Assessing benefits of crop insurance vis-a-vis irrigation in Indian agriculture

This study has assessed the impact of crop insurance vis-à-vis irrigation on farm income and its higher-order moments. The study utilizes nationally representative farm survey data from India and applies a multinomial endogenous switching regression technique to estimate these measures' relative income and risk benefits. Four key findings have emerged from this analysis. First, farmers' decisions on risk management and adaptation measures are influenced by the historical exposure to climatic shocks, resource endowments, institutional credit and social safety nets for food security and employment. Second, crop insurance and irrigation improve farm income and reduce farmers' exposure to downside risk. Third, the income and risk benefits are bigger in the case of their joint adoption. Fourth, there is spatial heterogeneity in the benefits of these—crop insurance is relatively more effective at higher levels of rainfall, while the converse is true for irrigation. The key implication of these findings is that greater adoption of crop insurance requires designing cost-effective insurance products considering the adaptation benefits of irrigation and other such farm practices that reduce farmers' exposure to downside risk besides causing an improvement in farm income.