PAC Urges Government Probe into AIC’s Crop Insurance Allegations

December 20, 2023

GS Paper III Agriculture

Context: In a recent report, the Public Accounts Committee (PAC) has reported on the failure of Government PSU Agricultural Insurance Company of India Ltd (AIC) to comply with the guidelines under National Agricultural Insurance Scheme (NAIS), which was scrapped in 2015-16.

C&AG Report Reveals Flaw in Crop Insurance Scheme

Issue: The matter pertains to a C&AG Report of 2017 on “Agriculture Crop Insurance Schemes”
- As per the erstwhile insurance scheme NAIS, AIC was required to obtain appropriate re-insurance cover in the international reinsurance.
- Though AIC arranged for re-insurance support for its own share of claims, it did not arrange re-insurance support for Central and the State governments.

Reinsurance

Reinsurance is an insurance for insurers where the insurance company transfers its liability to another company to reduce the solvency risk from a large payout for a claim.
Reinsurance allows insurers to remain solvent by recovering all or part of a payout.

Loss: The report notes that had such re-insurance been provided, liabilities of Centre and State Governments amounting to Rs 21,989.24 crore could have been reduced.
Criticism: However, other experts have pointed out the 6-year delay in the report and suggested that PAC should not have recommended something based on C&AG’s earlier observations.
Recommendation: PAC also recommended penal action against erring officials whose actions resulted in a preventable loss of ₹21,989.24 crore.
- PAC report also noted that coverage of farmers under the erstwhile scheme was very low compared to their population, and recommended identification of reason for this.

About Agriculture Insurance Company of India (AIC)

Agriculture Insurance Company of India Limited was incorporated under the Indian Companies Act 1956 in 2002.
AIC transacts crop insurance businesses directly or indirectly concerning agriculture and its allied activities.

Evolution of Crop Insurance Schemes

The Centre introduced the Comprehensive Crop Insurance Scheme (CCIS) in 1985, which was replaced by NAIS from the Rabi season 1999-2000.
From 2010-11, Modified National Agricultural Insurance Scheme (MNAIS) was introduced in 50 districts as pilot.
In 2013-14, MNAIS was merged with Weather Based Crop Insurance Scheme (WBCIS) and a new National Crop Insurance Programme (NCIP) started. However, NAIS was allowed to be continued in some States, as per their option, until 2015-16.
From Kharif season 2015-16, the Centre introduced the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY).

Public Accounts Committee (PAC)

Origin: It was established in 1921, and is constituted every year in the Parliament.
Members: It consists of 22 members ( 15 members from Lok Sabha and 7 members from Rajya Sabha) elected with a term of 1 year only.
Objective: It was framed to examine the accounts reflecting appropriation of funds granted to meet the expenditure of the annual Finance Accounts of the government.

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Source: Business Line