insurance schemes are of immense help to farmers, providing them with financial security.

History of Agriculture Insurance in India
Background and earlier attempts at crop Insurance
In a country like India, where crop production has been subjected to vagaries of weather and large-scale damages due to attack of pests and diseases, crop insurance assumes a vital role in the stable growth of the sector.

An All-Risk Comprehensive Crop Insurance Scheme (CCIS) for major crops was introduced in 1985, coinciding with the introduction of the Seventh-Five-year Plan and subsequently replaced by National Agricultural Insurance Scheme (NAIS) w.e.f. 1999-2000. These Schemes have been preceded by years of preparation, studies, Planning, experiments and trials on a pilot basis.

The question of introduction of a crop insurance scheme was taken up for examination soon after the Indian independence in 1947. Following an assurance given in this regard by the Ministry of Food and Agriculture in the Central Legislature to introduce crop and cattle insurance in the country, a special study was commissioned in 1947-48. The first aspect regarding the modalities of crop insurance considered was whether the same should be on an Individual approach or on Homogenous area approach. The former seeks to indemnify the farmer to the full extent of the losses and the premium to be paid by him is determined with reference to his own past yield and loss experience. The ‘individual approach’ basis necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently long period, for fixation of premium on actuarially sound basis. The 'homogenous area' approach envisages that in the absence of reliable data of individual farmers and in view of the moral hazards involved in the ‘individual approach’, a homogenous area comprising villages that are homogenous from the point of view of crop production and whose annual variability of crop production would be similar, would form the basic unit, instead of an individual farmer.

The study reported in favour of a 'homogenous area' approach even as various agro-climatically homogenous areas treated as a single unit and the individual farmers in such cases pay the same rate of premium and receive the same benefits, irrespective of their individual fortunes. The Ministry of Agriculture circulated the scheme, for adoption by the State governments, but the States did not accept.

In 1965, the Government introduced a Crop Insurance Bill and circulated a model scheme of crop insurance on compulsory basis to constituent State governments for their views. The bill provided for the Central Government framing a reinsurance scheme to cover indemnity obligations of the States. However, none of the States was in favour of the scheme because of very high financial obligations. On receiving the reactions of the State governments, the subject was considered in detail by an Expert Committee headed by the then Chairman, Agricultural Price Commission in July, 1970 for full examination of the economic, administrative, financial and actuarial implications of the subject.

First ever-Individual approach scheme:
Different experiments on crop insurance on a limited, ad-hoc and scattered scale started from 1972-73. In 1972-73, the General Insurance Department of Life Insurance Corporation of India introduced a Crop Insurance Scheme on H-4 cotton. Later in 1972, general insurance business was nationalized and, by an Act of Parliament, the General Insurance Corporation of India (GIC) was set up. The new Corporation took over the experimental scheme in respect of H-4 cotton. This Scheme was based on " Individual Approach" and later included Groundnut, Wheat and Potato and implemented in the states of Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka and West Bengal.
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