Demand for Crop Insurance in India: Evidence from National Representative Surveys

Over the decades, both the national and state governments in India have implemented various measures to enhance the adoption of crop insurance as it diversifies the risk associated with agricultural income. In 2016, the Government of India commenced Pradhan Mantri Fasal Bima Yojana (PMFBY) and restructured the Weather-based Crop Insurance Scheme (WBCIS). Despite the continuous efforts of government agencies and subsidies, the adoption rate is low. Under this backdrop, this study has three objectives: (a) assess the current status of the adoption of crop insurance in India, and in particular, for landholding size, caste and income; (b) map state-wise adoption; and (c) evaluate the adoption rate of PMFBY across the states. This study used data from the 70th (2012–2013) and 77th rounds (2018–2019) of the agricultural household surveys conducted by the National Sample Survey Office (NSSO), and additional information was gathered from the Agricultural Insurance Company of India and the PMFBY dashboard. The findings are: (a) a meagre percentage of farmers opted for crop insurance even after five decades of its inception, that is, less than 10%; (b) as expected based on previous studies, a low adoption is observed among smallholders and marginalised farming communities; (c) between the two rounds, around one-third of states have shown an improvement in the rate of adoption; (d) the percentage of adoption among the smallholders marginally increased in a few states; (e) a high adoption of PMFBY was noted in seven states; and (f) a lack of institutional capacity to enhance the adoption rate. The following aspects should be looked into for enhancing the adoption rate: improving institutional capacity, incentive mechanisms and basis risks. Further, this study warrants additional studies to identify behavioural biases and policy suggestions.

JEL Codes: Q580, Q180, Q120