Report Identifies Major Barriers to Climate-Smart Agriculture Financing in India

A recent report highlights significant barriers to increasing climate-smart agriculture (CSA) financing in India. These include a lack of incentives for farmers, financial institutions viewing CSA financing as risky, and unclear guidelines. The report was released by Samunnati, a company providing financial and support services to farmers and agricultural businesses in India.

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India's Third Biennial Update Report states that agriculture contributes 14.5 percent to the country's total greenhouse gas emissions. Despite its link to poverty reduction and rural development, agriculture is excluded from India's nationally determined contributions (NDCs) aimed at achieving the Paris climate goals. These goals include limiting global warming to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius.

Challenges in Climate Finance Distribution

Samunnati's report points out that global climate finance flows are limited and unevenly distributed among sectors. The energy and transport sectors, which are the largest emitters, have attracted 44 percent of total private climate finance. In contrast, agriculture and industry, the next largest emitters, have received less than 4 percent of total climate financing.

The report recommends that development banks like SIDBI and NABARD create special credit schemes and establish dedicated CSA funds. It also suggests promoting clear guidelines taxonomy, piloting blended finance models, and raising green bond finance from international markets to support climate financing/CSA financing.

Need for Targeted Capital Investment

Given the potential to reduce climate impact and the urgent need for adaptation in India’s agriculture sector, there is a clear need for targeted capital investment. This investment aims to make agricultural and food supply chains more climate-resilient. A key part of this transformation is creating strong incentives for farmers and entrepreneurs to adopt climate-friendly technologies and practices.

Samunnati emphasized that offering loans at lower interest rates compared to standard financing options is an effective strategy. "The lack of incentives for farmers to adopt CSA technologies, financial institutions seeing CSA financing as risky, and the absence of clear guidelines CSA taxonomy, which increases the risk of greenwashing, are significant barriers to scaling up CSA financing in India," said Samunnati.

The climate financing landscape in India faces similar challenges as the global scenario. There is a dearth of finance and disproportional climate finance flows into key sectors. Samunnati stressed that existing government policies in agriculture address both climate mitigation and adaptation goals.

In summary, addressing these barriers requires coordinated efforts from development banks, financial institutions, and policymakers. Creating special credit schemes, establishing dedicated funds, promoting clear guidelines taxonomy, piloting blended finance models, and raising green bond finance are essential steps towards enhancing CSA financing in India.