Agriculture insurance in India: approaches and challanges

Abstract

As an alternative to the existing area approach based short-term credit-linked crop insurance scheme, this article advocates peril-indexed insurance and options as a risk management technique aimed at stabilizing the revenue of farmers, which is highly dependent on Indian weather conditions. Rainfall derivatives with premium as a function of adverse deviation of rainfall from the threshold are discussed vis-à- vis traditional crop insurance which brings out the clear advantages of the former both in terms of providing assurance to the farmer and ensuring financial viability to the insurer. The potential for the active involvement of re- insurers in establishing a secondary market for securitized weather derivatives is also examined.