Overview of Agricultural Insurance Schemes in India

Farming in India is inherently risky. Unpredictable monsoons, pest outbreaks, floods, and droughts can wipe out an entire season’s harvest – and with it, a family’s income and savings. For millions of smallholder farmers who operate on thin margins and often depend on borrowed capital, a single crop failure can trigger a cycle of debt that is difficult to escape. Agricultural insurance directly addresses this vulnerability. By transferring the financial risk of crop loss from the individual farmer to a larger risk pool, it provides a critical safety net that stabilises incomes, protects credit flows, and encourages farmers to invest in better inputs and practices. India’s journey with agricultural insurance spans over four decades, during which the government has designed, revised, and scaled up several schemes – each building on the lessons of the last.

Why agricultural insurance matters for India 🔗

India is one of the world’s most agriculture-dependent economies, with farming providing livelihoods to more than half its population. Yet nearly two-thirds of India’s cropped area is rain-fed and vulnerable to drought, and on average, around 12 million hectares of crop area is severely affected by natural calamities every year. The consequences reach beyond the farm – disrupted food production affects prices, employment, and rural credit systems nationwide.

Agricultural insurance addresses two broad categories of risk. The first is production risk – losses caused by natural calamities like drought, flood, hailstorm, and cyclone, or by pest and disease attacks. The second is market or income risk – where even a healthy harvest can result in financial loss if market prices fall sharply. While most Indian schemes have focused on production risk, the evolution of coverage over the decades reflects a growing understanding of how interconnected these risks are.

The Comprehensive Crop Insurance Scheme (CCIS): India’s first major step 🔗

In 1985, the Ministry of Agriculture introduced the Comprehensive Crop Insurance Scheme (CCIS) – India’s first large-scale, systematic attempt at crop insurance coverage. It operated until Kharif 1999, covering 16 states and 2 Union Territories and insuring approximately 763 lakh farmers over its lifetime.

Coverage and structure of CCIS 🔗

CCIS was linked to short-term agricultural credit and implemented using the “homogeneous area approach.” Insurance coverage was compulsory for farmers taking crop loans from institutional sources such as commercial banks, regional rural banks, and cooperative banks. Crops covered included food crops and oilseeds – cereals, millets, pulses – along with cotton, potato, and chickpeas.

The maximum sum insured was restricted to 100% of the crop loan, subject to a ceiling of ₹10,000 per farmer, later raised to 150%. Premium rates were 2% of the sum insured for cereals and millets, and 1% for pulses and oilseeds. Importantly, small and marginal farmers received a 50% subsidy on their premium, shared equally between the Central and State Governments. Claims and premium liabilities were managed jointly by the Government of India, state governments, banking institutions, and the General Insurance Corporation (GIC) of India.

Limitations of CCIS 🔗

Despite being a pioneering initiative, CCIS had notable weaknesses. Coverage was restricted to loanee farmers, leaving out the large population of cultivators who did not access institutional credit. Premium rates were often too low to be actuarially sound, leading to significant losses for insurance companies. The scheme also excluded cash crops like sugarcane and cotton grown in many regions, and did not address post-harvest losses or localized calamities at the farm level. These structural gaps eventually prompted a redesign.

The National Agricultural Insurance Scheme (NAIS): expanding coverage 🔗

NAIS was launched on 22nd June 1999, replacing the CCIS, and marked a significant step forward in India’s approach to agricultural risk management. It is also known as Rashtriya Krishi Bima Yojana (RKBY). Implemented by the Agriculture Insurance Company (AIC) of India under the guidance of the Ministry of Agriculture, NAIS was designed to be more inclusive and comprehensive than its predecessor.

Objectives of NAIS 🔗

The core objectives of NAIS were to provide financial support to farmers in the event of crop failure, stabilise farm incomes to reduce distress, encourage adoption of modern agricultural practices and high-yield varieties, and ensure the continued flow of agricultural credit by covering loanee farmers. A broader societal objective was also built into the scheme – by stabilising production and rural incomes, it aimed to generate positive spillover effects on employment, market activity, and food security.

Key features and coverage 🔗

NAIS covered all food crops including cereals and pulses, oilseeds, and a wide range of annual commercial and horticultural crops. Both loanee and non-loanee farmers were eligible – a major departure from CCIS. Loanee farmers were covered compulsorily, while non-loanee farmers could opt in voluntarily. Tenant farmers and sharecroppers were also eligible, making the scheme more socially inclusive.

