Crop Insurance and PMFBY in India Explained

Crop insurance is a financial protection product that pays farmers compensation when natural calamities, pests or diseases cause their crop yield to fall below an agreed level, and in India it is delivered mainly through the Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016. Under PMFBY, farmers pay a small, fixed premium of 2 per cent for kharif food crops and oilseeds, 1.5 per cent for rabi food crops and oilseeds, and 5 per cent for commercial and horticultural crops, while governments pay the remainder of the premium.

Crop insurance matters in India because agriculture depends heavily on the monsoon and most farmers cultivate small holdings with little buffer against loss. This explainer sets out how crop insurance works, what PMFBY covers, how losses are assessed using area-based yields and technology, what changed when enrolment became voluntary in 2020, and where the scheme is criticised. Last reviewed: 9 October 2026.

Key Takeaways

• Crop insurance in India is offered chiefly through the Pradhan Mantri Fasal Bima Yojana (PMFBY), which was launched in January 2016 and replaced earlier schemes such as NAIS.
• Under PMFBY, farmers pay a maximum premium of 2 per cent for kharif food and oilseed crops, 1.5 per cent for rabi food and oilseed crops, and 5 per cent for commercial and horticultural crops.
• The remaining premium under PMFBY is shared by the Central and State Governments, so farmers do not pay the full actuarial cost.
• PMFBY has used an area-based approach in which claims depend on the average yield of a notified area, measured through crop cutting experiments (CCEs) supported by satellite imagery, drones and smartphone apps.
• Since the kharif 2020 season, enrolment in PMFBY has been voluntary for all farmers, including those with crop loans, who were earlier automatically enrolled.
• Criticisms of PMFBY include delayed claim settlement, disputes over yield estimates, delays in state subsidy payments and uneven participation among states.

What is crop insurance?

Crop insurance is an insurance cover that compensates farmers for loss of yield or income caused by events they cannot control, such as drought, flood, cyclone, hailstorm, pests and diseases. The farmer pays a premium, and in return receives a payout when the loss crosses the threshold defined in the policy.

The idea is to stabilise farm income and protect farmers from falling into debt after a bad season. It also encourages farmers to adopt modern inputs and technology, because the risk of loss is shared. Insurance differs from relief paid after disasters, because it is a contractual entitlement rather than discretionary aid.

Two broad designs exist. Indemnity-based insurance pays for the actual loss of yield, while index-based insurance pays when a measurable index, such as rainfall or temperature, crosses a trigger level. India uses both: PMFBY is yield-based, and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) is weather-index based.

Why does India need crop insurance?

India needs crop insurance because agriculture supports a large share of the country’s workforce, yet most farm output depends on monsoon rainfall and most farmers hold small plots with limited savings. A single drought, flood or hailstorm can wipe out a season’s income and push households into debt.

Several features of Indian farming raise the need for protection.

• A large majority of farm holdings are small or marginal, under two hectares in size.
• Only part of the cropped area is irrigated, so rain-fed farming remains exposed to weather.
• Climate variability has made extreme events such as unseasonal rain and heatwaves more frequent.
• Farmers often borrow from banks or informal lenders, so crop loss can quickly become a debt problem.

How did crop insurance develop in India?

Crop insurance developed in India through a series of schemes, beginning with pilots in the 1970s and 1980s, the National Agricultural Insurance Scheme (NAIS) in 1999, and finally PMFBY in 2016. Each scheme tried to widen coverage while keeping premiums affordable.

The earlier schemes suffered from high claim ratios for the insurer, limited coverage and delays. NAIS used a uniform premium that did not reflect risk. PMFBY moved to premium rates based on actuarial or bid rates, with the government subsidising the cost beyond the farmer’s share.

How does PMFBY work?

PMFBY works by enrolling farmers for a notified crop in a notified area, collecting a low fixed premium from the farmer and the balance from governments, and paying a claim if the area’s actual yield falls below a threshold yield. The scheme covers the full cycle from pre-sowing to post-harvest.

The process runs through the following steps.

