New Delhi: Faced with two consecutive drought years, the Centre Wednesday cleared a crop insurance scheme under which farmers' premium has been kept at a maximum of 2 percent for foodgrains and oilseeds and up to 5 percent for horticulture/cotton crops.


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To be rolled out from the kharif season this year, the much awaited scheme - Pradhan Mantri Fasal Bima Yojana - was cleared at the Cabinet meeting, headed by Prime Minister Narendra Modi.


PMFBY will replace the existing two schemes National Agricultural Insurance Scheme as well as Modified NAIS which have had some inherent drawbacks.


"The cabinet has cleared the Agriculture Ministry's proposal on new crop insurance scheme," sources said.


It has approved farmers' premium between 1.5 to 2 percent for foodgrains and oilseeds crops, and up to 5 percent for horticultural and cotton crops, they said.


The farmers' premium would be 1.5 percent for rabi foodgrains and oilseeds crops, while 2 percent for kharif foodgrains and oilseeds crops. For horticutural and cotton crops it has been fixed at up to 5 percent for both the seasons.


According to sources, PMFBY will increase the insurance coverage to 50 percent of the total crop area of 194.40 million hectare from the existing level of about 25-27 percent crop area. The expenditure is expected to be around Rs 9,500 crore.


In PMFBY, there will not be a cap on the premium and reduction of the sum insured, they said. Besides, 25 percent of the likely claim will be settled directly on farmers account and there will be one insurance company for the entire state as well as farm level assessment of loss for localised risks and post harvest loss.


Private insurance companies, along with the Agriculture Insurance Company of India Ltd, will implement the scheme. All claim liability will be on insurer and the government would give upfront premium subsidy.


The new scheme is significant as the country is facing drought for the second straight year due to poor monsoon rains and the government wants to enhance insurance coverage to more crop area to protect farmers from vagaries of monsoon.