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Financing Sustainable Agriculture must take precedence  – IMPRI Impact and Policy Research Institute

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Financing Sustainable Agriculture must take precedence  - IMPRI Impact and Policy Research Institute

A. Amarender Reddy | Tulsi Lingareddy

India’s need to prioritise the strategies for financing sustainable agriculture becomes imperative with the Cabinet’s approval of the updated Nationally Determined Contributions (NDCs), submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in August. 

Per the updated NDCs, India now stands committed to reducing the emissions intensity of its Gross Domestic Product (GDP) by 45 per cent from the 2005 level by 2030 against the earlier target of reducing emissions intensity by 33-35 per cent, submitted in October 2015. 

To achieve the (Panchamrits) NDCs, India needs a substantial capital of about ₹11-lakh crore per year between 2015 and 2030 but has raised only ₹3.09-lakh crore per year during 2019-20, according to Landscape of Green Finance in India, a study report by Climate Policy Initiative. 

The capital raised comprises both public and private funds from domestic (83 per cent) and international (17 per cent) sources, covering three sectors — clean energy (42 per cent), energy efficiency (38 per cent) and clean transport (17 per cent).

The agriculture sector contributes for about 18 per cent of green house gas emissions (GHGs), according to the Indian Network for Climate Change Assessment (INCCA), Ministry of Environment and Forests. 

Hence, there is an urgent need to adopt climate smart agricultural practices for ensuring food security as well as for meeting the commitments of net-zero emissions.

The main focus of green finance has been on clean energy and transportation. The emphasis on agricultural and related activities is significantly low. For instance, only 10 per cent of total green bonds’ allocation was for Agriculture, Land Use, Forests, and Ecological Resources during 2020-21, according to a World Bank report. There is an urgent need to develop resilient high yielding varieties (HYVs), and technology for efficient recourse use. 

Sustainable Agriculture need Green Finance

India’s food security, achieved with a remarkable growth in agriculture during the past 75 years, has come at the cost of water pollution, loss of biodiversity and exhaustion of groundwater and soil fertility ultimately leading to falling yields. Frequent floods and droughts due to climate change are already impacting food production adversely. 

Realignment of Policy

Policy incentives like price support, procurement, input subsidies, etc., have played a significant role in shifting to intensive mono-crop cultivation of rice and wheat from pulses, coarse cereals and oilseeds. It is time to reverse such distorting interventions and reorient the policy towards promoting sustainable agriculture. 

Awareness needs to be created among both farmer producers as well as investors for the success of financing sustainable agriculture. 

Instigating responsible production practice of agricultural commodities can attract potential private investments. 

A comprehensive regulatory framework is essential to ensuring transparent flow of green finance and avoid green washing with requisite disclosures and tracking mechanisms in place. In this regard, the Securities Exchange Board of India has been taking initiatives like disclosure guidelines, and a framework for issuing green bonds. Apart from the regulators, it is also the responsibility of the stakeholders to actively engage in the process in order to account for all possible externalities.

Thus, for India to ensure its food security, while complying with the NDCs, it is essential to prioritise financing sustainable agriculture. Indian farmers’ livelihoods, majority being smallholders, are vulnerable to climate change.

A judicious blend of public and private interments is essential to meet the substantial capital required for financing sustainable agriculture.

About the Authors

A. Amarender ReddyPrincipal Scientist, ICAR-Central Research Institute for Dryland Agriculture, Hyderabad.

Tulsi Lingareddy, Consultant Economist – Financial Markets, Sustainable Finance and Agriculture

Published on September 21, 2022 on The Hindu Business Line as Time to prioritise financing sustainable agriculture

Also read other pieces by Dr Reddy

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