- The agricultural sector in India needs to balance food security and job security while dealing with climate change impacts. The government of India has been promoting sustainable agriculture.
- A study reveals that sustainable agriculture finance relies primarily on public funding and debt, highlighting the need to diversify funding sources.
- The study emphasises the need for a proper taxonomy to define and track sustainable agriculture financing, which can enable better mobilisation of funds to the required sector.
India’s agriculture sector faces multiple challenges from ensuring food security for a growing population to providing job security for more than half a billion people amid climate change’s increasing impacts. The path forward lies in sustainable agriculture, but financing for this transition remains skewed, relying mainly on public funding and debt, highlights a study by the Climate Policy Initiative (CPI), an international non-profit research organisation.
Released on January 28, the study found that financial flows to sustainable agriculture averaged $301 billion annually based on an analysis of two fiscal years — 2020-21 and 2021-22. Public finance accounted for an average of $99 billion annually, while private finance contributed $202 billion.
At first glance, private financing appears to dominate sustainable agriculture. However, a closer look reveals a different picture. Of the total $202 billion in private finance, 99.4% came from commercial private sector banks due to the Reserve Bank of India’s (RBI) priority-sector lending direction, which mandates that 18% of their overall credit must go to agriculture and allied activities.
The study highlights that financial flows for sustainable agriculture are heavily skewed, with 67% coming from private and 33% from public sources. The reliance on debt remains high, with 66.8% of financing in the form of loans. Around 28.5% of funding for sustainable agriculture comes from government budgetary expenditure.
Bhagirath Behera, a professor of economics at the Indian Institute of Technology (IIT) Kharagpur, explains that government financing alone has limitations due to competing priorities. “Since agriculture’s return on investment is often lower, private investment remains scarce. The agriculture sector is highly fragmented, dominated by small and marginal farmers, and landholding patterns further discourage private investors,” he notes.
The report calls for diversifying funding sources to address underfunded areas and reduce dependence on debt and government budgetary support, which currently make up the bulk of financial flows.
Neha Khanna, associate director at CPI and co-author of the report, says that private-sector financing must increase.
Shailesh Nagar, a partner at Intellecap Advisory Services, points out that finance naturally flows toward areas with lower risk — a trend reflected in the report’s findings. He adds that most funding is directed toward downstream activities, such as food processing and market-related sectors, while little is invested in production.

From survival emissions to sustainable solutions
Agriculture faces a unique challenge in the climate discourse. It contributes 13.72% of India’s total emissions, making it the second-largest emitter after the energy sector, as highlighted in India’s Fourth Biennial Update Report (BUR) to the United Nations Framework Convention on Climate Change (UNFCCC) submitted in December. However, the report explicitly states that India’s voluntary climate commitments exclude agricultural mitigation. The government categorises these as “survival emissions,” highlighted in its third BUR submitted to UNFCCC.
The complexity of the agriculture sector popped up in front of CPI researchers, too, who initially approached their study with a mitigation and adaptation lens but soon realised agriculture’s complexities. “As we delved deeper, we realised that the ground reality of agriculture is different. We support the government’s stance that the burden of mitigation cannot be placed on farmers at this stage. With this understanding, we revisited our approach, identifying sectors that could be classified as sustainable,” Khanna said. She adds, “Agriculture must be viewed through four critical pillars: food security, energy security, job security, and greenhouse gas (GHG) emissions.”
The agricultural sector’s challenges go beyond emissions. It employs 45% of India’s workforce, ensures food security, and requires sustainable management of natural resources like soil and water. India’s food demand is expected to rise to 400 million tonnes by 2050 while production at present is around 330 million tonnes. But climate change threatens productivity. There are predictions that climate change will reduce yields of rainfed rice by 20% and irrigated rice by 3.5% by 2050, with a decline in wheat yield of 19.3%, the CPI report highlights.
Given these challenges, the Indian government has been pushing for sustainable agriculture. Thus, the report claims it tracks sustainable finance flows instead of climate finance flows to agriculture in India. Sustainable finance covers a broader investment universe to build an inclusive, economically, socially, and environmentally sustainable world.
However, there is no comprehensive estimate available for the sustainable finance required. There are a couple of estimates that give sectoral estimates. For instance, the Department of Economic Affairs (DEA) estimated in 2020 that India would require approximately $206 billion between 2015 and 2030 for adaptation efforts across agriculture and other allied sectors. Similarly, another estimate says that 16% of the total $834 billion mitigation investment budget—would be needed for agricultural sector interventions by 2030.
The CPI study also highlights a crucial gap. There is no single comprehensive framework defining sustainable agriculture from a value-chain perspective in India that includes all the aspects from input required for farming and agriculture activities to post-harvest management. The study claimed to incorporate all three sectors.
“While no precise estimate is available, it is evident that financing for sustainable agriculture must increase substantially,” Khanna emphasised.
Economist Behera adds that agriculture has recently gained significant policy attention. Last year’s Economic Survey underscored the need for transformation in productivity and adaptation strategies to counter the adverse effects of growing climate conditions. It remains a key concern for the government as the transition requires substantial financial investment.

Need for taxonomy
In her July 2024 budget speech, Union Finance Minister Nirmala Sitharaman announced the release of a Taxonomy for Climate Finance, a classification system for climate-related investments that has been in development for at least three years. However, there is a growing demand for a similar taxonomy for sustainable agriculture, which could play a crucial role in mobilising finance and ensuring better tracking of fund flows.
In 2021, CFA Institute, a global not-for-profit organisation that provides finance education for investment professionals, and the Climate Bonds Initiative (CBI), an international, investor-focused not-for-profit, released a report that underscored the need for such a taxonomy. The report highlighted various terms of sustainable agriculture in India — Jaivik Kheti, Sahaj Kheti, Sajeev Kheti, and more. Additionally, several farming systems focus on increasing productivity through diversification, resource integration, and market linkages. Given the diverse practices, the report highlighted the importance of cataloguing these diverse efforts and evaluating their performance in the context of local climate risks. The CPI study reiterates the same, highlighting the urgency of a taxonomy for sustainable agriculture.
Without clear definitions, stakeholders, especially financial institutions, struggle to determine which activities qualify as sustainable, experts say. Neha Khanna from CPI, explains, “We have assessed finance flows at the sector and sub-sector levels, gaps in tracking remain because the end use of funds is often not clearly defined. The lack of granular data makes it difficult to determine exactly how much funding is allocated to each sector.”
Shailesh Nagar termed it first comprehensive study in India which analyses sustainable finance flows to agriculture. “It must have been a very challenging task because whole taxonomy of sustainable agriculture is yet to be fully finalised,” he said. Nagar further notes that the absence of a proper taxonomy limits the fund flow to sustainable agriculture, particularly for production-related activities. He stresses that institutions like the RBI and the National Bank for Agriculture and Rural Development (NABARD) should take a lead in developing a sustainable agriculture taxonomy that financial institutions can use for investment decisions and reporting.
Read more: High costs, mixed results challenge nano urea use in farming
Banner image: Workers offload harvested rice. Beyond emissions, agriculture faces challenges such as employing a large workforce and ensuring food security. Image by G41rn8 via Wikimedia Commons (CC-BY-SA-4.0)