• State Governments notify crops and insurance units for each season. The insurance unit is generally a village panchayat for major crops.
• Insurers are selected by states through a bidding process, and Agriculture Insurance Company of India (AIC) and empanelled private companies participate.
• Farmers enrol through banks, common service centres, insurance intermediaries or the National Crop Insurance Portal before the cut-off date for each season.
• The sum insured is linked to the scale of finance for the crop, and the farmer pays the capped premium percentage on this amount.
• At the end of the season, the actual area yield is compared with the threshold yield, which is based on average past yields multiplied by an indemnity level.

The claim is calculated in proportion to the shortfall. If the actual yield is below the threshold yield, the payout equals the shortfall divided by the threshold yield, multiplied by the sum insured.

What risks and stages does PMFBY cover?

PMFBY covers yield losses from non-preventable natural risks across several stages of the crop cycle: prevented sowing, standing crop losses, localised calamities and post-harvest losses. Risks include drought, dry spell, flood, inundation, pests and diseases, landslide, natural fire and lightning, storm, hailstorm and cyclone.

• Prevented or failed sowing: farmers are compensated when widespread adverse weather stops sowing in the insured area.
• Standing crop (sowing to harvest): comprehensive cover for yield loss due to specified natural risks.
• Mid-season adversity: a part payment of expected claims can be released in advance when conditions turn severely adverse.
• Localised calamities: individual-farm assessment for hailstorm, landslide, inundation, cloudburst and natural fire, which affect only parts of an area.
• Post-harvest losses: cover for a limited period after harvest, for crops left to dry in the field, against cyclone, cyclonic rain and unseasonal rain.

War, nuclear risk, malicious damage and preventable risks such as theft are excluded from coverage.

What do farmers pay under PMFBY?

Farmers pay a flat, low premium under PMFBY: 2 per cent of the sum insured for kharif food crops and oilseeds, 1.5 per cent for rabi food crops and oilseeds, and 5 per cent for annual commercial and horticultural crops. This cap is the central feature that makes the scheme affordable.

The actual premium for each area and crop is much higher, because it reflects risk. The difference between the actuarial premium and the farmer’s share is met as a subsidy by the Central and State Governments, usually in equal shares, with a larger Central share in the North-Eastern states. Central subsidy rules have been revised over time, and each state decides whether to implement the scheme.

Insurance companies receive the premium and bear claims, but the government has used mechanisms such as a cap on loss ratios and profit-sharing arrangements in some versions of the guidelines to limit extreme gains or losses for insurers.

How are losses assessed using area-based yield and technology?

Losses under PMFBY are assessed mainly by the area-based approach, in which the average yield of a notified insurance unit, measured through crop cutting experiments (CCEs), decides whether farmers in that area get a claim. Crop cutting experiments involve harvesting and weighing the produce from small sample plots chosen at random.

State governments conduct the CCEs, usually with officials of agriculture and revenue departments. Because the number of CCEs is large, errors, delay and disputes have been common. To improve accuracy, the programme uses technology.

• Satellite remote sensing helps estimate crop area and condition and reduces the number of CCEs required.
• Drones capture high-resolution images of fields for damage assessment.
• Smartphone-based tools, such as CROPIC, allow field photographs with location data for crop condition tracking.
• The YES-TECH (Yield Estimation System based on Technology) approach uses remote sensing models to estimate yields.
• The National Crop Insurance Portal (NCIP) records enrolment and claims, and a helpline supports farmers with queries.

For localised calamities and post-harvest losses, assessment is made on the individual farm after the farmer reports the loss, ideally within 72 hours, through the app, helpline or insurer.

What changed when PMFBY became voluntary in 2020?

When PMFBY became voluntary from the kharif 2020 season, farmers who had taken crop loans were no longer automatically enrolled, and all farmers could choose whether to take insurance. Before this change, enrolment was compulsory for loanee farmers, with premiums deducted from their loan accounts.

The Government introduced the voluntary option after complaints that many farmers were unaware of their insurance, or found premium deductions an imposition. The revamped guidelines also allowed states and union territories to decide the scope of the scheme, including the choice of insurers and the period of operation, and gave states greater flexibility to add risk covers.

