Pradhan Mantri Fasal Bima Yojana at 10 Years: Crop Insurance | CurrentPulse AI
Pradhan Mantri Fasal Bima Yojana at 10 Years: Crop Insurance, Climate Risk and Agricultural
📅 Published 31 August 2026•Updated 12 September 2026•⏱ 14 min read•EconomyGS-3
Resilience
Pradhan Mantri Fasal Bima Yojana at 10 Years: Crop
Insurance, Climate Risk and Agricultural Resilience
Why in News?
Pradhan Mantri Fasal Bima Yojana has completed a decade as a major pillar of India's agricultural
risk-management framework.
The scheme was introduced in 2016 with the objective of providing affordable crop insurance against
specified production losses and stabilising farm incomes after insured risks.
The Union Budget 2026-27 earmarked ₹12,200 crore for PMFBY, underlining the continuing
fiscal importance of crop insurance.
PMFBY — Static Foundation
Pradhan Mantri Fasal Bima Yojana is a crop-insurance scheme designed to protect farmers against
specified crop losses caused by natural and other notified risks.
It covers notified crops and areas according to scheme rules and implementation arrangements.
Crop insurance does not prevent a drought, flood or cyclone; it transfers part of the financial consequence
of insured loss away from the individual farmer.
The scheme therefore forms one component of agricultural risk management alongside irrigation, resilient
seeds, weather services, diversification and disaster preparedness.
Farmer Premium Structure
Farmers pay a maximum premium of 2% of the sum insured for Kharif food and oilseed crops.
The maximum farmer premium is 1.5% for Rabi food and oilseed crops.
For annual commercial and horticultural crops, the maximum farmer premium is 5%.
The remaining actuarial premium is supported by government according to the applicable cost-sharing
framework.
Risks Covered
Coverage can extend from pre-sowing risks such as prevented or failed sowing to standing-crop losses
caused by notified perils.
Broad-based mid-season adversity can be covered when severe conditions affect expected crop
performance.
Localised calamities such as hailstorm, inundation or landslip may be covered for affected land parcels
subject to scheme provisions.
Specified post-harvest losses caused by events such as cyclone or unseasonal rainfall may also receive
coverage within the notified conditions and time window.
Why Crop Insurance Matters
Indian agriculture remains exposed to monsoon variability, drought, floods, cyclones, hailstorms, heat
stress, pests and other production shocks.
Small and marginal farmers often have limited savings and may be unable to absorb a severe crop loss
without borrowing or reducing consumption.
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Insurance can protect household balance sheets and reduce the probability that a temporary climate
shock becomes a long-term poverty trap.
Reliable insurance can also support formal agricultural credit by reducing part of the production risk faced
by borrowers and lenders.
Climate Change and Agricultural Risk
Climate change can alter rainfall patterns, increase extreme-heat exposure and intensify some
hydrometeorological hazards.
Crop losses may become more correlated across large areas, creating a challenge for insurers because
many policyholders can suffer simultaneously.
Historical yield and weather relationships may become less reliable under changing climatic conditions.
Crop insurance therefore needs continuous updating of risk models, crop calendars, loss-assessment
methods and reinsurance arrangements.
Area Approach and Basis Risk
Crop insurance frequently uses an area approach for widespread yield losses, where an insured unit is
assessed through representative yield data rather than measuring every individual field separately.
This reduces administrative cost but creates basis risk: an individual farmer's actual loss may differ
from the loss measured for the insured area.
Smaller and more scientifically designed insurance units can reduce basis risk, but they also increase
data and assessment requirements.
Technology can help by combining crop-cutting experiments, remote sensing, weather data and digital
farm information.
Crop Cutting Experiments
Crop Cutting Experiments are field-based exercises used to estimate crop yield in sampled plots.
Yield estimates are important for determining whether notified area-level losses have crossed the
threshold required for insurance claims.
Poor sampling, delays or inconsistent data can slow claim settlement and weaken farmer confidence.
Digitisation, geo-tagging and statistical quality control can improve reliability.
Role of Technology
Satellite remote sensing can help monitor crop condition, vegetation stress, flood extent and drought
indicators across large areas.
Drones can provide high-resolution evidence in selected areas, while smartphones and geo-tagged
photographs can support local reporting.
Automatic weather stations and rainfall data can strengthen weather-based verification.
Technology should supplement sound field verification rather than become an opaque substitute for
transparent loss assessment.
Insurance and Moral Hazard
Moral hazard arises when insurance changes behaviour in a way that increases the probability or
magnitude of loss.
Adverse selection arises when people with higher expected risk are more likely to seek insurance than
those with lower expected risk.
Public crop-insurance schemes need careful design because agricultural risks are spatially correlated and
information asymmetry can be substantial.
Clear eligibility, transparent data and appropriate monitoring help reduce these problems.
Centre-State Implementation Challenge
Crop insurance requires coordination among the Union government, state governments, insurers, banks,
local administration and farmers.
Delays in state-level data, premium support or yield estimation can affect claim timelines.
Variation in implementation capacity across states can create uneven farmer experience.
A national scheme therefore needs common standards combined with strong state-level operational
capacity.
Voluntary Participation and Farmer Trust
Insurance works best when farmers understand the insured crop, sum insured, covered risks, reporting
requirements and claim process.
Low awareness can create unrealistic expectations, particularly when a loss falls outside notified coverage.
Transparent communication in local languages is essential for informed participation.
Grievance redressal must be accessible because delayed or disputed claims can damage trust in the entire
scheme.
PMFBY and Financial Inclusion
Crop insurance can complement Kisan Credit Card, institutional agricultural credit and direct-benefit
infrastructure.
Digital payment systems can speed claim transfers when beneficiary records and bank accounts are
correctly linked.
However, digitalisation must be accompanied by mechanisms for correcting land, crop and identity
records.
Tenant farmers and sharecroppers can remain difficult to cover where cultivation rights are poorly
documented.
Beyond Insurance — Resilient Agriculture
Insurance compensates financial loss but does not replace investment in climate-resilient agriculture.
Micro-irrigation, watershed development, drought-tolerant varieties, diversified cropping and soil-health
management can reduce the underlying probability of severe loss.
Weather advisories and early warning help farmers alter sowing, irrigation and harvesting decisions.
The most effective policy combines risk reduction, risk retention and risk transfer.
Fiscal Sustainability
Public premium support makes insurance affordable but creates a recurring fiscal commitment.
Government must monitor whether expenditure is producing timely and adequate protection for farmers.
Competition among insurers, transparent actuarial pricing and reliable data can improve value for public
money.
Long-term sustainability requires reducing avoidable agricultural risk rather than relying only on
compensation after losses.
Way Forward
Claim settlement should become faster through time-bound data submission, digital monitoring and
accountable service standards.
Risk assessment should integrate satellite observations, weather stations, field experiments and
increasingly granular crop data.
Coverage of tenant farmers and other actual cultivators should improve through appropriate state-level
land and tenancy records.
PMFBY should be linked with a broader climate-resilience strategy so that insurance and adaptation
reinforce each other.
Prelims Quick Revision
PMFBY was introduced in 2016.
Maximum farmer premium: 2% for Kharif food and oilseed crops; 1.5% for Rabi food and oilseed
crops; 5% for annual commercial and horticultural crops.
Union Budget 2026-27 earmarked ₹12,200 crore for PMFBY.
The scheme can cover specified pre-sowing, standing-crop, localised and post-harvest risks.
Crop Cutting Experiments are used for yield estimation.
Basis risk means the measured insured-area loss may differ from an individual farmer's actual loss.
Probable Prelims Question
With reference to PMFBY, consider the following statements: the maximum farmer premium
is 2% for Kharif food and oilseed crops; 1.5% for Rabi food and oilseed crops; and 5% for
annual commercial and horticultural crops. Which of the statements are correct?
Probable Mains Question
Crop insurance is necessary but insufficient for agricultural resilience in an era of climate
change. Evaluate the performance logic of PMFBY and suggest measures to integrate
insurance with climate-resilient farming.