Risks covered included natural calamities such as drought, dry spells, flood, inundation, landslides, cyclones, hailstorm, tempest, and hurricane, as well as pest and disease attacks. Premium rates ranged from 1.5% to 3.5% of the sum insured for food crops, while actuarial rates were charged for commercial and horticultural crops. Small and marginal farmers received a 50% premium subsidy, shared equally between the Central and State Governments.

The area-based yield approach 🔗

NAIS used a yield-index system based on the “homogeneous area approach.” Crop Cutting Experiments (CCEs) were conducted to estimate actual yields in a defined area. When the actual yield fell below a threshold – typically 90% of the average yield for irrigated crops and 80% for rain-fed crops – claims were automatically triggered for all insured farmers in that area. This removed the burden of individual loss verification from each farmer and made the claims process more objective and administratively efficient.

Each state was required to progressively reduce the unit area of insurance down to the Gram Panchayat level within three years. The scheme operated across 23 states and Union Territories and was implemented through a coordinated framework involving the AIC of India, state governments, NABARD, RBI, and commercial and cooperative banks.

Weather-Based Crop Insurance Scheme (WBCIS): insuring against climate, not just yield 🔗

A parallel innovation emerged in 2007 with the introduction of the Weather-Based Crop Insurance Scheme (WBCIS), announced in the Union Budget 2007-08. WBCIS was designed to provide insurance protection against adverse weather events – such as deficit or excess rainfall, extreme temperatures, and humidity – that negatively impact crop production. Rather than waiting for post-harvest yield assessments, this scheme triggered payouts based on pre-defined weather parameters measured at automatic weather stations.

WBCIS addressed crops or areas where standardised yield estimation was not feasible. It later became a full-fledged component of the National Crop Insurance Programme (NCIP) from Rabi 2013-14, and was restructured as the Restructured Weather Based Crop Insurance Scheme (RWBCIS) from Kharif 2016 onwards.

Pradhan Mantri Fasal Bima Yojana (PMFBY): the current flagship scheme 🔗

PMFBY was launched on 18 February 2016 by Prime Minister Narendra Modi, consolidating and replacing NAIS, MNAIS, and the earlier Weather-Based Crop Insurance Scheme. Designed around the “One Nation-One Scheme” principle, it incorporated the best features of earlier schemes while removing their structural shortcomings. Today, it is the government’s flagship crop insurance programme and is recognised as the world’s largest crop insurance scheme by farmer applications.

Coverage and eligibility 🔗

PMFBY provides comprehensive risk coverage from the pre-sowing stage through to post-harvest, covering yield losses due to drought, dry spells, floods, hailstorms, cyclones, pests, disease, and fire from natural causes. It also covers prevented sowing – where a farmer is unable to sow at all due to adverse conditions, entitling them to 25% of the sum insured. Post-harvest losses are covered for up to two weeks after harvesting for crops left to dry in the field, and localized calamities like hailstorm, landslide, and inundation are assessed at the individual farm level rather than the area level. All farmers including loanee farmers, non-loanee farmers, sharecroppers, and tenant farmers cultivating notified crops in notified areas are eligible.

Premium structure 🔗

One of PMFBY’s most significant features is its affordable and fixed premium structure. Farmers pay just 2% of the sum insured for Kharif crops, 1.5% for Rabi crops, and 5% for commercial and horticultural crops. The difference between these capped rates and the actual actuarial premium is paid by the Central and State Governments as a subsidy. This dramatically lowers the financial barrier for small and marginal farmers, who would otherwise be unable to afford meaningful crop insurance.

Technology and implementation 🔗

PMFBY follows the principle of “One Nation, One Crop, One Premium,” and is administered through the National Crop Insurance Portal (NCIP), which enables online enrolment, data sharing, and direct transfer of claim amounts into farmers’ bank accounts. The government has also developed the WINDS (Weather Information Network and Data System) to establish an expanded network of Automatic Weather Stations and Automatic Rain Gauges, collecting hyper-local weather data down to the Gram Panchayat and Block levels. Technologies like satellite imagery, drones, and remote sensing are used for more accurate yield estimation, reducing turnaround time for claim settlements.

