Crop Insurance (PMFBY)
Pradhan Mantri Fasal Bima Yojana (PMFBY) is India's flagship crop insurance scheme launched in February 2016 that provides financial protection to farmers against crop loss from natural calamities, pests, and diseases, with farmers paying capped premiums of 2% for Kharif crops, 1.5% for Rabi crops, and 5% for commercial/horticulture crops, with the government subsidising the balance.
PMFBY replaced the earlier National Agricultural Insurance Scheme (NAIS) and Modified NAIS, which had struggled with inadequate claim settlements, low coverage, and premium subvention inefficiencies. The new scheme was designed with a simplified structure: farmer premium contributions were capped at defined percentages, with the difference between the actuarial premium (calculated by the insurer) and the farmer's contribution funded equally by the central and state governments. This shared-subsidy model aimed to make comprehensive crop protection financially accessible to smallholders.
Eligibility under PMFBY initially covered loanee farmers automatically (those with crop loans from banks were enrolled mandatorily as the premium was deducted from loan disbursements) and voluntarily extended to non-loanee farmers who wished to opt in. In 2020, mandatory enrollment was changed to voluntary for all farmers, giving individual farmers the choice of whether to participate. This change reduced the enrollment base substantially but was intended to address complaints from loanee farmers about being enrolled without adequate awareness.
The sum insured under PMFBY is based on the Scale of Finance (SOF) — the estimated cost of cultivation per hectare as determined by district-level committees — for loanee farmers, and up to the value of produce for voluntary enrollees. This ensures that the insurance coverage reflects actual agricultural investment rather than arbitrary values. Premium rates vary by crop, state, and season; the insurer's actuarial rate can be significantly higher than the farmer's contribution in high-risk districts, with the government bearing the remainder.
Claim settlement is triggered by Area Yield Index (AYI) — if the average yield of the notified crop in a notified unit (such as a taluk or district) falls below the Threshold Yield (the average of the best five years' yield from the past seven), farmers in that unit receive claims proportional to the shortfall. This area-based approach avoids the administrative complexity of individual farm inspections but has been criticised for not reaching farmers whose individual losses exceed the area-average shortfall. A localised calamity provision for flood, landslide, or hailstorm addresses farm-level losses in specific cases.
Significant challenges have plagued PMFBY implementation: delayed payment of state government premium subsidy tranches to insurance companies leading to stalled claim settlements; disputes between states and insurers over actuarial premium calculations; technology adoption gaps in crop-cutting experiment (CCE) data collection; and low farmer awareness in several states. Several states — including Andhra Pradesh, Telangana, Bihar, West Bengal, and Gujarat — opted out of PMFBY at various points, citing fiscal concerns over subsidy costs, and launched state-specific alternatives. Despite these challenges, PMFBY remains the world's largest crop insurance scheme by premium and continues to be a key pillar of India's agricultural risk management architecture.