India’s agricultural sector faces the challenge of ensuring food security for a growing population while providing job security for millions amid increasing climate change impacts. Sustainable agriculture offers a viable path forward, yet financing for this transition remains heavily reliant on public funding and debt.
A recent study found that financial flows to sustainable agriculture in India averaged $301 billion annually for 2020-21 and 2021-22. Public finance accounted for $99 billion per year, while private finance contributed $202 billion. However, the majority of private financing 99.4% came from commercial banks due to the Reserve Bank of India’s priority-sector lending mandate.
Financial flows are heavily skewed, with 67% coming from private sources and 33% from public sources. Debt remains the dominant mode of financing, comprising 66.8% of total funds, while government budgetary support accounts for 28.5%. The study highlights the need to diversify funding sources, as reliance on debt and government expenditure limits investment in underfunded areas.
Experts suggest that government financing alone is insufficient due to competing priorities. The sector remains fragmented, dominated by small and marginal farmers, which discourages private investment. Additionally, most financing is directed towards downstream activities such as food processing and market-related sectors, with little investment in production.
Agriculture contributes 13.72% of India’s total emissions, making it the second-largest emitter after the energy sector. However, the government excludes agricultural mitigation from voluntary climate commitments, classifying these emissions as “survival emissions.” Despite this, sustainable agriculture remains essential for food security, energy security, job security, and emissions reduction.
India’s food demand is projected to rise to 400 million tonnes by 2050, while current production stands at approximately 330 million tonnes. Climate change threatens productivity, with potential yield declines of 20% for rainfed rice, 3.5% for irrigated rice, and 19.3% for wheat by 2050. The government has been promoting sustainable agriculture to address these challenges, tracking finance flows to ensure investments support inclusive and environmentally responsible practices.
There is no comprehensive estimate of the total sustainable finance required for agriculture. However, sectoral estimates suggest that India will need approximately $206 billion between 2015 and 2030 for adaptation efforts in agriculture and allied sectors. Another estimate indicates that 16% of the total $834 billion mitigation investment budget would be required for agricultural interventions by 2030.
A crucial gap in sustainable agriculture finance is the absence of a well-defined framework encompassing the entire value chain, from inputs to post-harvest management. Without clear definitions, financial institutions struggle to determine which activities qualify as sustainable, limiting fund flows to critical areas such as production.
To address this, there is growing demand for a taxonomy for sustainable agriculture, similar to the Taxonomy for Climate Finance introduced in 2024. A structured classification system could play a vital role in mobilizing finance and improving fund tracking. A 2021 report emphasized the need for cataloging India’s diverse sustainable farming practices and evaluating their effectiveness in the context of local climate risks.
The study underscores the importance of a structured approach to financing sustainable agriculture. A well-defined taxonomy could facilitate better investment decisions and reporting, helping financial institutions direct funds where they are most needed. Institutions like the Reserve Bank of India and the National Bank for Agriculture and Rural Development are well-positioned to lead this initiative, ensuring a more sustainable and resilient agricultural future.
