Pradhan Mantri Fasal Bima Yojana at 10 Years: Crop Insurance, Climate Risk and Agricultural

Resilience CA_CATEGORY: Economy and Agriculture CA_GS: GS Paper III CA_DATE: 31 August 2026 CA_IMAGE: NO Pradhan Mantri Fasal Bima Yojana at 10 Years: Crop Insurance, Climate Risk and Agricultural Resilience Why in News?

• Pradhan Mantri Fasal Bima Yojana has completed a decade as a major pillar of India's agricultural risk-management framework.
• The scheme was introduced in 2016 with the objective of providing affordable crop insurance against specified production losses and stabilising farm incomes after insured risks.
• The Union Budget 2026-27 earmarked ₹12,200 crore for PMFBY, underlining the continuing fiscal importance of crop insurance. PMFBY
• Static Foundation
• Pradhan Mantri Fasal Bima Yojana is a crop-insurance scheme designed to protect farmers against specified crop losses caused by natural and other notified risks.
• It covers notified crops and areas according to scheme rules and implementation arrangements.
• Crop insurance does not prevent a drought, flood or cyclone; it transfers part of the financial consequence of insured loss away from the individual farmer.
• The scheme therefore forms one component of agricultural risk management alongside irrigation, resilient seeds, weather services, diversification and disaster preparedness. Farmer Premium Structure
• Farmers pay a maximum premium of 2% of the sum insured for Kharif food and oilseed crops.
• The maximum farmer premium is 1.5% for Rabi food and oilseed crops.
• For annual commercial and horticultural crops, the maximum farmer premium is 5%.
• The remaining actuarial premium is supported by government according to the applicable cost-sharing framework. Risks Covered
• Coverage can extend from pre-sowing risks such as prevented or failed sowing to standing-crop losses caused by notified perils.
• Broad-based mid-season adversity can be covered when severe conditions affect expected crop performance.
• Localised calamities such as hailstorm, inundation or landslip may be covered for affected land parcels subject to scheme provisions.
• Specified post-harvest losses caused by events such as cyclone or unseasonal rainfall may also receive coverage within the notified conditions and time window. Why Crop Insurance Matters
• Indian agriculture remains exposed to monsoon variability, drought, floods, cyclones, hailstorms, heat stress, pests and other production shocks.
• Small and marginal farmers often have limited savings and may be unable to absorb a severe crop loss without borrowing or reducing consumption.
• Insurance can protect household balance sheets and reduce the probability that a temporary climate shock becomes a long-term poverty trap.
• Reliable insurance can also support formal agricultural credit by reducing part of the production risk faced by borrowers and lenders. Climate Change and Agricultural Risk
• Climate change can alter rainfall patterns, increase extreme-heat exposure and intensify some hydrometeorological hazards.
• Crop losses may become more correlated across large areas, creating a challenge for insurers because many policyholders can suffer simultaneously.
• Historical yield and weather relationships may become less reliable under changing climatic conditions.
• Crop insurance therefore needs continuous updating of risk models, crop calendars, loss-assessment methods and reinsurance arrangements. Area Approach and Basis Risk
• Crop insurance frequently uses an area approach for widespread yield losses, where an insured unit is assessed through representative yield data rather than measuring every individual field separately.
• This reduces administrative cost but creates basis risk: an individual farmer's actual loss may differ from the loss measured for the insured area.
• Smaller and more scientifically designed insurance units can reduce basis risk, but they also increase data and assessment requirements.
• Technology can help by combining crop-cutting experiments, remote sensing, weather data and digital farm information. Crop Cutting Experiments
• Crop Cutting Experiments are field-based exercises used to estimate crop yield in sampled plots.
• Yield estimates are important for determining whether notified area-level losses have crossed the threshold required for insurance claims.
• Poor sampling, delays or inconsistent data can slow claim settlement and weaken farmer confidence.
• Digitisation, geo-tagging and statistical quality control can improve reliability. Role of Technology
• Satellite remote sensing can help monitor crop condition, vegetation stress, flood extent and drought indicators across large areas.
