Saturday, January 16, 2016

[Editorial # 42] For the farmer : The Indian Express

[Following editorial has been published in The Indian Express on 16th January 2016. Read through it and try to answer the questions that follow. Please do not copy and paste answers. The objective of this exercise is to get you in the groove of answer -writing. Try to write in your own words. Don't hesitate to write in a bulleted-format, if you are uncomfortable in writing in paragraph form.]

The Narendra Modi government’s new Pradhan Mantri Fasal Bima Yojana (PMFBY) is worth commending for bringing crop insurance centrestage. Farmers, unlike most other economic agents, are exposed to production (weather) as well as price (market) risks. Given the extent of risk involved in growing any crop — ranging from prolonged dry spells and pest attacks to price crash at the time of harvesting — no insurer would normally want to enter this segment. Even if they do, most farmers cannot afford to fork out the huge premiums based on actuarial or statistical risk assessment. There is a case, therefore, for the government to subsidise crop insurance premiums that will ultimately also encourage farmers to invest in productivity improvements and new technologies. Such subsidy is any day preferable to those on fertiliser, electricity or water, which only promote inefficient resource use. The fact that even farmers in a country like the US pay just 35 per cent of the average premium on crop insurance policies — entailing annual federal subsidies of $10 billion — only proves the point.

Under the PMFBY, farmers would pay only 2 per cent premium for all kharif crops, while it would be 1.5 per cent for rabi and 5 per cent for horticultural crops. The gap between the premiums they would pay and actuarial rates will be met by the government without any upward limit on this subsidy. From a farmer’s perspective, this represents significant improvement over the existing Modified National Agricultural Insurance Scheme. Under the latter, the government subsidised a maximum of 75 per cent of the actuarial premium. Moreover, the premium rate on which the sum insured was calculated was itself capped, so as to limit both the farmer’s claim and the government’s outgo. But now, there will be no such indirect capping of the sum insured.


The question that naturally arises is, what would be the fiscal implications of the new scheme? The Modi government is planning to launch it from the coming kharif season, which, going by statistical probability, should be relatively better for agriculture, following two back-to-back monsoon failures. But in a drought year like the current one, the outgo from the PMFBY — assuming it is implemented in the manner proposed — may not be small. That price may still be worth paying for a country where only a fifth of farmers have crop insurance coverage. Subsidised premiums and prompt claims settlement enabled by remote sensing and GPS technology — as opposed to patwaris and crop-cutting experiments — should help substantially expand coverage. An increase in the area insured should also bring down premium rates, through spreading of risks across more farmers. That would also help contain the government’s subsidy burden.

Questions:

1. Explain the following terms: (50 words)

  • Crop Insurance
  • Production Risk
  • Market Risk
  • Kharif 
  • Rabi
  • Horticulture
  • Drought
  • Patwari

2. What are different types of Subsidies provided to farmers? What are the fiscal implications of such subsidies?

3. Why do insurance companies not want to enter the agriculture insurance sector?

4. What are the features of PMFBY?

5. How is PMFBY different from Modified National Agricultural Insurance Scheme?

6. What is remote sensing technology? What are its application in agriculture sector?

7. What is meant by GPS? Which country controls the GPS? How is this technology used in agricultural sector? What are different application areas of GPS?

8. How can agriculture insurance be more effective? What measures do you think should be adopted by the government to do the same?

13 comments:

  1. crop insurance:- It is the guaranteed amount ensured to the farmers on their produce It is needed as the agriculture in india is suseptible to calamities like drought,floods, pests etc.
    Production Risk:- Production risk is the potential of gaining or losing the crop.
    Market Risk:- It is the risk of the reduction of value of good due to external factors in the market.
    Kharif:- domesticated plants cultivated and harvested during the rainy (monsoon) season in the South Asia. The word khariff means autumn in arabic.
    Rabi:- The term is derived from the Arabic word for "spring", which is used in the Indian subcontinent, where it is the spring harvest (also known as the "winter crop").
    Horticulture:- the art/practice of garden cultivation and management is called horticulture.
    Drought:-prolonged period of abnormal rainfall which eventually leads to shortfall of water
    Patwari:- government official who keeps records regarding the ownership of land.

    ReplyDelete
    Replies
    1. Kharif Crops: is the summer crop or monsoon crop in India. Kharif crops armne usually sown with the beginning of the first rains in July, during the South-West monsoons season. Major Kharif crops of India include Millets, Cotton, Soyabean, Sugercane, Paddy, Maize, Groundnut, Red Chillies etc.

      Rabi Crops: The Rabi crop is the spring harvest or winter crop in India. It is sown in October last and harvested in March-April every year. Major Rabi cops in India include Wheat, Barley, Mustard, Sesame, Peas etc.

