IMPACT OF INDEX MONSOON INSURANCE IN INDIA Literature review •AGRICULTURAL INSURANCE IN INDIA-A PERSPECTIVE By Dr. A. Amarender Reddy Scientist (Agricultural Economics) Indian Institute of Pulses Research, Kanpur-208024. Abstract Background the paper reviewed the innovative techniques in agricultural/rural insurance, which overcome some of the disadvantages of yield based group insurance and suggests rainfall (weather) index insurance as a better alternative/complement to the existing agricultural insurance scheme.
The weather (rainfall) index based insurance is also more compatible with reinsurance practices worldwide, which make primary insurers to cover their local/regional risks by reinsuring themselves with international reinsures. •Agriculture & Rural Development Working Paper 9 Innovative Financial Services for Rural India Monsoon-Indexed Lending and Insurance for Smallholders Ulrich Hess The World Bank Agricultural and Rural Development Department Abstract This paper was prepared by Ulrich Hess.
It draws extensively from author’s work on weather insurance and rural finance in India and Morocco •Townsend, and James Vickery, Barriers to Household Risk Management: Evidence from India,” Harvard Business School Working Paper, 2010, 09 (116). Abstract What types of households buy index insurance? What factors prevent the remaining households from participating? And does the purchase of index insurance result in more efficient risk taking? •Rainfall Index Insurance in India Daniel Stein Dissertation submitted to the Department of Economics for the degree of Doctor of Philosophy in Economics at
The London School of Economics and Political Science September 2011 Abstract This thesis provides three works which each contribute to understanding of the promising yet struggling market for rainfall index insurance in India Findings of the study •Post impact of monsoon index insurance in stabilisation of farmer’s income. •Comparison of growth between states having index monsoon insurance with the states without monsoon insurance •Overall economic development of Indian economy due to index monsoon insurance •Penetration of monsoon insurance in India. Purpose of the research (or rationale for the study)
For the rural poor in India, formal financial services would enable them to maximize returns on their surplus, smooth their consumption, and reduce their vulnerability to risk. However, their financial service needs—which include consumption credit and cash savings are seldom met due to systemic problems in the financial sector and monsoon risk. In 1991, a comprehensive household survey addressing rural access to finance revealed that barely one-sixth of rural households had loans from formal rural finance institutions (RFIs). Beyond credit, most of the rural poor also lack access to the banking system for savings.
Farmers respond to the lack of formal financial services by turning to moneylenders; reducing inputs in Farming; over capitalizing and internalizing risk; and/or by over diversifying their activities which leads to sub-optimal asset allocation. The combined effect of these coping strategies is a poverty trap. Smallholders cannot risk investing in fixed capital or concentrating on the most profitable activities and crops, because they cannot leverage the start-up capital and they face systemic risks that could wipe out their livelihoods at any point in time.
The challenge for banks is to innovate a low-cost way of reaching farmers and helping them better manage risk . Agricultural activity is inherently risky due to pest or disease-induced harvest failure, price volatility in commodities markets, or extreme weather events, such as droughts and floods. Smoothing consumption across years or seasons is a significant challenge for agrarian households in developing countries. Parchure (2002) estimated that in India about 90% of variation in crop production levels is caused by variation in rainfall levels.
In response to these problems, innovative index-based weather insurance was developed, in which the payment schemes are based on an exogenous publically observable index, namely local rainfall. This mitigates problems such as moral hazard and adverse selection and eliminates the need for in-field assessments, lowering the cost of providing insurance. The purpose is to study the effect of insurance in the farmer’s income and how insurance helps in agriculture risk mitigation in Indian context.
Coverage for crops and also schemes pertaining to monsoon insurance are also studied and its penetration in Indian market. Aim To study economic development due to monsoon insurance 1. Objectives •To study the effect of insurance in the farmers income •How insurance helps in agriculture risk mitigation in Indian context •To study coverage for crops and also schemes pertaining to monsoon insurance •To study Overall economic development of Indian economy due to index monsoon insurance •To compare and study agricultural growth pre and post effect implications of monsoon insurance in Indian economy
Hypothesis (or key questions) Index monsoon insurance has overall created a positive impact on Indian economy. Research Methodology Stage 1 Literature Research A comprehensive review of the relevant literature including a computer assisted search will be Undertaken in order to develop an understanding of previous work related to index monsoon insurance. Stage 2 descriptive research Review of literature in the field of agriculture and insurance to understand the growth of both the fields Stage 3 article research
Effect of insurance is studied by reviewing different articles and case studies related to monsoon insurance impact on specifies states which are more exposed to extreme climatic conditions Stage 4 statistics research A review of current as well as past statistics related to agricultural sector to analyse the trend Stage 5: Writing Up This stage involves writing up the content of the dissertation and should cover their chapters proposed Proposed Contents of the dissertation 1. Introduction 2. Agricultural sector and its challenges 3. Index monsoon insurance and its different schemes 4. Theoretical Framework of the study . Implications of monsoon index insurance 6. Interpretation and conclusion 7. Bibliography Work Plan/Diary First and second week -Review of Literature Second and third week- case study research Next 2 weeks- analysing the statistics Next 4 weeks – interpretation of statistics Next 2 weeks- collecting information from experts in the field of insurance Next 2 weeks – writing up the case study Next 2 weeks – Submission of soft copy for approval http://www. cirm. in/events/agriculture-index-insurance-conference-2012 -imp http://www. cgap. org/blog/lessons-india-weather-insurance-small-farmers