The change moved the scheme from a bank-linked, mandatory product to a choice-based one. It increased the need for awareness campaigns, and outreach drives, such as door-to-door campaigns and distribution of policy documents, were used to raise enrolment among non-loanee farmers.

What are the main criticisms and challenges of PMFBY?

The main criticisms of PMFBY are delayed claim settlement, disputes over yield estimates, unequal benefit between farmers and insurers, delays in state premium subsidy payments, and uneven adoption across states. Audits and farmer groups have raised these points.

• Delays in claims: payouts have sometimes been delayed beyond the prescribed timeline, even though the guidelines specify interest to be paid by insurers for late settlement.
• Quality of yield data: errors in CCEs, and slow or incomplete data from states, hold up claims.
• Insurer profits: critics argue that insurers earned large premium surpluses in some seasons relative to claims paid, while farmers faced rejections.
• State participation: several states have, at different times, chosen not to implement the scheme, preferring their own models, or delayed paying their share of the premium.
• Low awareness: many small farmers do not know how to enrol, report losses or track claims.
• Coverage gaps: tenant farmers and sharecroppers may find it difficult to enrol without land records, and wild animal damage is not generally covered nationwide.

Policymakers have responded with greater use of technology, penalties for delays, and grievance redress systems at district level. Debates continue about moving towards a more farm-level assessment and about improving insurer accountability.

How can a farmer enrol and claim?

A farmer can enrol in crop insurance under PMFBY through a bank branch, a common service centre, an insurance company agent or the National Crop Insurance Portal before the season’s cut-off date. Loanee farmers can opt out in writing, while non-loanee farmers apply with land records or tenancy documents, an identity proof and a bank account.

To claim for a localised calamity or post-harvest loss, the farmer should report the loss quickly to the insurer, the bank, the agriculture department or through the crop insurance app or helpline. For area-based yield claims, no individual application is needed, because payment follows the declared area yield and is credited directly to the farmer’s bank account.

Bottom Line

Crop insurance in India has evolved from small pilots to PMFBY, a scheme that offers farmers wide cover at a low capped premium and relies on area yields and technology to settle claims. The scheme’s value depends on prompt payment, accurate yield data and sustained state participation, which remain its main tests.

Frequently Asked Questions

What is crop insurance in India?

Crop insurance in India is insurance that pays farmers when a notified crop suffers yield loss from natural calamities, pests or diseases. It is delivered mainly through the Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016. The scheme is run by the Ministry of Agriculture and Farmers Welfare with State Governments and insurers.

What premium do farmers pay under PMFBY?

Farmers pay 2 per cent of the sum insured for kharif food and oilseed crops, 1.5 per cent for rabi food and oilseed crops, and 5 per cent for annual commercial and horticultural crops. The rest of the premium is paid as subsidy by the Central and State Governments. This keeps the scheme affordable for small farmers.

Is crop insurance compulsory in India?

No, crop insurance is voluntary in India for all farmers since the kharif 2020 season. Before 2020, farmers with crop loans were automatically enrolled in PMFBY. Today, any farmer may choose whether to take the cover, and loanee farmers can opt out.

How are crop insurance claims calculated?

Claims under PMFBY are calculated by comparing the actual yield of the insured area with a threshold yield. If the actual yield is lower, the payout equals the shortfall divided by the threshold yield, multiplied by the farmer’s sum insured. Crop cutting experiments, supported by satellite and drone data, measure the yield.

What risks does PMFBY cover?

PMFBY covers losses from natural risks such as drought, flood, hailstorm, cyclone, landslide, pests and diseases. It protects farmers at several stages: prevented sowing, the standing crop, localised calamities and post-harvest losses. Preventable risks such as theft, as well as war and nuclear risks, are excluded.

Why has PMFBY been criticised?

PMFBY has been criticised for delayed claim settlements, disputes over yield estimates and uneven participation by states. Critics have also pointed to insurer profits in some seasons and low awareness among small farmers. The government has responded with technology-based assessment and penalties for delays.

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