Ramphal Kataria
When Crop Insurance Insures Profits, Not Farmers
“Agriculture is the backbone of the Indian economy, but the agriculturalist remains its most neglected limb.”
As the Pradhan Mantri Fasal Bima Yojana completes ten years, it stands at a decisive crossroads. Rolled out in 2016 as a flagship intervention to shield farmers from the growing volatility of climate and markets, PMFBY was projected as a paradigm shift in agrarian risk management. A decade later, however, the scheme demands evaluation not by intent or technological sophistication, but by outcomes. On this measure, the evidence is deeply unsettling.
Across states and seasons, PMFBY has increasingly exhibited a structural bias: insurance companies consistently earn extraordinary profits while farmers receive delayed, diluted, or denied compensation—even in officially declared disaster years. Haryana and Rajasthan, both BJP-ruled states, merely expose this national design flaw in its most extreme form.
As M. S. Swaminathan once warned,
“If agriculture goes wrong, nothing else will have a chance to go right.”
PMFBY’s current trajectory gives that warning renewed urgency.
The Arithmetic of Distortion
Between 2023 and 2025, insurance companies operating under PMFBY in Haryana collected ₹2,827 crore in gross premiums and paid out only ₹731 crore in claims, retaining over ₹2,000 crore as surplus. Nationally, insurers collected ₹82,015 crore during the same period, disbursed ₹34,799 crore, and accumulated profits exceeding ₹47,000 crore. Such margins are incompatible with the basic premise of social insurance.
These are not transitional imbalances explainable by isolated seasons of low loss. They represent a persistent pattern. When claim ratios remain below 40% over multiple years—and fall to nearly 25% in Haryana—the scheme ceases to function as a risk-sharing mechanism. Instead, it begins to resemble a publicly subsidised revenue model.
Insurance, in its classical economic sense, exists to redistribute uncertainty. As Karl Polanyi warned in The Great Transformation:
“To allow the market to dictate the fate of society is to dismantle social protection itself.”
PMFBY illustrates this warning with alarming clarity.
Area Averages and the Erasure of Loss
At the heart of PMFBY’s distortion lies its reliance on area-based yield assessment. Crop loss is experienced at the level of individual fields, yet compensation is calculated using block- or district-level averages. This statistical smoothing systematically erases localised devastation caused by floods, waterlogging, pest attacks, or erratic rainfall—the very risks the scheme claims to insure against.
For farmers whose entire crop is destroyed while neighbouring plots survive marginally, “average yield” becomes an accounting fiction. Loss is not compensated; it is averaged out of existence. This design feature disproportionately harms irrigated, high-input states like Haryana, where yield variability is spatially uneven but investment costs are uniformly high.
Technology has not corrected this imbalance. Satellite imagery, drones and digital portals may enhance monitoring, but they do not alter the fundamental logic of averaging. As long as individual loss is subordinated to aggregated yield, under-compensation is not an implementation failure—it is an outcome by design.
As Amartya Sen famously argued,
“Starvation is not caused by a lack of food, but by a lack of entitlement.”
PMFBY reproduces this logic in insurance form: loss exists, but entitlement does not.
Haryana: Insurance Without Indemnity
Haryana represents a near-perfect test case. It combines high insurance penetration, high sums insured, repeated flood and water-logging events, and substantial public premium subsidy. If PMFBY were functioning as advertised—indemnifying losses up to 90%—flood years such as 2023–2025 would have triggered massive payouts.
They did not.
Despite widespread crop damage officially acknowledged by the state, insurer payouts remained strikingly low, generating profit margins exceeding 90% in certain seasons. This is not under-coverage; it is systematic under-indemnification. The promise of protection collapses precisely when protection is most needed.
This is not under-coverage; it is systematic under-indemnification.
As journalist P. Sainath has repeatedly stressed,
“India’s agrarian crisis is not a natural disaster. It is man-made.”
Haryana’s experience confirms that climate shocks alone do not impoverish farmers—institutions do.
The Myth of “Low Premiums”
PMFBY premiums are often defended as nominal because they are expressed as percentages. This defence is arithmetically correct and socially misleading. In high-input agriculture, even a 2% premium translates into several thousand rupees per hectare—an upfront cash outflow for farmers whose incomes are uncertain and seasonal.