From Kharif 2024, a 12% penalty is automatically triggered if claim payments are delayed, a reform introduced to hold implementing agencies accountable. A dedicated Digi-Claim module links the NCIP with the Public Finance Management System to accelerate direct benefit transfers to farmers.

Scale and reach 🔗

Since its inception in 2016 through 2024-25, PMFBY has enrolled over 72.61 crore farmer applications, with more than 19.61 crore farmers receiving claims totalling over ₹1,72,192 crore. Total farmer enrolment grew by 32% between 2022-23 and 2024-25, rising from 3.17 crore to 4.19 crore. The number of non-loanee farmer applications – farmers who access insurance voluntarily without the compulsion of a crop loan – has jumped from 20 lakh in 2014-15 to 522 lakh in 2024-25, reflecting a meaningful increase in voluntary uptake.

How these schemes encourage modern farming practices 🔗

Agricultural insurance is not just a financial safety net – it functions as an enabler of agricultural modernisation. When farmers know that a catastrophic loss will not permanently destabilise their finances, they are more willing to invest in certified seeds, chemical inputs, drip irrigation, and new crop varieties. By reducing the financial risks of farming, PMFBY encourages farmers to invest in better seeds, improved technology, and sustainable farming practices. The link between insurance coverage and agricultural credit is equally important – insured farmers are better positioned to access and repay loans, which in turn allows them to invest in productivity-enhancing inputs.

Challenges and ongoing reforms 🔗

Despite significant progress, agricultural insurance in India still faces challenges. Awareness of available schemes remains low in many rural areas. Claim settlement delays have historically been a concern – the Parliamentary Standing Committee on Agriculture noted in 2021 that delays in settlement defeat the very purpose of PMFBY. Some states have also exited the scheme, citing the high financial burden of premium subsidies on state exchequers.

In response, the government has introduced multiple reforms: mandatory state ESCROW accounts for advance premium deposits from Kharif 2025, automatic penalties for delayed claims, and a dedicated Fund for Innovation and Technology (FIAT) worth ₹824.77 crore to advance remote sensing, automated weather monitoring, and AI-based yield estimation. The continuation of both PMFBY and RWBCIS has been approved with a total outlay of over ₹69,515 crore through FY26, signalling a sustained government commitment to scaling agricultural insurance coverage.

Comparing the key schemes at a glance 🔗

India’s agricultural insurance landscape has evolved through three major phases. The CCIS (1985-1999) was the foundational scheme – credit-linked, covering major food crops, and compulsory only for loanee farmers. The NAIS (1999-2016) expanded this by including non-loanee and tenant farmers, broadening crop coverage to commercial and horticultural varieties, and introducing a structured yield-index approach. The PMFBY (2016-present) represents the most comprehensive evolution – with capped and subsidised premiums, full-cycle coverage from pre-sowing to post-harvest, technology-driven claims processing, and voluntary enrolment for all farmer categories. Together, they chart a progression from a narrow, credit-dependent safety net to a broad, digitally administered national insurance ecosystem.

What do you think? With crop insurance penetration still limited in many parts of rural India, what do you believe is the single biggest barrier preventing more farmers from enrolling – awareness, trust in the system, or the complexity of the claims process? And as climate change intensifies weather-related crop risks, should India consider making agricultural insurance compulsory for all cultivators, or should participation remain voluntary?

References

1. https://www.managejournal.com/assets/archives/2020/vol6issue1/5-6-28-985.pdf
2. https://www.manoramayearbook.in/current-affairs/india/2025/01/02/pmfby-and-rwbcis.html
3. http://eagri.org/eagri50/AECO241/lec09.html
4. https://slm.mba/mmpf-011/evolution-crop-insurance-india-pmfby/
5. https://pmfby.gov.in/pdf/NAIS_SCHEME.pdf
6. https://c4scourses.in/scheme-yojna/national-agricultural-insurance-scheme-nais/
7. https://en.wikipedia.org/wiki/Agricultural_insurance_in_India
8. https://en.wikipedia.org/wiki/Pradhan_Mantri_Fasal_Bima_Yojana
9. https://www.ibef.org/government-schemes/fasal-bima-yojana
10. https://nationalinsurance.nic.co.in/en/pradhan-mantri-fasal-bima-yojana-pmfby
11. https://kshema.co/blogs/pmfby-crop-insurance-india-2025/
12. https://www.pib.gov.in/PressNoteDetails.aspx?NoteId=155010&ModuleId=3