Pradhan Mantri Fasal Bima Yojana (PMFBY)

The Pradhan Mantri Fasal Bima Yojana (PMFBY) was announced by the Union Cabinet on 13 January 2016 and operationalised from the Kharif 2016 cropping season, replacing the National Agricultural Insurance Scheme (NAIS) and the Modified NAIS. Administered by the Ministry of Agriculture and Farmers Welfare through the Department of Agriculture, Cooperation and Farmers Welfare, the scheme draws its operational authority from successive Operational Guidelines issued by the Ministry, most recently the revised guidelines effective from Kharif 2020 and further amendments through 2023. It is a Centrally Sponsored Scheme with cost-sharing between the Union and the states, and is implemented in conjunction with state governments, empanelled public and private general insurance companies, and the Agriculture Insurance Company of India (AIC). The scheme replaced an actuarially unsound predecessor framework that capped premium subsidies and left large protection gaps for cultivators exposed to monsoon volatility.

The procedural mechanics begin with notification: each state government notifies the crops and the insurance units—usually a village or village panchayat for major crops—for each season, along with the empanelled insurer selected through a cluster-based tender. A farmer growing a notified crop in a notified area is eligible. The defining feature is the uniform maximum premium payable by the farmer: 2 percent of the sum insured for all Kharif food and oilseed crops, 1.5 percent for Rabi food and oilseed crops, and 5 percent for annual commercial and horticultural crops. The balance of the actuarial premium—frequently far higher—is shared equally by the Union and state governments, with no upper limit on the government subsidy in the original design. Enrolment proceeds through banks (for loanee farmers historically), Common Service Centres, insurance intermediaries, and the National Crop Insurance Portal (NCIP), with premiums debited and the sum insured fixed at the scale of finance for the notified crop.

Claim assessment rests primarily on the area approach rather than individual loss verification. The threshold yield for each insurance unit is calculated from the average yield of the preceding seven years, adjusted by an indemnity level of 70, 80 or 90 percent reflecting risk. Actual yield is determined through Crop Cutting Experiments (CCEs) conducted at the insurance-unit level; where actual yield falls below the threshold, the claim equals the shortfall ratio multiplied by the sum insured, and is paid to all insured farmers in that unit. The scheme also provides for prevented sowing, mid-season adversity through on-account payments, post-harvest losses for crops left to dry in the field for up to fourteen days, and localised calamities such as hailstorm, landslide, inundation and cloudburst assessed on an individual-farm basis. Technology integration—remote sensing, drones and smartphone-based CCE data capture—has been progressively mandated to reduce assessment disputes.

By the contemporary period the scheme has covered tens of millions of farmer applications each season across participating states. Several states, however, have exited and re-entered: Bihar and West Bengal operate their own state schemes, while Andhra Pradesh, Gujarat and Telangana withdrew at various points citing high premium-subsidy outflows and delayed claim settlement. To arrest withdrawals, the Ministry made the scheme voluntary for all farmers from Kharif 2020, decoupling it from compulsory enrolment of loanee farmers who had previously been auto-debited. The 2020 revisions also capped Central subsidy for premium rates above prescribed thresholds in unirrigated and irrigated areas, shifting incremental costs to states and altering the original open-ended fiscal commitment.

PMFBY must be distinguished from adjacent instruments. It is not the Restructured Weather Based Crop Insurance Scheme (RWBCIS), which indemnifies against deviations in measured weather parameters—rainfall, temperature, humidity—rather than measured yield shortfalls; the two run in parallel and a state notifies crops under one or the other. It also differs from interest-subvention and the Kisan Credit Card facility, which address credit access rather than risk transfer, and from disaster-relief disbursements under the State Disaster Response Fund, which are ex gratia rather than contractual indemnities. Unlike PM-KISAN, a direct income-support transfer, PMFBY is a contingent payout triggered only by a defined adverse event.

Controversies have centred on delayed claim settlement, with farmers in several seasons receiving payouts months after the prescribed two-month window following yield-data submission; the Ministry responded with provisions for a 12 percent penal interest payable by insurers for delays and a corresponding penalty on states delaying their premium-subsidy share. Critics, including parliamentary standing committees and the Comptroller and Auditor General, have flagged windfall profits to private insurers in low-loss years, inadequate CCE numbers producing unreliable yield estimates, and the exclusion of tenant and sharecropping cultivators lacking documented land title. Reforms introduced cup-and-cap models distributing risk and surplus between insurers and governments, and the Digital Crop Survey and Yield Estimation System using technology have been piloted to address assessment integrity.

For the practitioner—a UPSC aspirant, agriculture-desk officer or development analyst—PMFBY exemplifies the design tensions in large-scale risk-transfer programmes: the trade-off between affordable farmer premiums and fiscal sustainability, between speedy area-based payouts and accurate individual loss assessment, and between centralised standardisation and state fiscal autonomy. It remains a recurring subject in GS Paper 2 governance questions and GS Paper 3 agriculture and food-security discussions, and a working understanding of its premium structure, area approach, voluntary character since 2020 and distinction from weather-indexed insurance is essential for any analysis of Indian agrarian policy and rural risk management.