POTENTIAL FOR INDEX INSURANCE IN BARANI AREAS OF PAKISTAN Hira CHANNA* Abstract This paper explores the possibility of utilizing rainfall data and Normalized the Difference Vegetation Index (NDVI) data for developing an insurance product that protects farmers from weather related yield losses of wheat production in Pakistan’s barani areas. This study finds that while rainfall data serves as an effective index, NDVI data (only) partially captures the yield variability in wheat production. Key Words: Pakistan, NDVI, Index Insurance, Barani Areas. JEL Classification: Q140, Q180013. I. Introduction Pakistan has the fortune of owning one of the most extensive irrigation network in the world; the Indus Basin irrigation system [Rehman (1993)]. However, while this forms the core of agricultural production system in Pakistan, there are agricultural re- gions which are not part of the network and still depend on rainfall as the first source for water. The extent and timing of rainfall is an important factor impacting crop yields in all districts of Pakistan. It is most critical in those areas where it serves as the primary or only source of water for crops. This paper focuses on four districts in the north of Pakistani Punjab which are not served directly by irrigation water and are classified as ‘barani’ districts (Figure 1). Additionally most of the discussion will surround the wheat crop which is the most critical grain for most areas of Pakistan. It is expected that in regions which depend on rainfall for irrigation water, wheat yield is not only the lower but also more variable (Figure 2). It is important to note that yield tends to be lower in ‘barani’ areas not only because of the lack of irrigation water but also because farmers tend to spend less on other inputs such as fertilizer be- cause of the uncertainty associated with the crop yields. The analysis offered in this paper is motivated by considering that reducing uncertainty which surrounds farmers’ income from crops will encourage improved production practices which in turn will Pakistan Journal of Applied Economics, Vol.28 No.1, (1-17), Summer 2018 * Phd Scholar, Department of Agricultural Economics, Purdue University, Indiana, USA.