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  2. 2. What are different types of Subsidies provided to farmers? What are the fiscal implications of such subsidies?
    A. in general there are 4 types of subsidies given to the farmers in india. they are
    input subsidy which includes seeds, fertilizers,power,irrigation
    2. price subsidy to compensate for the market price which is so low
    3. export subsidy to promote exports
    4. infrastructure subsidy also known as output subsidy is generally to promote transfer of produce from farm to the trader or pds stores by FCI.It can also be construction of projects which are not affordable by the farmer alone.
    The objective of providing subsidy is to ensure
    1.decent returns to the farmers
    2.ensure availability of product in the market
    3.ensure the stability of the rates of the produce
    4.to ensure food security to the population.
    It however strains the coffers of the government.
    the farmers will produce that product which is highly subsidized and hence the law of supply and demand gets disturbed.

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  3. 3. Why do insurance companies not want to enter the agriculture insurance sector?
    A.Since there is frequent failure of monsoon and there will be less chances of expected produce. when the production has failed an insurer would claim his returns from the company.Since every farmer starts claiming the insurance the company goes bankrupt.Hence the private generally doesnot enter the agriculture sector.

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  4. 4. What are the features of PMFBY?

    This scheme reduce the premium rates to be paid by the farmers so as to enable more farmers avail insurance cover against crop loss on account of natural calamities.
    farmers will have to pay a uniform premium of
    2% for all kharif crops
    1.5% for all rabi crops
    5% for commercial and horticultural crops.
    the rest will be borne by both state and central governments equally.
    earlier farmers are supposed to pay upto 15% premium which was difficult for the farmers to benefit from the scheme.

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  5. 6. What is remote sensing technology? What are its application in agriculture sector?
    A. The technology which is adopted to gather information remotely or far from without even touching the object is called remote sensing.There are two types:
    1.PASIVE REMOTE SENSING: example is eye. just like our eye gathers information due to reflection of light the devices are desinged to collect information .
    2. ACTIVE REMOTE SENSING:- unlike the earlier this will send a signal to the object and retrieve the same signal to study the properties. Example:- to study the soil health in agriculture. land type, cropping pattern etc.

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  6. 7. What is meant by GPS? Which country controls the GPS? How is this technology used in agricultural sector? What are different application areas of GPS?
    A. GPS works on the principle of "trilateration" used to locate the position of object on the surface of the earth. This Global Positioning Satellites provide their location and time to the receiver. Atleast 3 such satellites are needed to maintain accuracy. The intersection of all the 3 spheres of satellites will give our location. It is used in mobile apps to locate our positions and the directions in which we are. They are also used in defence to identify the movement of troops etc

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  7. 2. What are different types of Subsidies provided to farmers? What are the fiscal implications of such subsidies?
    Basically there are four types of agricultural subsidies in India:
    i. Input subsidies: Subsidies on inputs like seeds, fertilizers, water and electricity helps to reduce cost. They are further of five types; fertilizer subsidy, irrigation subsidy, power subsidy, seed subsidy and credit subsidy.
    ii. Price subsidy: The government buys from the farmers at a price higher than the actual market price.
    iii. Infrastructural subsidy: Given the poor condition of farmers, the government provides transport facilities, storage, etc.
    iv. Export subsidies: They are provided to improve income of the farmer and foreign exchange of the country.
    3. Why do insurance companies not want to enter the agriculture insurance sector?
    Due to a variety of risks involved in agriculture like droughts to pest attacks to sudden crash of market prices, insurance companies do not have any incentive to enter the agriculture sector. Even if they do, most farmers live hand to mouth and will not be able to pay the huge premiums given the probability of risk.

    4. What are the features of PMFBY?
    i) Pradhan Mantri Fasal Bima Yojana has brought crop insurance onto the centre stage.
    ii) PMFBY subsidizes crop insurance premiums to encourage farmers to invest in more efficient technologies.
    iii) The farmers will pay only 2, 1.5 and 5 per cent per annum for kharif, rabi and horticulture crops.
    iv) The government will pay the gap between premiums and actuarial rates will be paid by the government without any ceiling.
    v) The scheme will cover 30% farmers in the first year and 40% in the second year and so on.
    vi) Losses in individual farms will also be covered.


    5. How is PMFBY different from Modified National Agricultural Insurance Scheme?
    1. PMFBY will cover losses on individual farms which were not covered by MNAIS unless the loss was 50%.
    2. This Scheme aims to cover 50% farmers in the next three years, while MNAIS could cover only 23% farmers.
    3. There will be no upward ceiling on the subsidy while MNAIS subsidized a maximum of 75% of actuarial premium
    4. There will be no indirect capping of the insured sum while under MNAIS the premium rate on which insurance was calculated was capped.
    5. Farmers will get the claim against the full sum insured unlike in MNAIS where they had to pay 15% premium if they took bank loans.
    6. The use of smartphones is being encouraged to upload and capture the data of crop cutting to reduce delays of payment to farmers.
    7. The definition of crops is also being expanded to include damage to both seeds and harvested crops instead of only standing crops.
    8. Localised risks from landslides etc will be covered including loss of cattle.

