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Govt plans income insurance scheme for farmers

Livemint:  September, 2014

New Delhi: The government may launch a new insurance scheme for farmers to protect their incomes against production and price risks, agriculture minister Radha Mohan Singh said on Thursday.

Production and price risks adversely affect the farmer's capacity to invest in advanced crop varieties and impede capital formation in the farm sector, the minister said, adding India's monsoon-dependent farming contributes significantly to these risks.

The new insurance scheme will ensure protection of livelihood and encourage farmers towards crop diversification, the minister said. He noted that the country has been implementing crop insurance schemes since 1985 to protect farmers from the adverse effects of natural calamities, adding the revised scheme may be more conducive to farmers' needs.

"The present government has invited suggestions from all states to protect the income of farmers by way of giving a concept paper for insurance scheme so that difficulties experienced in the past could be overcome," said Singh. The agriculture ministry discussed this with all state governments on 14 August.

The announcement comes at a time when several states are dealing with deficit rainfall. Although overall monsoon deficit has narrowed down to 15% of the long-period average as on 4 September, states in north-western India are experiencing a rainfall deficit of more than 60%. On 2 September, Haryana became the first state to declare a drought and sought Rs.4,830 crore in assistance from the centre.

In November, the central government initiated the National Crop Insurance Programme by merging all farm-related insurance schemes that covered production-related risks but not price volatility. The new insurance scheme will cover both risks with a single policy instrument, Singh said.

"During 2003-2004 rabi season, some states and districts had started a scheme under which farmers were entitled to get compensation in the event of their getting lesser income from their production than guaranteed income. However, this scheme was applicable in case of rice and wheat only and it could not be implemented further," he added.

In the budget on 10 July, finance minister Arun Jaitley had announced a Rs.500 crore price stabilization fund to mitigate uncertainties faced by farmers due to price volatility. Presently, the minimum support price (MSP) scheme whereby farmers receive a guaranteed price for foodgrains procured by the central government, is the other scheme that addresses price risk for farmers.

"Insurance schemes are a better way to address farm distress than pure welfare doles. As prices are easier to monitor than actual production the new insurance scheme can cover for both risks," said Ramesh Chand, director of New Delhi-based National Centre for Agriculture Economics and Policy Research.