Introduction

Indian agriculture is inherently risky — subject to monsoon variability, pest attacks, market price swings, and natural disasters. Agricultural insurance is the primary risk mitigation instrument, transferring production risk from individual farmers to insurance pools. India's flagship schemes — PM Fasal Bima Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) — operate under the Ministry of Agriculture and Farmers Welfare, with implementation through empanelled insurance companies.

Pradhan Mantri Fasal Bima Yojana (PMFBY)

Overview

PMFBY was launched in February 2016, replacing two earlier schemes — the National Agricultural Insurance Scheme (NAIS) and the Modified NAIS. It operates on an actuarial premium model, where premiums are risk-based rather than fixed administratively.

Premium Structure

Crop Category Farmer's Maximum Premium (% of Sum Insured)
Kharif crops 2%
Rabi food and oilseed crops 1.5%
Commercial / horticultural crops 5%

The difference between the farmer's contribution and the full actuarial/bidded premium is borne as subsidy by the Central and State Governments in a 50:50 ratio (general states). For North-Eastern States, the ratio is 90:10 (Centre:State) from Kharif 2020, recognising the fiscal constraints of these states.

State/UT governments may provide additional subsidy beyond this split from their own budgets, which is entirely borne by the state.

Coverage Statistics (Cumulative since 2016 through 2024-25)

Indicator Data
Total farmer applications insured 78.41 crore
Total claims paid Rs 1.83 lakh crore
Farmer applications receiving claims 22.67 crore
Non-loanee farmer applications (2024-25) 522 lakh (vs 20 lakh in 2014-15)
Global status Largest crop insurance scheme in the world by farmer applications

The scheme's total approved budget for continuation through 2025-26 is Rs 69,515.71 crore (Union Cabinet approval, January 2025).

2020 Reform: Optional for Loanee Farmers

A critical reform made PMFBY voluntary for all farmers from Kharif 2020, including loanee farmers who previously were mandatorily enrolled as a condition of availing crop loans/KCC credit. This was intended to:

  • Reduce moral hazard and compulsory enrolment of disinterested farmers
  • Improve scheme quality by enrolling only genuinely interested farmers
  • Allow states to opt in or out of the scheme

Restructured Weather Based Crop Insurance Scheme (RWBCIS)

RWBCIS provides protection against weather parameter deviations (rainfall, temperature, humidity, wind speed) rather than actual crop yield losses. Unlike PMFBY:

Feature PMFBY RWBCIS
Trigger Actual crop yield loss (area approach) Weather parameter deviation from threshold
Assessment basis Crop Cutting Experiments (CCE) Automatic Weather Station (AWS) data
Claim settlement speed Slower — needs CCE data Faster — weather data-driven
Basis risk Lower — actual yield loss captured Higher — weather proxy may not match farm loss
Premium structure Actuarial, govt-subsidised Actuarial, govt-subsidised (same farmer contribution caps)

Both schemes run simultaneously, with States choosing which crops to notify under which scheme.

Technology in Crop Loss Assessment

One of the most significant recent reforms is the integration of technology to reduce dependence on slow, costly, and manipulation-prone Crop Cutting Experiments (CCEs):

Technology Application
Drones (UAVs) Remote sensing of crop health, localised damage assessment, area estimation
Satellite imagery Vegetation index (NDVI) monitoring for large-scale crop stress mapping
Smart phones + geotagging Field-level reporting by insurance company representatives; farmer-captured crop loss evidence
Yield Estimation System using Technology (YES-TECH) PMFBY's framework integrating satellite, drone, and weather data to estimate yields
Automatic Weather Stations (AWS) Real-time weather data for RWBCIS trigger computation

The government's YES-TECH initiative aims to replace or substantially supplement CCEs with technology-based yield estimation, cutting claim settlement time and reducing disputes.

Limitations and Criticisms of PMFBY

Despite scale, PMFBY faces structural challenges:

  • High state premium burden: Several states (West Bengal, Andhra Pradesh, Bihar) have withdrawn from PMFBY citing unsustainable premium subsidy outgo — fragmenting national coverage
  • Delayed claim settlements: CCE-based yield estimation is slow; farmers sometimes wait 18–24 months for claims
  • Insurer profitability concerns: In low-loss years, large insurer profits from premium subsidy; in bad years, states struggle to pay subsidy — creating a cycle of dispute and under-payment
  • Basis risk in RWBCIS: Weather station data may not capture localised farm-level losses; farmers in areas distant from AWS get inaccurate triggers
  • Low voluntary enrollment post-2020: After making enrolment optional for loanee farmers, enrollment declined significantly in some states, reducing risk pooling effectiveness
  • Coverage concentration: Large states like Maharashtra, MP, Rajasthan, and UP dominate enrollment; smaller and NE states remain under-covered

Related Schemes and Instruments

Scheme Description
Agri Infrastructure Fund (AIF) Post-harvest risk reduction — reduces loss from price volatility after harvest
eNAM National agricultural market to improve price discovery and reduce distress sales
Kisan Credit Card (KCC) Working capital credit that now includes crop insurance integration
National Rainfed Area Authority (NRAA) Addresses structural rainfall risk through watershed and dryland farming programs

Exam Strategy

For Prelims: Know PMFBY launch year (2016), farmer premium caps (2%/1.5%/5%), Centre-State subsidy ratio (50:50; 90:10 for NE states), 2020 reform (optional for loanee farmers), and key statistics (78.41 crore applications, Rs 1.83 lakh crore claims paid).

For Mains (GS3): Common question formats — evaluate PMFBY's effectiveness in providing income security to farmers; compare PMFBY and RWBCIS; suggest reforms for improving crop insurance penetration. Key arguments: PMFBY is the world's largest crop insurance scheme by enrollment but suffers from state withdrawal, delayed claims, and insurer moral hazard concerns; technology integration (drones, satellite, YES-TECH) is transforming assessment but implementation is uneven; making coverage optional post-2020 improved quality of enrollment but reduced scale. Cross-link with Ujiyari.com for current affairs on crop insurance reforms and kharif season developments.