Crop Insurance and Risk Mitigation: Experiences from India

Crop losses due to various reasons, particularly because of extreme weather situations, is a common phenomenon in agriculture and can prove to be catastrophic in the numerous rain fed fields of backward regions. It is against this backdrop that the development of sustainable mitigation strategies, one of them being crop insurance, comes into picture. It is worth noting in this context that agriculture insurance is under developed in developing countries and a World Bank study (2010) reveals that many state sponsored programs run inefficiently and do not aid the intended beneficiaries. The current paper thus looks into the imperfections of crop insurance schemes in India, by analyzing the scenario in the state of Karnataka. Karnataka is particularly important as it has substantial semi-arid / arid regions with rain fed agriculture, which brings immense uncertainty. The paper finds that the supply side needs particular attention as the formulation of insurance schemes is not user friendly. In addition, certain socially and economically backward groups need special attention. Financial literacy and development of non-farm activities are found to be critical for the farmers to have proper risk mitigation mechanism. Since many developing and emerging nations share India's experience of not being able to deliver an effective insurance product (Ifft, 2001), some of the insights from the current paper we hope will be useful for agricultural policy advisers and researchers across the globe.