PM’s Fasal Bima Yojana – Bounty for Insurance Companies, Frugality for Farmers....by KBS Sidhu

An experienced former Special Chief Secretary of Punjab examines whether India’s flagship crop insurance scheme truly safeguards farmers—or merely enriches insurers.

On 9 December, the Minister of State for Agriculture told the Lok Sabha – and the Press Information Bureau dutifully amplified it the same day – that the Pradhan Mantri Fasal Bima Yojana (PMFBY) is a glittering success. Over the three years from 2022-23 to 2024-25, the Centre’s share of premium support is projected at roughly ₹35,000 crore, while claims paid to farmers are stated to be about ₹53,000 crore.

Read this the way it is presented and the message is simple: Delhi paid in one rupee, the farmer got one and a half back. Add the familiar talking points – record enrolment, more small and tenant farmers coming on board, digital portals, and faster settlement – and PMFBY begins to look like an unqualified pro-farmer achievement.

But an insurance scheme is not judged by slogans or one flattering ratio. It is judged by who ultimately carries the risk, who controls the information, and who walks away with the surplus. Once you read the PIB note of 9 December alongside the annexures to parliamentary replies and broader financial data, the picture becomes far less flattering.

The uncomfortable answer to the question, “Who gains more – farmer, exchequer or insurer?” is increasingly clear: PMFBY has become bounty for insurance companies and frugality for farmers.

Reading the fine print: where the money really goes

The Central Government’s preferred comparison is between two numbers: the Centre’s subsidy (around ₹35,000 crore over three years) and claims paid (around ₹53,000 crore). That deliberately leaves out two other contributors: State governments and farmers themselves.

Premium under PMFBY has three components:

• the farmer’s own premium (capped at 2% of sum insured for Kharif, 1.5% for Rabi and 5% for commercial/horticulture crops);
• the matching subsidy from the Centre; and
• an equal or higher subsidy from the State.

Over the life of the scheme, analyses based on government data suggest that, on average, roughly 12% of the total premium pot comes from farmers, about 40% from the Centre and about 48% from States. In other words, the PIB’s “₹35,000 crore vs ₹53,000 crore” comparison is looking only at one side of the fiscal triangle.

If we add the matching State share and farmers’ contribution for 2022-23 to 2024-25, the total premium pool going into the hands of insurers is likely to be in the range of ₹80,000–85,000 crore. Against this, the same PIB note claims that about ₹52,000–53,000 crore has been paid out as compensation. The inescapable implication is stark:

Roughly one-third of all the money paid by the Centre, States and farmers together is being retained by crop insurance companies as surplus after settling claims.

Even after allowing for administrative costs, commissions, reinsurance and bad years in specific clusters, this is an enviable business model. In a normal competitive insurance market, sustained margins of this magnitude over several years would be a fantasy. Under PMFBY, they are underwritten by the taxpayer.

This is why the oft-repeated line that “farmers have received more than five times the premium they paid” is only half the story. It ignores who paid the remaining 80-plus per cent of the premium – the Centre and States – and how much of that public money ended up as profit rather than protection.

A geographic lottery dressed up as national risk-sharing

The second layer of distortion lies in how unevenly benefits are distributed across States.

The same parliamentary annexures that underpin the 9 December press note show huge variation in the claims ratio (claims paid as a percentage of total premium) across States and years. In some high-distress pockets, PMFBY has worked as intended. Haryana and parts of Karnataka, for instance, have seen seasons where payouts exceeded the total premium collected, giving farmers a genuine risk transfer in bad years.

But in a long list of States – Madhya Pradesh, Andhra Pradesh, Chhattisgarh and others – claims have been far below the premium pool. Farmers there have in effect subsidised insurers and, indirectly, farmers in more climate-stressed regions. Over a three-year window, these States resemble depositors in a savings scheme from which they are not allowed to withdraw.

The government’s defence is that this is how insurance works: some regions will have “good luck” years, others “bad luck” years. That argument would have more force if the scheme were purely risk-pooling among farmers, with the State playing only a regulatory role. In PMFBY, however, the State and Central governments are putting in the bulk of the money and then watching an oligopoly of insurers harvest a sizeable surplus in the aggregate.

From the farmer’s point of view, the experience feels less like a safety net and more like a geographic lottery: your fate depends not only on the monsoon but on which side of a State or cluster boundary your field happens to fall.

Transparency that stops at the farm gate

The PIB note leans heavily on “technology” as proof of reform. It celebrates the National Crop Insurance Portal (NCIP) and the DigiClaim module, which supposedly ensure transparency and faster settlement.

There is no doubt that these platforms have improved the last mile: once a claim is admitted, money now reaches the farmer’s bank account faster and more directly than before. They reduce the scope for State treasuries to sit on funds, and they make tracking easier.

