No rain, no gain?

IIPM PUBLICATION

Will the real insurer please stand up?
Does anyone care if it rains in the first week of June or the third? Obviously, millions of Indian farmers do. As weather conditions become more unpredictable, the chances of not repaying the loan by a farmer are also becoming more evident. And now, most disappointing statistics from the government reveal that while 65% of Indian agriculture is dependent on natural factors, particularly rainfall, any discrepancy in rainfall accounts for over 50% of variability in crop yields. Then there are the most inane insurance schemes set up under the aegis of National Agricultural Insurance Schemes for farmers’ future.

The present schemes illogically settle claims based on actual area yield. Worse, the settlement process is generally delayed, in some cases up to 6-12 months from the occurrence of the event, till which time the farmer is bankrupt many times over. Besides, only notified crops, not all, are eligible for the above crop insurance schemes. Wonder why it’s no wonder that the number of farmer suicides is increasing!

Fortunately, the government has taken a whisper of a logical step in this year’s budget by announcing a comprehensive insurance scheme, the compensation of which will be based on weather derivatives, rather than on making tedious calculations of crop damage. But aren’t derivatives extremely miniscule currently? M. Parshad, CMD of Agricultural Insurance Company, which has been asked to carry out the scheme on a pilot basis in few states, accepted to B&E, “At the moment, weather derivatives take up only a very small fraction of the rural insurance market, but since weather derivative contracts are easier and much faster to settle, we expect it to change.”

Whatever it is, it’s a great start. But the government should now focus on making such schemes compulsorily linked to all crop loans and to attach maximum number of farmers, and even other firms whose fortunes depend on weather, to it. Really, why can’t the thumb rule for Indian farmers one day change from ‘No Rain, No Gain’ to ‘No Rain, No Pain’

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative