India’s agriculture sector stands at a critical juncture, facing the dual challenge of ensuring food security for a growing population while adapting to climate change. With financial constraints and resource limitations exacerbating the situation, sustainable agriculture finance emerges as a key enabler for resilience and growth.
The recently launched Climate Policy Initiative (CPI) report, "Sustainable finance flows to India’s agriculture sector," provides a detailed analysis of financial flows in this domain, mapping public and private finance sources and identifying key investment opportunities. This article delves into the findings of the report and explores actionable pathways to enhance sustainable finance for India's agriculture sector.
Speaking on the report's significance, Vivek Sen, Director at CPI India, remarked: "India's agriculture sector is at a crossroads, grappling with the dual challenge of ensuring food security while adapting to the impacts of climate change. This report highlights actionable pathways to mobilise finance that supports sustainable agricultural practices, unlocks innovation and fosters resilience. Collaborative efforts across stakeholders are essential to meet the growing food demand and achieve long-term sustainability."
The state of sustainable agriculture finance in India
Agriculture remains a cornerstone of India’s economy, employing nearly 45.5% of its workforce. However, climate change-induced disruptions, such as erratic monsoons, soil degradation, and declining groundwater levels, pose severe threats to agricultural productivity. The CPI report emphasises the urgent need for a financial framework that can support a transition to sustainable agricultural practices.
Key findings from the report indicate that annual financial flows to sustainable agriculture averaged INR 22,393 billion (USD 301 billion) during FY 2020-22. Notably, private finance accounted for 67% of these flows, with commercial financial institutions leading disbursements. Moreover, domestic sources dominated sustainable agriculture finance, representing 99.5% of total financial flows, while international sources contributed merely 0.5%.
Sources of sustainable finance in agriculture
The report categorises sustainable finance sources into public and private sectors, further divided into domestic and international contributions.
Public finance
Public sector contributions averaged INR 7,339 billion (USD 99 billion) annually, with government budgetary allocations making up the lion’s share. These funds were primarily directed towards upstream and downstream activities, including irrigation infrastructure, input subsidies, and market support mechanisms. Public finance flows experienced a notable decline of 21.6% between FY 2020-21 and FY 2021-22, attributed to reduced government disbursements under COVID-19 relief programmes. Key public sector players such as the National Bank for Agriculture and Rural Development (NABARD) and state-level agricultural departments played a crucial role in channelling funds to sustainable initiatives.
Private finance
Private finance flows dominated the sector, averaging INR 15,054 billion (USD 202 billion) per year. Commercial financial institutions accounted for nearly 99.4% of these flows, primarily through priority-sector lending mandates by the Reserve Bank of India (RBI). Private equity and venture capital (PE/VC) investments in sustainable agriculture also witnessed an upward trend, growing from INR 37.4 billion (USD 503 million) in FY 2020-21 to INR 95.4 billion (USD 1,280 million) in FY 2021-22. However, international private investments remained significantly low, reflecting a global trend of limited foreign capital inflow into agriculture.
Investment trends across the agriculture value chain
The CPI report adopts a value-chain approach to analysing financial flows, classifying them into upstream, agricultural, and downstream activities.
Upstream activities include financial services (credit), irrigation infrastructure, human capital development, and research. Inputs such as seeds, fertilisers, and pesticides received the highest financial inflow within this category, averaging 31.2% of upstream finance. Research and technology-driven initiatives, though underfunded, showed growth potential, attracting investments from PE/VC firms and FDI sources.
Agriculture and farming activities received the highest share of financial flows (61%). Farm practices and cropping choices accounted for nearly 86.7% of finance in this category, signifying a focus on improving crop productivity and resilience. Allied activities such as animal husbandry and aquaculture received comparatively lower funding, highlighting the need for diversification in sustainable agriculture investments.
Downstream activities, including storage, market infrastructure, and alternative supply chains (such as bioethanol production and waste management), constituted 17% of financial flows. Storage and market linkages received 92.9% of downstream investments, underscoring the significance of reducing post-harvest losses and improving farm-to-market connectivity.
Challenges in sustainable agriculture finance
Despite significant financial flows, India’s sustainable agriculture finance ecosystem faces several challenges. International funding remains minimal, contributing only 0.5% of total financial flows. Mobilising global capital through development finance institutions and climate funds is essential to bridge financing gaps. Government subsidies and budget allocations constitute a large portion of sustainable agriculture finance.
A more diversified financial ecosystem is needed to reduce dependence on state funding. Certain sectors, such as research and allied agricultural activities, remain underfunded. Expanding financial support to these areas can enhance resilience and innovation. The absence of a unified framework for tracking and reporting sustainable agriculture finance creates inconsistencies. Improved transparency and monitoring systems are needed to ensure accountability.
A four-pillar framework for enhancing sustainable agriculture finance
To address these challenges, the CPI report proposes a four-pillar framework aimed at improving financial flows and fostering sustainability in India’s agriculture sector.
Establishing a unified sustainable agriculture taxonomy is crucial for standardising classification systems and aligning financial practices with India’s climate finance taxonomy. This will facilitate better tracking, assessment, and policy formulation. Enhancing monitoring and reporting systems through a technology-driven approach can improve transparency. Digital platforms that monitor crop yields, soil health, and weather patterns can bridge data gaps and formalise agricultural fintech initiatives.
Boosting and diversifying financial flows through blended finance mechanisms, risk mitigation tools, and credit enhancements can attract private investment. Refinancing programmes, weather-indexed insurance, and leasing models for sustainable equipment can de-risk agricultural finance. Expanding farmer training programmes and awareness initiatives will equip stakeholders with the knowledge to adopt climate-smart practices. Government bodies, financial institutions, and NGOs should collaborate on capacity-building efforts.
Conclusion: A call for collaborative action
The findings of the CPI report underscore the need for collaborative efforts among policymakers, financial institutions, private investors, and international organisations to enhance sustainable agriculture finance in India. By implementing the recommended four-pillar framework, India can strengthen its agricultural resilience, reduce emissions, and ensure long-term food security. With the right financial mechanisms in place, sustainable agriculture can become a driving force for economic growth and climate adaptation, securing a prosperous future for India’s farming communities.