In this article we will discuss about:- 1. Need of Crop Insurance 2. Advantages of Crop Insurance 3. Nature 4. Scenario in India 5. Conclusion.

Need of Crop Insurance:

Every year, in one part of India or the other food crops are affected by natural calamities, “Crop yield instability is the normal condition and agriculture continues still to be which the farmer’s fortunes are exposed, is practically the same as before. In fact, good years and bad years, wet weather and drought or floods and frost, low yields and bumper crops are to be expected in mixed succession. The total loss due to natural calamities (like flood, drought and plant diseases) is estimated as high as Rs. 1,000 crores every year. The man behind the plough has to be assured that he will be compensated for such loss in crops. Otherwise, he cannot be drawn into the campaign to increase productivity of land under his plough,”

The need for protecting the farmer from natural hazards arises for the following reasons:

(1) In our country Nature has always been moody. “She is unpredictably generous to one state and disconcertingly bad-tempered to another. This fickleness of weather conditions in different parts of the country upsets the whole agricultural economy, and makes one part bountiful, while the other starves.”


(2) Besides droughts and floods, locusts, plant diseases have always been a serious enemy to our agriculture by destroying standing crops and thereby reducing farmers’ income.

(3) Majority of the holdings are tiny, form which the farmers get marginal surplus in good years and incur heavy deficits in the bad ones.

(4) Farming is more hazardous than any other enterprise. The weather can make all the difference between success and failure. Consequently, many farmers, particularly the small ones, feel shy of adopting new techniques.

The fear of loss is so overwhelming that even when convinced of the gain accruing from the application of science and technology, they prefer to go along the traditional track of low productivity. Once freed from fear by crop insurance they can quicken the pace to high productivity.


The Fourth Plan observed, “Severe distress is caused to the farmers by crop failure resulting from drought, floods and other natural calamities. This risk is likely to get accentuated under conditions of large investments in fertilizers, pesticides, improved seeds and other inputs which are proposed to be used on a large scale during the Fourth Plan. One of the important means of alleviating distress arising out from natural calamities could be the organisation of crop insurance.”

Advantages of Crop Insurance:

The advantages of crop insurance are recognised on all hands:

(i) It provides protection to farmers against losses caused by crop failure and thereby ensures stability in farm income,

(ii) It also strengthens the position of co-operatives and other institutions that finance, agriculture to the extent it enables the farmer members to repay their loans in years of crop failure,


(iii) By protecting the economic interest of the farmers against possible risk or loss, it accelerates adoption of new agricultural practices,

(iv) It minimizes the problem of rural indebtedness, which is traceable to the frequent failure of crops,

(v) It also reduces, to some extent, government expenditure incurred on relief measures extended to meet the havoc caused by natural calamities,

(vi) It may act as anti-inflationary measure, by locking up part of the resources in rural areas.

Speaking of the many advantages flowing from the crop insurance, an official of the U.S. Federal Crop Insurance Corporation said that it is “fundamentally for the purpose of creating catastrophic insurance and is intended to insure a minimum return to the farmer which enables him to stay in business in case of severe loss. The justification for the Government insurance is not alone the need of protection, of the individual farmer and his continued income and buying power. This affects vitally like labour, industry, trade, banking and the entire community of which the farmer is a part.”

In the words of Shri S. K. Patil, “Crop insurance is the Mangna Charta of the Indian agriculturists. It will mitigate rural poverty and will change the psychology of the Indian farmer in a radical manner.”

Nature of Crop Insurance:

Crop insurance makes up the loss or damage to growing crops resulting from a variety of causes such as hail or drought frost, flood and disease. The cultivators pay a premium and protection is given to them on the same basis as in other insurance. When the production from an insured acreage falls below the insured coverage, the tiller is entitled to an indemnity.

Coverage and premium rates are settled on the basis of productivity and susceptibility to risk of the lands under cultivation in the same, area. Besides an all-risk crop insurance, there are three other main types of insurance to cover the risk from fire, hail and flood.

Scenario of Crop Insurance in India:

The idea of crop insurance in India was mooted about 3 decades ago, when a Sub-Committee on “Land Policy, Agricultural Labour and Insurance,” inter alia, had recommended a national scheme of cattle and’ crop insurance with agriculturist, the village or the district and the nation collectively contributing to its successful operation.


The first concrete step towards introduction of the insurance scheme was taken by the Govt. in 1948, when a special officer Dr. G.S. Priolker was appointed to investigate a systematic and scientific a basis for formulating an experimental pilot scheme.

Dr. Priolker in his Report, 1949, recommended a pilot scheme covering 4 crops, (rice, wheat, cotton and sugarcane). Tamil Nadu (rice and cotton), Maharashtra and Gujarat (cotton), M. P. (cotton, wheat and rice) and U.P. (wheat, rice and sugarcane) were suggested for experimentation.

