Agricultural Insurances

Data and Methodology:

Karnataka state, with more than 75 per cent of its arable land in the rain fed regions, has the Second largest drought-prone area in India, (first largest Rajasthan). Minimizing the impact of natural disaster–related agriculture losses, particularly from drought, is therefore a major public policy objective for its government. An effective crop insurance system is a critical part of a strategy to cushion income losses for farmers, finance inputs for agricultural production in the next planting season after a drought and deepen the penetration of agricultural credit for investment to boost agricultural productivity.

The State of Karnataka has participated in every agriculture insurance program introduced in India since 1972. The current National Agriculture Insurance Scheme (NAIS), launched in 2000 during the Rabi season that is November to March, is intended to provide farmers with insurance coverage and financial support against failure of any notified agriculture as a result of agricultural calamities and to restore farmers’ credit eligibility after a agriculture failure before the next planting season. The World Bank, at the request of the government of Karnataka evaluated the impact of the National Agriculture Insurance Scheme in the state, taking into account Karnataka’s patterns of land holdings, cropping, and rainfall, as well as the characteristics of farmers’ incomes and risk management strategies.

The assessment addressed the program’s product design, breadth of coverage, incentives to farmer participation, operational effectiveness, impact on expanding access to credit, and financial performance. The study also examined the relationship between weather parameters and crop production in Karnataka in light of the development of markets for transferring and hedging weather risk. Drought has a significant impact on small and marginal farmers, according to the study.

In Karnataka, the number of small and marginal land holdings has been increasing for 25 years, resulting in a growing proportion of the rural population with incomes that are highly vulnerable to natural disasters. The reduction of poor farmers’ vulnerability is an important part of the state’s development and poverty alleviation agenda. Poor households, with no or few assets to fall back on, are especially vulnerable to risks that reduce incomes and increase expenditures. By ensuring sufficient liquidity right after a disaster, a natural disaster insurance strategy can help speed recovery, ensure effective use of scarce government funds, and reduce the risk-enhancing effects of moral hazard. In addition, market-based risk-transfer mechanisms can assist in the internalization of risk and lead to desirable mitigation activities.

Agriculture in Karnataka

Land reform has been successful in Karnataka, as reflected by the relatively large number of Land holders in the state. As a result of land reform coupled with inheritance law in particular, the average land holding as of 1996 was 1.95 hectares, compared to holdings of 1.45 and 0.48 hectares, respectively, fo r small and marginal farmers. Although small and marginal farmers account for 69 percent of total holdings, they operate only 31 percent of the total area.

As per the 2011-12 Census, there were 17.3 million workers in Karnataka. Of this total, farmers accounted for 5.92 million (34 per cent); agricultural labourer’s, 5 million (29 per cent); and “other” workers, 6.38 million (37 per cent).

Agricultural workers in Karnataka

The small landholding pattern and high dependence of the labour force on agriculture (more than two-thirds of all workers in the state) are reflected in the cropping pattern. More than 50 percent of the net sown area is devoted toward cereals and pulses, primarily for consumption purposes.

Karnataka over the past 43 years (2011-12) has had a rainfall deficit an average of 1 out of every 4.3 years. Rainfall deficits occurred in 12 out of the 43 years during Kharif season (the main cropping season, June to October), and in 21 out of the 43 years during Rabi season.

A policy of cultivating cereals and pulses in a state where more than 75 per cent of arable land is dependent on rainfall requires innovative risk management instruments to hedge against yield variability.

A. Holdings

The total number of holdings in Karnataka 23847211 in 2010-11 senses. During the same period, small and marginal households increased from 54 per cent of total holdings to 69 per cent, while the area held by these smallholders expanded from 15.6 per cent to 30.8 per cent. Marginal holdings operate less than 1 hectare; small holdings, between 1 and 2 hectares; medium holdings, between 2 and 10 hectares; and large holdings, more than 10 hectares. the average size of holdings decreased from 3.2 hectares in 2001 to 1.95 hectares in 1996. Small and marginal farms comprise half of the holdings in northern Karnataka and 75 percent in the southern and coastal regions of the state.

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