What they do not fix is the first mile – the process by which crop loss is assessed and claims are admitted in the first place. PMFBY remains overwhelmingly an “area approach” scheme:

• Crop Cutting Experiments (CCEs) are conducted on sample plots;
• average yields are computed at a defined unit area;
• if the average stays just above the threshold, no one in that unit is paid, however devastating an individual farmer’s loss may be.

Disputes over CCE methodology, quality of data, or the use of remote-sensing imagery are resolved largely within a closed conversation between the insurer and the State machinery. The farmer is a spectator, not a participant.

Digital portals and glossy dashboards cannot compensate for this asymmetric control over information. On the contrary, without parallel reforms in how yield loss is measured – greater farmer participation, independent audits, transparent sharing of CCE data – technology risks becoming a sophisticated façade for the status quo.

The fiscal-efficiency test: is this the best way to spend scarce rupees?

Even if one accepts that some form of crop insurance is necessary in a climate-stressed agriculture, PMFBY must pass a simple test: for every rupee the exchequer spends, how much stable income does the farmer actually receive?

Contrast PMFBY with direct income support schemes such as PM-KISAN at the national level or Telangana’s Rythu Bandhu. In these DBT-style programmes, every rupee budgeted is a rupee in the farmer’s account. There may be targeting issues, but there is no leakage into corporate margins.

Under PMFBY, by the government’s own logic and broad financial patterns over the years, around one-third of the combined Centre–State–farmer contribution is not returned to farmers as compensation. It is absorbed by insurers as profit or overhead. That makes PMFBY a fiscally expensive way of delivering farm support, especially when agriculture must compete with health, education and infrastructure for limited public funds.

Supporters argue that insurance, unlike DBT, mitigates catastrophic loss and therefore justifies a higher overhead. That is true in theory. But in practice, as several independent reviews have pointed out, a large share of Indian farmers remain outside the net, enrolment has stagnated or declined in many regions, and delays and disputes over claims continue.

A scheme that is both costly and patchy in coverage cannot be the centrepiece of India’s farm-risk management strategy.

Why Punjab and several others have stayed out

The political debate often paints States that are not implementing PMFBY as “anti-farmer” or “anti-reform”. The reality is more complicated.

Since 2018-20, a number of major States – including Gujarat, Bihar, West Bengal, Telangana, Andhra Pradesh and Jharkhand – have exited PMFBY after trying it for a few seasons, citing the high burden of premium subsidy, low claim ratios and operational friction.

Punjab, despite being among India’s most agriculturally advanced States, never really adopted the scheme for its main crops. At different points, it approved PMFBY in principle or for limited horticultural coverage, then stepped back. As recently as 2023–25, the Centre has repeatedly urged Punjab to join, especially in the wake of flood damage, and Punjab has promised – but not delivered – an alternative State-level crop insurance model.

Critics in these States raise three substantive concerns:

1. Fiscal stress: Matching the Centre’s subsidy at high actuarial premium rates can swallow a disproportionate slice of the State agriculture budget, leaving less room for extension, irrigation or diversification.
2. Low perceived value: When claim ratios remain low over several seasons, farmers see PMFBY as an additional deduction rather than a lifeline.
3. Loss of policy autonomy: States fear that a centrally designed, insurer-driven scheme limits their ability to tailor risk-management tools to local cropping patterns and agro-climatic realities.

Seen through this lens, States such as Punjab that have consciously not joined – or others that have walked out – are not shirking responsibility. They are sending a strong signal that the design of PMFBY, as it stands, does not pass their cost–benefit test.

Putting farmers back at the centre

None of this is an argument for abandoning crop insurance altogether. India’s farmers face rising climate volatility, price shocks and debt overhang. A well-designed insurance instrument has an important role to play. The problem is that PMFBY, in its current avatar, appears to be de-risking insurers more reliably than it is de-risking farmers.

If the government is serious about making PMFBY farmer-centric rather than insurer-centric, three course corrections are urgent:

• Cap excess profits and claw them back: Once insurers have earned a reasonable margin over a defined multi-year cycle, any additional surplus should revert to a farmer welfare fund or be used to reduce future premiums.
• Reform yield assessment, not just payment plumbing: Use technology and smart sampling to move, at least partially, towards more granular, farm-level or micro-cluster-level assessment, and open up CCE and satellite data to independent audit and farmer scrutiny.
• Give States real design flexibility: Allow States that do not wish to participate in the standard PMFBY template to develop alternative risk-sharing models – including hybrid DBT-plus-catastrophe-insurance frameworks – while still drawing on Central support.

Until then, the PIB’s celebratory numbers will keep coming, farmers in some States will continue to have a good year when the monsoon is bad, and the shareholders of crop insurance companies will remain the most consistent beneficiaries of India’s flagship farm-risk scheme.

PMFBY was conceived as protection for the annadata. A decade on, it is time to ask whether the scheme’s real annadata now sit in the boardrooms of private insurance companies – while the farmer is left, yet again, to harvest more risk than relief.

December 10, 2025