A good formula is to keep the tariff at a level such that the cost of imported oil is not less than the cost of domestic oil in MSP.
Por Prabhudatta Mishra
Over the years, fiscally stressed states have become reluctant to pay the premium bill for Pradhan Mantri Fasal Bima Yojana (PMFBY), resulting in insurers not meeting farmers’ claims on time; As last reported, claims worth more than Rs 1.8 billion were still to settle. But at least two states, Maharashtra and Rajasthan, have written to the Center seeking the ‘Beed district formula’ to implement the crop insurance plan for the upcoming kharif season. The reason: states estimate that given the normal monsoon forecast for this year, there could be a ‘surplus’ in gross premiums to be charged by insurers and the Beed formula, also called the ’80-110 Plan’, in such a case ensure that the premium above a threshold is reimbursed to the state government.
Under the 80-110 plan, the insurer’s potential losses are circumscribed: the company will not have to deal with claims above 110% of the gross premium. The state government has to bear the cost of any claim above 110% of the premium charged to protect the insurer from losses. The excess premium (gross premium minus claims) that exceeds 20% of the gross premium is reimbursed by the insurer to the state government.
Last year, two well below normal monsoon rains in the Beed district in central Maharashtra deterred insurers from covering the district’s farmers under the PMFBY for kharif 2020, and then the Center asked the Company Agricultural Insurance Agency of India (AIC) from the public sector to do so. AIC was assured that it will not have to deal with claims greater than 110% of the gross premium. It was also said that the state government could bear the cost of any claims above the premium charged to protect the insurer from losses. The scheme worked successfully.
According to sources, the Center is not against the idea; However, he has asked the two states to wait as the ’80-110 ”Plan needed a detailed evaluation and probably Cabinet approval. “Since (the 80-110 Plan) was implemented in Beed district and also in Madhya Pradesh as special cases last year, the result should be analyzed in the premiums charged by the insurer and the claims made by the farmers,” he said. a fountain.
For example, under the ’80-110 Plan’, in case the claims reach 60% of the premium charged, the insurance company will have to reimburse 20% to the state government and if the claims are 70%, the refund to the state will be 10%. In case of claims greater than 80%, the state will not obtain any refund.
Under PMFBY, the premium to be paid by farmers is set at 1.5% of the insured sum for rabi crops and 2% for kharif crops, while it is 5% for cash crops. The balance premium is divided equally between the Center and the states. Many states have required that their share of the premium paid by the government be capped at 30%, with the remainder borne by the Center at 70%.
“Many states are not overly eager to run PMFBY due to financial constraints, particularly after the Covid pandemic. Also, since the Indian Meteorological Department (IMD) has forecast a normal monsoon, states do not expect claims to skyrocket during this kharif season unless there is an unforeseen natural calamity. The chances of crop failure due to less rainfall this year are very low, ”said an official from the insurance company who requested anonymity.
In order to reduce spending on crop insurance, the Maharashtra government canceled its 3-year contract with insurance companies approved last year, while Rajasthan is also considering similar action, sources said.
As many states complained of the “increasing premium,” the Center in February of last year changed the guidelines and allowed them the option of a three-year contract with insurers on the premium charged on crop insurance. States can also continue with the existing system of inviting for premium bids each year, per the guidelines.
The Center pays the PMFBY subsidy bill to the extent of its formulated participation provided that the level of the gross premium is up to 30% of the sum insured in non-irrigated areas and 25% in irrigated areas. The responsibility lies with the states if they want to implement the scheme, even if the insurers quote any premiums above 25-30%.
Do you know what is Cash Reserve Ratio (CRR), Financial Bill, Tax Policy in India, Expenditure Budget, Customs Duties? FE Knowledge Desk explains each of these and in more detail in Financial Express Explained. Also get live BSE / NSE stock prices, latest mutual fund NAV, best equity funds, best winners, best losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.
Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest news and updates from Biz.
–
