Importance of agriculture to the Indian economy. In India:
Agriculture remains the chief source of livelihood for nearly 55% of India’s population and contributes around 18% to the country’s GDP (2024–25, at current prices). The sector’s Gross Value Added (GVA) increased from US$ 276.25 billion in FY24 to US$ 286.35 billion in FY25, registering a year-on-year growth of 3.66%. India’s agricultural economy is projected to expand from about US$ 1 trillion today to US$ 4 trillion by 2035, with estimates of around US$ 3.1 trillion by 2047. Reflecting the sector’s strategic importance, the Government of India has significantly enhanced budgetary support, increasing allocations from ₹11,915 crore in 2008–09 to ₹1,62,671 crore in the 2026 Budget.
Crop Insurance Scenario- The provisional crop insurance premium for 2025–26 declined by 26.75%, falling from ₹30,090.98 crore to ₹21,903.63 crore. In contrast, Agriculture Insurance Company of India Ltd. registered a steady 5.5% growth, with a premium income of ₹10,191.3 crore.In 2023–24, the crop insurance segment recorded a Gross Direct Premium Income (GDPI) of ₹30,728 crore, against which ₹27,034 crore was paid as claims, covering 43.9 million claims. This highlights the enormous scale and social significance of crop insurance in India. Nearly 90% of the country’s crop insurance business is undertaken under the Pradhan Mantri Fasal Bima Yojana (PMFBY), implemented by empanelled general insurers and the specialized Agriculture Insurance Company of India Ltd.
To enhance operational flexibility, States can now choose from multiple risk-transfer models based on their financial capacity and requirements:
- Profit Sharing Model
- Cup and Cap Model (60:130)
- Cup and Cap Model (80:110)
In crop insurance, the Cup and Cap model is a risk-sharing mechanism used primarily in government-supported crop insurance schemes. It determines how much of the insurance risk the insurer retains and how much it shares with or transfers to the government or a reinsurer. The numbers (such as 60:130 or 80:110) represent percentage thresholds relative to the actuarial premium. The 60:130 provides a wider retention band (70 percentage points), the insurer retains more risk and more reward and ensures lower dependence on government support. On the other hand, 80:110 ensures a narrower retention band (30 percentage points).The insurer is protected from relatively moderate adverse loss experience. The Government or reinsurer assumes a larger share of the volatility and is often used where crop losses are highly volatile or catastrophic events are frequent.
Palpable Predicament :
India lags behind leading countries, primarily because the majority of farmers are small or marginal farmers; as a result, voluntary insurance becomes difficult. Insurance participation became voluntary for many farmers after 2020, resulting in reduced enrolment. Similarly, inordinate delays in state premium subsidies have affected insurer participation in some states. Yield-based claim settlement can delay compensation. As a result, some states have opted out of PMFBY or implemented modified versions.
Crop Insurance Penetration and the yawning protection gap: –
Crop insurance penetration is measured using metrics such as the proportion of gross cropped area insured, the percentage of farmers insured, crop insurance premiums as a percentage of agricultural GDP, and the proportion of the total value of crops insured. Of these, the percentage of gross cropped area insured is considered the most widely accepted global benchmark for evaluating the penetration and reach of crop insurance programmes, as it most effectively reflects the extent of insurance coverage across agricultural land.
