Crop Insurance as a Risk Management Strategy in Bangladesh

program was on H-4 cotton in Gujarat. All such programs, however, resulted in considerable
financial losses. The program(s) covered 3110 farmers for a premium of Rs. 4, 54,000 and
paid claims of Rs. 3.79 millions. It was realized that programs based on the individual farm
approach would not be viable in the country.
Individual farm based approach
Obviously, “individual farm approach” would reflect crop losses on realistic basis and hence,
most desirable, but, in Indian conditions, implementing a crop insurance scheme at
“individual farm unit level” is beset with problems, such as:
(i) Non availability of past record of land surveys, ownership, tenancy and yields at
individual farm level
(ii) Large number of farm holdings (nearly 116 millions) with small farm holding size
(country average of 1.41 hectares)
(iii) Remoteness of villages and inaccessibility of farm-holdings
(iv) Large variety of crops, varied agro-climatic conditions and package of practices
(v) Simultaneous harvesting of crops all over the country
(vi) Effort required in collection of small amount of premium from large no. of farmers
(vii) Prohibitive cost of manpower and infrastructure
Later a ‘homogeneous area’ approach for crop insurance was suggested, after a review in the
mid-seventies. The General Insurance Corporation of India (GIC) prepared a Pilot Crop
Insurance Scheme (PCIS) based on the area approach that was operated from 1979. In all 13
States implemented it by 1984-85. Participation was voluntary. The scheme covered cereals,
millets, oilseeds, cotton, potato, gram and barley. The GIC and the State government in the
ratio of 2:1 shared the risk. The insurance premium ranged from 5 per cent to 10 per cent of
the sum insured. The scheme covered 6,27,000 farmers for premium of Rs. 19.7 millions
against claims of 15.7 millions.
Comprehensive Crop Insurance Scheme (CCIS)
The Government of India introduced the CCIS during the year 1985-86. GIC operated it with
the assistance and involvement of the respective State governments. The CCIS envisaged the
following objectives:
(i) To provide a measure of financial support to farmers in the event of crop failure as a
result of drought, flood etc;
(ii) To restore the credit eligibility of farmers, after a crop failure, for the next crop
season; and
(iii) To support and stimulate production of cereals, pulses and oilseeds
The scheme covered cereals, millets, pulses and oilseeds. The particular crops to be covered
by insurance in different areas were notified by the State governments subject to availability
of historical yield data. The coverage was linked to institutional credit and farmers who took
crop loans for the specified crops were eligible for coverage of insurance. The scheme was
optional to States. Once the State opted, the participation of farmers who took short-term
crop loan from cooperative credit institutions, commercial banks and regional rural banks
was compulsory. GIC on behalf of the Government of India and the State government in the
ratio of 2:1 shared the claims and premium. In the original scheme the sum insured for the
41