The financial responsibility of the State Governments was to the extent of paying:

(a) Entire expenses of administration,


(b) Direct subsidy, and

(c) Operating deficits.

The scheme was examined by an expert committee, which suggested the introduction of the scheme at 12 centres. In 1952 the four States of Maharashtra and Gujarat, Uttar Pradesh, Tamil Nadu and M. P. were asked whether they would be able to implement the scheme by sharing 50% cost on State level organisation.

While M.P. was willing to try the scheme if the entire cost were borne by the Centre, the other States were not willing to undertake it. The scheme was later examined by the FAO Working Committee meeting at Bangkok in 1956. Experts in insurance and agriculture also considered it suitable for implementation. On account of financial stringencies, however, the Government of India decided to defer the introduction of the scheme.


Punjab Experience:

In 1961 Punjab Government decided to implement a modified version of the pilot scheme in certain selected areas of Punjab. According to the scheme, two of the four principal crops, viz., wheat, gram, cotton and sugarcane, are to be insured.

It is compulsory, that is to say, all the cultivators who grow any two of the insured crops will have to participate in the scheme. All natural hazards are covered under the scheme. For the purpose of indemnities and premium rates a block is divided into a number of areas homogeneous regarding soil, cultivation practices and production risks. Indemnities and premium rates are to be fixed separately for each crop and each homogeneous area.

Crop failures are to’ be assessed objectively and if the indemnities become payable in respect of an insured crop, every cultivator growing that crop in the area will get indemnities whether or not he suffered loss of yield in respect of that crop. Indemnities are payable when the seasonal yield calls below 75% of the normal yield. The maximum indemnity payable in case of total loss of crop will be 50% of the normal yield.


The premium rates for a crop in a given area will be such that the premia collected over a number of years balance the indemnities payable over that period. Seasonal yields for the determination of indemnities will be fixed by an objective method of crop-cutting experiments by the field staff provided under the scheme. The administrative cost of the scheme will be shouldered by the Govt. The scheme is to be administered by a Crop Insurance Board which will include agricultural exports and insurance experts as members.

The Punjab scheme has several limitations. The key principle of insurance requires that indemnity will correspond with the loss but the Punjab farmer, under this pilot scheme is assured of indemnity irrespective of his having suffered an actual loss or not Premium rates have been fixed in, such a way that, collected over a number of years, the amount will balance the indemnities payable over the period.

If his presupposes that the farmer will have to shoulder the losses due to natural calamities, This might make the farmers feel that they are bearing a new tax burden, a feeling that should be avoided. The administrative cost which is to be shared by the Central and the State Govts, on a 50: 50 basis will be about Rs. 7 lakhs per year, which comes to about 17.5% of the premia collected.

The cost seems to be on the very high side. Nevertheless in the Third Plan, a sum of Rs. 40 lakhs was allotted for the purpose. The programme could be put into operation because of the constitutional hitch insurance being a central ‘subject, a State Govt. cannot run even a pilot scheme without an enabling legislation by the Parliament. Therefore, in July, 1967, a Bill known as a Crop Insurance Bill was drafted and the pilot scheme for the introduction of compulsory crop scheme was forwarded to the State Governments for support.

Punjab has collected requisite data in selected area. The scheme covers wheat, gram, cotton and sugarcane, and will be extended to cover other crops and other areas in the State. During the Fourth Plan, crop insurance scheme was extended to other States. Legislation was envisaged for the introduction of crop insurance on a compulsory basis by the States. To finance the scheme, a Crop Insurance Fund of about Rs. 100 crores has been contemplated.

The main difficulty in introducing crop insurance scheme is the non- availability of essential data like loss rates in different year, heavy financial resources, bad luck of experienced and trained personnel. But these difficulties are not insurmoun table.


There are certain areas in some States where pilot schemes can be introduced. For example, we may perhaps suggest 2 or 3 districts in Punjab, Tamil Nadu, Maharashtra and Gujarat for selected crops. More particularly, crop insurance can be experimented within those areas where the crop loan system has been introduced and met with a success.

Conclusion to Crop Insurance Scheme:

To conclude, it may be said that one of the basic objectives of our economic planning is to step up farm production. This can be achieved by adopting crop insurance schemes. Crop insurance schemes will assure the farmers that they will be compensated for losses against natural calamities.

These schemes will not only spread the losses geographically but also spread them over the time. The raison d’être of crop insurance is the stability it imparts to the agricultural produce. Therefore the earlier the scheme is put into operation, the better it will be for the farmers and for the nation.