Source: Agricultural Census Division, Ministry of Agriculture, New Delhi

Given that the majority of farmers have very small landholdings, the success of crop insurance significantly depends on the scope and extent to which these farmers, who are poor, can be covered at affordable premium rates. Being characteristically impoverished,
these poor farmers do not have access to the latest technologies and organized marketing..
Financial institutions have been making efforts, to reach this segment though with varied levels of success. The nature of the crop insurance business being highly dependent on the vagaries of climatic factors, the commercial premium rates would be very high and inmost cases beyond the paying capacity of farmers.
Considering the above, the Joint Group recommended that the actuarial premium rates have to be adequately subsidized, to make the scheme affordable to farmers. The various methods of providing subsidy discussed by Joint Group are summarized below. Rupee subsidy: This is a very simple method, in which the subsidy is fixed in terms of rupees per hectare rupees per farmer. For example, it could be Rs. 250 and Rs. 500 per hectare for small / marginal and others, respectively. The subsidy could be further limited to specified number of hectares, say 5 hectares. Possibly, the rupee subsidy could be variable for different crops. It is a simple method and the government on the basis of insured acreage, can easily estimate its financial liabilities. However, extreme premium rates in the Indian context, may render the method ineffectual. Percent basis: This is yet another simple method, wherein the premium rates are subsidized in terms of particular percentage of actuarial premium. The percentage could be different for various categories of farmers. For example, it could be 75% subsidy for small / marginal farmers and 50% for other farmers. The disadvantage of this method,
provides subsidy at the same rate irrespective of whether or not the actuarial premium rates are high or low. For example, the actuarial premium rate is 2% (wheat, and affordable to the farmer. Yet, as per the subsidy formula, small / marginal farmers would be required to pay only 0.5 % and other farmers, only 1%.. On the other extreme,
if the actuarial rate is 30 t (groundnut, despite subsidy, the small / marginal farmer is

required to pay 7.5% and other farmers 15% premium, which is still beyond the farmer’s means. Premium Capping: This is a method, wherein actuarial rates are capped for farmers,
and the rate beyond the cap is subsidized. The rates are capped in such away that the net rates are affordable to farmers. The indicative capping for proposed crop insurance program is given below in Table-15:

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