In its budget 2017-18, the government has taken up several measures to revive the country’s agriculture economy. The emphasis on agricultural insurance through higher allocation for the Pradhan Mantri Fasal Bima Yojana (PMFBY), and other major allocations for the sector, are expected to boost credit flow to farmers apart from expanding crop insurance and irrigation coverage.
The commitment shown towards agricultural insurance is an important step by the government, as it will help to provide financial stability for farmers. Agriculture is risky business and is susceptible to volatility in production and commodity prices. Hence, it’s important to encourage farmers to use innovative agriculture services and technology, which in turn will improve farm productivity and income, and help them deal with post-harvest challenges.
Until a decade or so, agricultural insurance was a sector that developed mainly outside Asia. This started to change after 2005, when India and China began expanding their own agriculture insurance plans. Since then, we have seen a dramatic development, so much so that India is one of the largest agriculture markets in the world today, with index-based crop insurance covering a wide variety of crops in major provinces of the country.
Still, there has been low penetration of agriculture insurance in India, with challenges like insufficient risk coverage, delayed and inaccurate claim assessment, and leakage.
The banking channel continues to drive distribution of agriculture insurance, but there is a need for insurance companies to reach rural markets through new marketing mechanisms apart from the traditional bancassurance model. The challenges of infrastructure and distribution can be overcome with careful planning, innovative use of technology and favourable government policies.
The government, through the PMFBY, is trying to bring more farmers (targeting 50% by 2018) under the scheme’s ambit. However, several key challenges need to be addressed to achieve this goal.
Firstly, it is important that forecasts for seasonal crop productions are made with the highest possible accuracy, and field warnings detected early so that an action plan may be implemented for irrigation, agri-credit and agri-inputs.
Secondly, stakeholders such as the government, insurers and agricultural research agencies need to be adequately equipped with the necessary technological know-how to deal with some of the farming issues.
The introduction of new technology services into agriculture can provide a more detailed picture of risk at the farm level without the costs of collecting data manually. In addition to technological intervention, it is necessary to keep time lags in publishing crop yield statistics for the cropping period to a minimal.
Historically, government officials in India have conducted random-sample crop-cutting experiments (CCEs) to arrive at estimations of yield at the sub-district level or at even finer granularity. The process is resource-heavy, and prone to sampling and non-sampling errors and manual subjectivities. It is, therefore, essential to bring in inclusive models that take into account ancillary data sets like weather and soil parameters to predict yield with more accuracy.
The Internet of Things (IoT) here finds increased relevance. The IoT promises increased yields, reduced costs and other efficiencies, with the deployment of sensors, connectivity and analytics. Soil sensors as an IoT technology can also be used to broadcast real-time information on the state of the soil. This can be combined with other data to forecast crop yields.
Another possible solution could be to use satellite images to map the crop types, identify potential yield categories, calculate the area under each category, find locations with the maximum area and then select the number of samples for CCEs. Based on the data received, from remote sensing techniques, climate and other weather parameters, one can even try to conduct a large number of CCEs in the area where the probability of loss is high. This can be complemented with hand-held devices and smartphones to procure multiple images, which capture the heterogeneity of different field conditions in a village.
The use of drones to take images, recreate and analyse individual leaves from close-enough heights, assist in pest control, mid-season crop health monitoring, assess the soil-water-holding capacity and create weed maps or frost damage maps is another option.
In addition, mobile apps can also help provide evidence of canopy coverage or estimate the amount of fertilizer needed. They can also be used to collect information on insured area, insurance coverage and farmer profiles, which can help insurers develop customized products for farmers.
A promising outlook for crop insurance, aided by data and technology
The budget allocation of Rs10,000 crore to the BharatNet Project and the set target of reaching nearly 150,000 gram panchayats with high-speed Internet will also lay the foundation for a digital revolution in agriculture in India.
The core focus of the budget allocation is boosting agriculture credit.
To ensure flow of credit to small farmers, all functional primary agriculture credit societies (Pacs) will be integrated with the core banking system of district cooperative banks. Banks are the core distribution channel for the PMFBY and digitization will ensure penetration increases and that each farmer having access to credit is protected. Easy Internet access will allow farmers to learn and implement the latest technologies available in the field of agriculture. The finance minister has proposed that e-NAM (the National Agriculture Market) would be linked to the commodities market to allow farmers to access better prices for their produce.
For insurers too, the potential clearly exists for using technology to ensure implementation of agriculture insurance schemes in a sustainable manner. Insurers are always seeking ways to provide granular and objective risk profiles of individual farmers without the prohibitive costs of visiting and assessing single farms. Advances in technology and data processing may provide them with the means of doing so.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.