Rajasthan priorities poverty, sulaiman

1. Cost-Benefit Analysis of Crop Insurance and
Graduating Ultra-poor
Munshi Sulaiman
Research Director
Save the Children International
Michael Murigi
Research Associate
University of Sydney

2. The Problem
• Smallholder farmers are vulnerable to crop and income loss
• Invest in less risky but low return crops
• Costly coping strategy
• Distress sale of limited productive assets
• Borrow at high interest rates - further indebtedness and poverty
• Higher rural poverty (16%) than urban (11%) across all
districts
• Extreme poverty leads to multiple deprivations
• Growth alone is inadequate to eliminate extreme-poverty
• Targeted and sustainable solutions

3. Rajasthan
• Poverty level moved from 38% in
1990s to 15% in 2012
• 75% of the population live in rural
areas
• Land fragmentation has
contributed to increased
overreliance on marginal farming
• Landless ~4%

4. 1st analyzed solution
Subsidized Crop Insurance

5. Description of the solution
• An unlimited comprehensive coverage for farmers.
• Heavy subsidization with farmers only paying 2% of the insured sum in
the main Kharif season; 1.5% and 5% respectively for rabi and
horticultural crops; or actuarial rate if it is lower than the cut off.
• Unlike other schemes e.g. NAIS, this scheme does not have a cap on
the sum insured per farmer.
• A wider range of calamities is covered.
• Administered on smartphone platform to enhance efficiency.
• Implemented as a public-private partnership with insurance
companies bidding at state level.

6. Costs
• The cost of subsidy payable by the state and central governments is
the balance from the 1.5% to 5% that the farmers pay.
• Subsidy paid in 2016-2017 fiscal year was Rs. 2885 per hectare for
74.4 lakh hectare covered in Rajasthan.
• The coverage for the gross cropped area is 28.6%
• For a scheme that runs to 2032 and at 5% discount, we project an
increase in premium subsidy per hectare to Rs. 511 billion and an
increase in coverage of cropped area.

7. Benefits
• There are two main observable benefits - Income from crop
production and health benefits.
• Increase in income comes as a result of;
• Farmers cultivating higher-risk crops with higher return on average
• Investing more on improved technologies
• Increasing the amount of cultivated land
• Alternatively, farmers who suffer from crop loss benefit from
payments made by the insurance companies.
• Health benefits
• Lives saved (5 per 100,000 farm households annually)
• Reduced malnutrition for children (1.5 pp decline)

8. Benefit, cost and BCR Table
Intervention Discount Benefit
(Billion Rs.)
Cost
(Billion Rs.)
BCR Quality of
Evidence
Crop
insurance
3% 929.3 600.3 1.548 Medium
5% 782.8 511.4 1.531
8% 618.2 409.6 1.509

9. Sensitivity analysis of crop insurance
Discount rate Base
estimate
Changes from base estimate
Project for 10
years
No health
benefit
No change in
gross cropped
area
3% 1.548 1.477 1.510 1.514
5% 1.531 1.463 1.500 1.497
8% 1.509 1.447 1.485 1.476

10. 2nd analyzed solution
Graduating Ultra-Poor

11. Description of the solution
• Create a pathway out of extreme poverty
• Sequencing of a set of interventions - asset transfer to
promote self-employment, social support, and food
subsidies.
• A time-bound exit path through self-employment
• Strict targeting criteria to reach the extreme-poor.
• Series of evaluations showing sustainable impacts on food
consumption, income, savings and assets.

12. Components of the graduation model

13. Impact evidence of graduation
0
0.5
1
1.5
Year 2 Year 3 Year 7
ImpactEstimates
(Standardized)
HH Assets Per capita consumption
Food security

14. Costs
• Rs. 25,000 per beneficiary household over 2 years
• Half of it goes directly to asset transfer while the other half goes
towards provision of other services (asset transfer, food, stipend).
• We estimate the intervention to cost Rs. 11.33 billion assuming over
30% of the poor households will be reached.

15. Benefits
• Main benefits of the intervention include:
Increase in annual household consumption.
Increase in amount of savings.
Increase in assets acquisition.

16. Benefit, cost and BCR table
Interventions Discount
Benefit
(Billion Rs.)
Cost
(Billion Rs.)
BCR
Quality of
Evidence
Graduation
for ultra-
poor
3% 44.3 11.8 3.763
Strong5% 40.1 11.3 3.542
8% 34.8 10.7 3.253

17. Sensitivity analysis of graduation for ultra-poor
Discount rate
Existing
Evidence
Changes from base estimate
Consumption
gain for 10
years
Consumption
gain for 15
years
Asset gain is
Rs 7000
3% 3.763 5.512 7.021 3.502
5% 3.542 4.987 6.120 3.290
8% 3.253 4.347 5.092 3.015