Correlates and impact of crop insurance in India: evidence from a nationally representative survey

Abstract

PurposeThe purpose of this paper is to identify the correlates of crop insurance adoption and estimate the impact on debt and farm income.Design/methodology/approachThe authors used nationally representative data from National Sample Survey Office (NSSO), which consisted of 35,200 farming households. Logit and propensity score matching (PSM) (nearest neighbor, caliper and kernel matching) techniques were used.FindingsWith only around 5% of households insuring their crops and 87% of them not receiving claims, crop insurance in India has failed. Logit model estimates of correlates of adoption indicated that households with larger family size, lower social group, less education, lower standard of living and poor were more likely to be left out of the ambit of crop insurance. Further, propensity score estimates suggested that households with access to crop insurance had significantly lesser outstanding debt with positive effect on input costs and crop income. The authors’ results were in contrast to the risk balancing theory.Practical implicationsResults of our work encourage us to rethink and restructure the crop insurance policy design in India. With credit and insurance markets interlinked by design and as the risk balancing in the farm business found absent, policies to strengthen both the markets are the need of the hour. To encourage more farmers to take up crop insurance, revenue-based indemnity calculation could be tried in India.Originality/valueImpact estimates from three different algorithms of matching were compared and tested for robustness. Consistent average treatment effect on treated (ATT) was considered for interpretation and policy implications. Since the data are from a nationally representative survey, results are believed to be of extreme value to policy makers and insurance providers as it can be generalized.