According to the official PMFBY Administrative Dashboard, the combined insured area under the Pradhan Mantri Fasal Bima Yojana (PMFBY) and Restructured Weather Based Crop Insurance Scheme (RWBCIS) for the 2024–25 agricultural year (Kharif and Rabi seasons combined, as currently reported) is as follows:
| Scheme | Area Insured |
|---|---|
| PMFBY | 41.19 million hectares (41,188 thousand ha) |
| RWBCIS | 12.65 million hectares (12,652 thousand ha) |
| Combined | 53.84 million hectares (53,840 thousand ha or 538.4 lakh hectares) |
Assuming India’s gross cropped area is approximately 198 million hectares, the current insurance penetration works out to:
53.84198×100≈27.2%\frac{53.84}{198}\times100 \approx 27.2\%19853.84×100≈27.2%
Thus, based on the latest data available on the PMFBY Administrative Dashboard, the combined crop insurance coverage under PMFBY and RWBCIS represents about 27% of India’s gross cropped area. It should, however, be noted that the PMFBY dashboard is dynamic and continues to be updated as States and implementing agencies upload and reconcile data. Consequently, the insured area is likely to increase over time. This is reflected in a reply tabled in the Rajya Sabha (as of 31 December 2025), which reports the final combined insured area for 2024–25 at 622.5 lakh hectares (62.25 million hectares). On this basis, the effective crop insurance penetration increases to approximately 31.4% of India’s gross cropped area. Even with this upward revision, India’s crop insurance penetration remains considerably below that of several major agricultural economies. By comparison, crop insurance coverage is estimated to be around 90% in the United States, about 80% in China, and approximately 80–90% in Canada, underscoring the substantial scope for expanding insurance coverage among Indian farmers.
Rising climate uncertainty, the emerging challenges and the way forward :
Climate change vagaries—marked by rising temperatures, erratic rainfall, prolonged droughts, floods, cyclones, hailstorms, and more frequent extreme weather events—have significantly increased agricultural risk and yield variability, making underwriting and pricing more challenging. Emerging pests and diseases further heighten crop losses, while increasing claim frequency and severity have eroded the profitability of crop insurance. Traditional parametric index-based products often fail to reflect farmers’ actual losses because weather indices may not accurately capture localized climate impacts. This underscores the need for innovative index designs with trigger variables closely aligned with actual losses. Climate-responsive pricing that incorporates rainfall variability, temperature anomalies, flood and drought frequency, soil moisture, crop vulnerability, and satellite-derived vegetation indices can enhance risk assessment. Leveraging technologies such as remote sensing, satellite imagery, Artificial Intelligence (AI), Machine Learning (ML), Geographic Information Systems (GIS), and drones can transform crop insurance in India by improving accuracy, transparency, and resilience.
An effective agricultural risk-layering framework must be designed with particular emphasis on the uppermost risk layer, where catastrophic events occur infrequently but result in extremely high losses. Given the systemic nature of these risks, substantial institutional capacity-building is essential to facilitate their efficient transfer and management. Strengthening institutional capabilities will enable the systematic generation, collection, and management of high-quality data, which forms the foundation for robust probabilistic catastrophe risk models. These models, in turn, support scientifically sound actuarial pricing, enhance risk quantification, and improve the long-term sustainability of agricultural insurance programmes.
The enhanced greenhouse effect has accelerated global warming by trapping more heat in the Earth’s atmosphere. Rising concentrations of greenhouse gases such as carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O), coupled with extensive fossil fuel consumption, are diminishing the Earth’s capacity to absorb CO₂. Inadequate waste management practices have significantly intensified this phenomenon. Landfills, for instance, generate substantial quantities of methane as organic waste decomposes under anaerobic conditions. These factors have far-reaching and often devastating consequences for both ecosystems and human livelihoods. In agriculture, the adverse impacts are particularly pronounced. Elevated temperatures during the grain-filling stage accelerate crop maturation, shortening the period available for grain development. This results in reduced grain size, lower crop yields, and ultimately threatens food security and farmers’ incomes.
The Pradhan Mantri Fasal Bima Yojana (PMFBY), as of 2023, is the world’s largest crop insurance scheme by farmer enrolment and the third-largest by insurance premiums. In the Union Budget 2026–27, the Government allocated ₹12,200 crore to strengthen PMFBY and other agricultural risk mitigation initiatives. The scheme benefited over 4 crore farmers in FY24, with cumulative claim settlements exceeding ₹1.70 lakh crore.
Authored by:
Dr. Abhijit Kumar Chattoraj, Chartered Insurer
