Crop insurance as a concept for risk management in agriculture has emerged in India since the turn of the twentieth century. From concept to implementation, it has evolved sporadically but continuously through the century and is still evolving in terms of scope, methodologies and practices.
India is an agrarian country, where the majority of the population depends on agriculture for their livelihood. Yet, crop production in India is dependent largely on the weather and is severely impacted by its vagaries as also by attack of pests and diseases. These unpredictable and uncontrollable extraneous perils render Indian agricultural and extremely risky enterprise. It is here that crop insurance plays a pivotal role in anchoring a stable growth of the sector.
As far back as 1915 in the pre-independence era, Shri J.S. Chakravarthi of Mysore State had proposed a rain insurance scheme for the farmers with view to insuring them against drought. His scheme was based on, what is referred to today as the area approach. He published a number of papers in the Mysore Economic Journal enunciating the concept of Rainfall Insurance. In 1920 Shri Chakravarthi published a book titled “Agricultural Insurance: Practical Scheme suited to Indian Conditions”.
Apart from this, certain princely states like Madras, Dewas, and Baroda, also made attempts to introduce crop insurance relief in various forms, but with little success.
After the attainment of Independence in 1947, crop insurance gradually started to find mention more often. The Central Legislature discussed the subject in 1947 and the then Minister of Food and Agriculture, Dr. Rajendra Prasad gave an assurance that the government would examine the possibility of crop and cattle insurance, and a special study was commissioned for this purpose in 1947-48.
The first aspect regarding the modalities of crop insurance considered was whether the same should be on an Individual approach or on Homogenous area approach. The former seeks to indemnify the farmer to the full extent of the losses and the premium to be paid by him is determined with reference to his own past yield and loss experience. The 'individual approach' basis necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently long period, for fixation of premium on actuarially sound basis. The 'homogenous area' approach envisages that in the absence of reliable data of individual farmers and in view of the moral hazards involved in the 'individual approach', a homogenous area comprising villages that are homogenous from the point of view of crop production and whose annual variability of crop production would be similar, would form the basic unit, instead of an individual farmer.
The study reported in favour of a 'homogenous area' approach, as various agro-climatically homogenous areas treated as a single unit and the individual farmers in such cases pay the same rate of premium and receive the same benefits, irrespective of their individual fortunes. The Ministry of Agriculture circulated the scheme, for adoption by the State governments, but the States did not accept.
In October 1965 the Government of India decided to introduce a Crop Insurance Bill and a Model Scheme of Crop Insurance in order to enable the States to introduce crop insurance if they so desired. In 1970, the draft Bill and the Model Scheme were referred to an Expert Committee headed by Dr. Dharm Narain.
Thus for over two decades the issue of crop insurance continued to be debated and discussed.
First ever Crop Insurance scheme - 1972
From beginning of the seventy’s decade, different experiments on crop insurance were undertaken on a limited, ad-hoc and scattered scale. The first crop insurance program was introduced in 1972-73 by the ‘General Insurance’ Department of Life Insurance Corporation of India on H-4 cotton in Gujarat. Later, the newly set up General Insurance Corporation of India took over the experimental scheme and subsequently included Groundnut, Wheat and Potato and implemented in the states of Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka and West Bengal.
This experimental scheme was based on "Individual Approach". It continued upto 1978-79 and covered only 3110 farmers for a premium of 4.54 lakhs against claims of 37.88 lakh.
It was realized that crop insurance programs based on the individual farm approach would not be viable and sustainable in this country.
Pilot Crop Insurance Scheme (PCIS) - 1979