Risk mitigation in agriculture is essential to safeguard the interests of farmers and lenders (banks) against various uncertainties and vulnerabilities associated with agricultural practices. The Indian government, in collaboration with banks, has implemented several schemes and programs to address these risks. Here are some prominent risk mitigation measures in agriculture:
- National Agricultural Insurance Scheme (NAIS): NAIS, now replaced by the Pradhan Mantri Fasal Bima Yojana (PMFBY), was an important agricultural insurance scheme introduced to provide financial support to farmers in the event of crop failure due to natural calamities, pests, or diseases. Under this scheme, farmers could insure their crops and receive compensation for losses incurred. The premium for the insurance was subsidized, making it affordable for farmers. The scheme aimed to reduce the adverse impact of crop failures and stabilize farmers’ income.
- Pradhan Mantri Fasal Bima Yojana (PMFBY): PMFBY is the new crop insurance scheme launched to replace the NAIS. It is a flagship program that offers comprehensive coverage against various risks related to crop production. Under PMFBY, farmers pay a nominal premium, and the rest of the premium is shared by the central and state governments. The scheme covers all stages of the crop cycle, including pre-sowing risks, post-harvest losses, and localized risks. It ensures timely settlement of claims, reducing the financial burden on farmers during distress situations.
- Minimum Support Price (MSP): MSP is a price support program initiated by the Indian government to protect farmers from price fluctuations and to ensure remunerative prices for their crops. Under MSP, the government declares minimum prices for various crops before the sowing season. If market prices fall below the MSP, the government intervenes and procures the crops from farmers at the MSP or higher. This provides farmers with a price floor and acts as an income guarantee, encouraging them to invest in agriculture without fear of price volatility.
- Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS): The CGS is a credit guarantee scheme that aims to provide collateral-free credit to farmers and micro and small enterprises (MSEs) in the agriculture sector. Under this scheme, banks can provide loans to farmers without seeking traditional collateral, as the credit risk is shared with the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This helps farmers, especially small and marginal farmers, who may lack adequate collateral, to access credit for agricultural activities.
- Interest Subvention Scheme for Short-Term Crop Loans: The government of India implements the Interest Subvention Scheme to provide short-term crop loans to farmers at a subsidized interest rate. Under this scheme, eligible farmers receive a concessional rate of interest on their crop loans, which reduces the overall cost of borrowing and promotes agricultural credit availability. Farmers who repay their loans promptly may also receive additional interest rate benefits.
- Warehouse Infrastructure Fund (WIF): The Warehouse Infrastructure Fund was created to boost post-harvest infrastructure in agriculture and enhance the marketability of agricultural commodities. Banks can finance projects related to the creation of scientific storage facilities, cold storage units, and warehouses under this scheme. Proper storage facilities help farmers avoid distress sales and ensure better price realization for their produce.
By implementing these risk mitigation measures, the government and banks work together to address various challenges faced by farmers and promote sustainable agricultural practices. These initiatives not only protect the interests of farmers but also support the overall growth and development of the agricultural sector in India.