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  8. 6. What is remote sensing technology? What is its application in agriculture sector?
    Remote Sensing is defined as the acquisition of information about an object or a phenomenon without actual physical presence through technology.
    It helps in agriculture in a number of ways:
    i) By identifying wastelands, more land can be brought under cultivation
    ii) It helps to identify the irrigation potential of the land and protect diversity in the region.
    iii) In India, it helps to determine areas with low yield productivity.
    iv) Agro-ecological zoning helps to classify the different agro-climatic regions of the country and which crop would be more suitable for that region.

    7. What is meant by GPS? Which country controls the GPS? How is this technology used in agricultural sector? What are different application areas of GPS?
    The Global Positioning System is a space based navigation system that provides information about the whereabouts of a person at particular time anywhere on or near the Earth when it is in an unobstructed line of sight of one of four or more GPS satellites.
    The United States government created the GPS and controls it.
    It aids agriculture by mapping field boundaries, roads, irrigation systems and identifying problem areas like weeds or disease. The accuracy of the GPS allows the farmer to create accurate farms maps with adjoining landmarks, roads, etc. Pest problems are mapped for easier management in the future. Crop dusters flying above fields are able to identify with the aid of GPS the amount of chemicals needed in specific areas.
    GPS is used for determining the location, navigating from one place to another, tracking movement of objects, creating maps of places and in precise timing.

    8. How can agriculture insurance be more effective? What measures do you think should be adopted by the government to do the same?
    The aim of subsidies in agriculture insurance is to remove some fiscal burden from the shoulders of the impoverished farmer. One believes that the Government policy should be aimed towards empowering the Indian farmer so that he no longer requires government aid. This will be achieved when every farmer has ample resources to pay for his own insurance which also needs more insurance companies stepping into agriculture.
    Agriculture insurance will be more effective if:
    1. More and more insurance companies invest in agriculture which will happen if the perceived risk of failure is less.
    2. More farmer friendly measures to be adopted like optimum electricity, irrigation, transportation, fertilizer to produce maximum output.
    3. India should also focus on being an export driven market where even small farmers should be capable of selling their goods abroad.

    ReplyDelete
  9. • Crop Insurance: It is purchased by farmers, agricultural producers and all those concerned with farm produce to protect themselves against natural disasters or market fluctuations.
    • Production Risk: Any occurrence related to production that is uncertain
    • Market Risk: It is the risk that value of an investment will decrease due to various market forces (forseeable or unforeseeable) like sudden decline in demand.
    • Kharif: Also known as monsoon crops that are sown and harvested during the monsoon season in South Asia (from April to October). Main crps are millet and rice.
    • Rabi: Crops that are sown in winter and harvested in spring in South Asia.
    • Horticulture: It is the branch of agriculture that deals with the art, science, business and technology of plant/vegetable growing.
    • Drought: It is a long period of abnormally low rainfall that affects crops and other living conditions.
    • Patwari: He is a government official who keeps records regarding the ownership of land

    ReplyDelete
    Replies
    1. Horticulture: Horticulture is the science and art of growing and using fruits, vegetables, flowers, ornamental plants and grasses to enhance our living environment and to diversify human diets.

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  10. 4. Highlights of Scheme:
    * Under the new scheme, farmers will have to pay a uniform premium of 2% for all kharif crops and 1.5% for all rabi crops. For annual commercial and horticultural crops, farmers will have to pay a premium of 5 %.
    * Under PMFBY, there will no upper limit on government subsidy and even if balance premium is 90%, it will be borne by the government.
    * the use of technology will be encouraged to a great extent. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers.
    * Remote sensing will be used to reduce the number of crop cutting experiments.
    * This scheme will act like a “safety shield” for the farmers and will protect them against the vagaries of nature.

    ReplyDelete
  11. 7. The Global Positioning System (GPS) is a space-based navigation system that provides location and time information in all weather conditions, anywhere on or near the Earth.
    The system provides critical capabilities to military, civil, and commercial users around the world.

    The United States government created the system in 1978, 37 years ago, maintains it, and makes it freely accessible to anyone with a GPS receiver.

    GPS-based applications in precision farming are being used for farm planning, field mapping, soil sampling, tractor guidance, crop scouting, variable rate applications, and yield mapping. GPS allows farmers to work during low visibility field conditions such as rain, dust, fog, and darkness.

    Application of GPS:
    While originally a military project, GPS is considered a dual-use technology, meaning it has significant military and civilian applications.
    It has become useful tool for commerce, scientific uses, tracking, and surveillance. GPS's accurate time facilitates everyday activities such as banking, mobile phone operations etc.

    ReplyDelete