For small and marginal farmers, this premium is rarely surplus income; it is frequently financed through borrowing. The asymmetry is stark: premiums are compulsory, immediate and certain; claims are conditional, delayed and opaque. As agricultural economist Utsa Patnaik observed:
“In conditions of distress, even small deductions become instruments of exclusion.”
When compensation arrives months after the loss—after distress borrowing, delayed sowing or reduced acreage—it no longer functions as insurance. It becomes partial reimbursement after damage has already been absorbed.
Insurance as Governance Retreat
PMFBY has also enabled a quiet withdrawal of the State from its historical responsibility of disaster relief. Governments increasingly cite insurance coverage to justify reduced reliance on direct compensation, while insurers cite actuarial thresholds to limit payouts. Farmers are left navigating portals, objections and grievance mechanisms—bearing climate risk, institutional risk and market risk simultaneously.
This retreat is fiscally convenient but socially corrosive. Since the overwhelming share of PMFBY premiums is funded by the Centre and states, low claim ratios signify not efficiency but misallocation of public resources. Taxpayer money underwrites private surplus without commensurate social return.
As M. S. Swaminathan warned:
“Agriculture cannot be left to the market alone when nature itself is unstable.”
A Global Contrast
Globally, publicly subsidised crop insurance regimes treat insurer profit as a ceiling, not an entitlement. In the United States, excess underwriting gains are clawed back through reinsurance agreements. In Canada and much of Europe, crop insurance operates as a public or quasi-public utility, with profits capped and catastrophic losses absorbed by the state. The guiding principle is consistent: when premiums are funded by public money, farmer protection takes precedence over corporate margins.
PMFBY departs sharply from this logic. It permits open-ended profit accumulation even in years of widespread crop failure—an inversion of global best practice.
Conclusion: Insurance Must Insure
A decade after its launch, PMFBY faces a choice. It can either be structurally reoriented as genuine social insurance or continue as a fiscal convenience that socialises losses and privatises gains. Without mandatory minimum claim ratios, transparent and independently audited loss assessments, time-bound settlements and meaningful farmer participation, trust will continue to erode.
As Jawaharlal Nehru reminded the nation,
“Everything else can wait, but not agriculture.”
Globally, publicly subsidised crop insurance treats profit as secondary to protection. In India, PMFBY has reversed this order—guaranteeing insurer gain while farmers absorb the uncertainty it was meant to insure against.
Until this inversion is corrected, crop insurance in India will remain what farmers already know it to be: a system where the farmer bears the risk, the government bears the cost, and the insurer takes the profit.
Footnotes
1. Ministry of Agriculture & Farmers Welfare, Government of India. Pradhan Mantri Fasal Bima Yojana (PMFBY): Operational Guidelines (Revised, 2020).
2. National Crop Insurance Portal (NCIP), Government of India. Dashboard data on premium collection, claims paid and claim ratios, accessed for agricultural seasons 2023–2025.
3. Comptroller and Auditor General of India (CAG). Performance Audit on Implementation of PMFBY, various state audit reports, including observations on delayed settlements, yield estimation issues and insurer profits.
4. Parliamentary Standing Committee on Agriculture, Government of India. Demand for Grants (Agriculture) reports, multiple sessions, observations on PMFBY coverage, claim ratios and farmer grievances.
5. State Disaster Response Fund (SDRF) Norms, Ministry of Home Affairs, Government of India, for compensation rates relating to crop damage due to floods and other natural calamities.
6. Polanyi, Karl (1944). The Great Transformation: The Political and Economic Origins of Our Time. Beacon Press.
7. Sen, Amartya (1981). Poverty and Famines: An Essay on Entitlement and Deprivation. Oxford University Press.
8. Swaminathan, M. S. (various speeches and writings). Observations on agricultural risk, climate vulnerability and state responsibility in Indian agriculture.
9. Patnaik, Utsa (2007). The Republic of Hunger and Other Essays. Three Essays Collective.
10. Sainath, P. (2016). Everybody Loves a Good Drought. Penguin India; and later columns on agrarian distress and policy failure.
11. US Department of Agriculture (USDA). Federal Crop Insurance Program: Standard Reinsurance Agreement (SRA)—provisions relating to profit sharing and risk pooling.
12. Organisation for Economic Co-operation and Development (OECD). Agricultural Risk Management and Insurance Models, comparative studies on crop insurance systems in the US, Canada and EU.
