The working group on risk management in
Farm Income Insurance Scheme (FIIS)
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| 4.5. Farm Income Insurance Scheme (FIIS) NAIS protects the farmers only against yield fluctuations, while price fluctuations are outside the purview of the scheme. The farmer’s income however, is a function of yield and market prices. Therefore, despite normal production, farmers often fail to maintain their income level, due to fluctuations in market prices. To take care of the variability in income arising out of fluctuations in the yield and market price, the government introduced a pilot project, viz. Farm Income Insurance Scheme (FIIS), during the Rabi 2003-04 season. The objective of the scheme was not only to universalize MSP and to protect the income of the farmer, but also to reduce government expenditure on procurement of wheat and rice. The other objectives, were to encourage crop diversification and also to give a fillip to private trade. The scheme however was discontinued, just after the General Elections in The Working Group considers that income insurance, is a comprehensive risk mitigation tool in agriculture. It strongly recommends revival of the farm income insurance scheme, with some modifications as detailed below:- (i) Guaranteed income should be based on either futures price from Commodity Markets, or should be derived from historical market prices. In case it is decided to use historical market prices, an appropriate correction factor be used, to compensate for inflationary trends. (ii) Farm income insurance could be tried initially for pulses and oilseeds, which are both price sensitive. (iii) A pilot could be launched with effect from the Kharif 2007 season, covering a few crops, from pulses and oilseeds, spread over 40- 50 districts in the country. (iv) The premium rates charged to the farmer, would beat par with those charged under area yield insurance. Box-4 in the following page provides insights into utility of insurance and hedging in managing farm risks |