• Drones can provide high-resolution evidence in selected areas, while smartphones and geo-tagged photographs can support local reporting.
• Automatic weather stations and rainfall data can strengthen weather-based verification.
• Technology should supplement sound field verification rather than become an opaque substitute for transparent loss assessment. Insurance and Moral Hazard
• Moral hazard arises when insurance changes behaviour in a way that increases the probability or magnitude of loss.
• Adverse selection arises when people with higher expected risk are more likely to seek insurance than those with lower expected risk.
• Public crop-insurance schemes need careful design because agricultural risks are spatially correlated and information asymmetry can be substantial.
• Clear eligibility, transparent data and appropriate monitoring help reduce these problems. Centre-State Implementation Challenge
• Crop insurance requires coordination among the Union government, state governments, insurers, banks, local administration and farmers.
• Delays in state-level data, premium support or yield estimation can affect claim timelines.
• Variation in implementation capacity across states can create uneven farmer experience.
• A national scheme therefore needs common standards combined with strong state-level operational capacity. Voluntary Participation and Farmer Trust
• Insurance works best when farmers understand the insured crop, sum insured, covered risks, reporting requirements and claim process.
• Low awareness can create unrealistic expectations, particularly when a loss falls outside notified coverage.
• Transparent communication in local languages is essential for informed participation.
• Grievance redressal must be accessible because delayed or disputed claims can damage trust in the entire scheme. PMFBY and Financial Inclusion
• Crop insurance can complement Kisan Credit Card, institutional agricultural credit and direct-benefit infrastructure.
• Digital payment systems can speed claim transfers when beneficiary records and bank accounts are correctly linked.
• However, digitalisation must be accompanied by mechanisms for correcting land, crop and identity records.
• Tenant farmers and sharecroppers can remain difficult to cover where cultivation rights are poorly documented. Beyond Insurance
• Resilient Agriculture
• Insurance compensates financial loss but does not replace investment in climate-resilient agriculture.
• Micro-irrigation, watershed development, drought-tolerant varieties, diversified cropping and soil-health management can reduce the underlying probability of severe loss.
• Weather advisories and early warning help farmers alter sowing, irrigation and harvesting decisions.
• The most effective policy combines risk reduction, risk retention and risk transfer. Fiscal Sustainability
• Public premium support makes insurance affordable but creates a recurring fiscal commitment.
• Government must monitor whether expenditure is producing timely and adequate protection for farmers.
• Competition among insurers, transparent actuarial pricing and reliable data can improve value for public money.
• Long-term sustainability requires reducing avoidable agricultural risk rather than relying only on compensation after losses. Way Forward
• Claim settlement should become faster through time-bound data submission, digital monitoring and accountable service standards.
• Risk assessment should integrate satellite observations, weather stations, field experiments and increasingly granular crop data.
• Coverage of tenant farmers and other actual cultivators should improve through appropriate state-level land and tenancy records.
• PMFBY should be linked with a broader climate-resilience strategy so that insurance and adaptation reinforce each other. Prelims Quick Revision
• PMFBY was introduced in 2016.
• Maximum farmer premium: 2% for Kharif food and oilseed crops; 1.5% for Rabi food and oilseed crops; 5% for annual commercial and horticultural crops.
• Union Budget 2026-27 earmarked ₹12,200 crore for PMFBY.
• The scheme can cover specified pre-sowing, standing-crop, localised and post-harvest risks.
• Crop Cutting Experiments are used for yield estimation.
• Basis risk means the measured insured-area loss may differ from an individual farmer's actual loss. Probable Prelims Question With reference to PMFBY, consider the following statements: the maximum farmer premium is 2% for Kharif food and oilseed crops; 1.5% for Rabi food and oilseed crops; and 5% for annual commercial and horticultural crops. Which of the statements are correct? Probable Mains Question Crop insurance is necessary but insufficient for agricultural resilience in an era of climate change. Evaluate the performance logic of PMFBY and suggest measures to integrate insurance with climate-resilient farming.