India Needs More Funding for Sustainable Agriculture

India’s Sustainable Agriculture Finance Falls 1.1% in FY22, Needs Diversification
New Delhi, 28 Jan: Finance for sustainable agriculture in India registered a marginal drop in FY22 at Rs 22.31 trillion, compared to a 1.1% dip from Rs 22.47 trillion in FY21, as per a report that has been furnished by Climate Policy Initiative (CPI). Even as the agricultural sector demands more funds, finance inflows remain misbalanced with 67% privates and 33% public source spends, thus pointing the need for it to be diversified more.

The report, Sustainable Finance Flows to India's Agriculture Sector, also commented that domestic sources accounted for 99.5% of total financial flows, while international contributions were a negligible 0.5%.

Government Support and Financial Gaps
Sustainable agriculture has been a key support area for government budgets. Central and state governments have allocated an average of Rs 7,294 billion during FY21 and FY22. Of this, it has been roughly around Rs 6,400 billion toward sustainable agriculture activities. This is still far from the increasing demand for food and current climate challenges.

India's food demand is likely to touch 400 million tonnes by 2050, and production in FY23 was at about 330 million tonnes. This deficit needs an average growth rate of 4% over the next five years, which implies a need for more robust financial and policy support.

Policy Initiatives and Carbon Credit Trading
It recognized the Indian policy push toward sustainable agriculture, emphasizing resource efficiency, food security, and adaptation to climate. One significant step is the Carbon Credit and Trading Scheme, which regulates carbon credit trading and compounding some sectors, such as agriculture, to buy such credits.

Despite these efforts, financial flows remain concentrated among a limited number of players. Development financial institutions, philanthropies, private equity firms, and venture capitalists remain underrepresented in this sector. Expanding their participation could help bridge the financial gap.

Challenges in Monitoring and Capacity Building
One of the key issues reported is that there lacks a comprehensive financial taxonomy for sustainable agriculture. India's diversity in agricultural landscapes requires standardized evaluation criteria that account for different activities, geographical conditions, and climate risks. Proposed taxonomy of climate finance must account for these in order to enhance financial planning and tracking.

Better systems for data collection and reporting are also needed. The report suggested the utilization of digital platforms, which would help in the real-time reporting on crop yields, weather conditions, and soil health. This might enhance financial decision-making and improve transparency regarding investments in sustainable agriculture.

There are areas of capacity building too. The report suggests an expansion of training for farmers, policymakers, and financial institutions at adopting sustainable agricultural practices. Mobile-based training, especially in regional languages, would enhance outreach and effectiveness.

Need for Financial Diversification
The heavy reliance on private financing and the limited role of public funds underscore the urgency for source diversification. Mobilizing additional funding for sustainable agriculture can be facilitated by encouraging financial institutions beyond traditional lenders, including venture capitalists and impact investors.

With the agricultural sector facing growing environmental and economic challenges, increasing financial flows, improving data systems, and strengthening policy frameworks will be crucial for achieving sustainability goals.

Source: Climate Policy Initiative, Sustainable Finance Flows to India's Agriculture Sector, Jan 28, 2025