Agriculture & Rural Business in India – Opportunities unlimited !

Sustainable Agriculture, MSME & Green Value Chain Finance | Priority Sector Finance | Manoj Rawat, ValueFin India

Agriculture & Rural Business in India – Opportunities unlimited !


Its often quoted share of agriculture in GDP is < 14% and is continuously shrinking. While the share of pure agriculture in GDP may decline, the share of agribusiness in GDP is bound to go up significantly with the demand for value addition continuously increasing in India.

Agribusiness can empower India emerge as “Global Agricultural Super Power“.

>> 10 pointers on Agribusiness & Finance


  1. Agriculture still remains the mainstay of economy


Agriculture sector remains the mainstay of the Indian economy, contributing about 14% per cent of the national Gross Domestic Product (GDP). While agriculture’s share in India’s economy has continued to decline due to the high growth rates of the industrial and services sectors, the agriculture sector’s importance in India’s economic and social well being goes well beyond this indicator.


  1. Capital formation and Productivity remain area of concern


With three-quarters of Indian families are still depending on agriculture income for livelihood, India today is the largest producer of milk, pulses, and spices, maintains the largest cattle herd, have the largest area under wheat, rice, cotton and much more.  While the country is steadily emerging as a global agricultural hub, we still need to address serious issues and concerns on slow agriculture growth rate, lack of capital formation in agriculture, fragmented agriculture landholding, inadequate irrigation facilities, over exploitation of ground water and poor productivity per unit land.


  1. Shift from “Agriculture” to “Agribusiness”


India’s food security will depend on increased crop productivity, higher milk yield, increase its production of grains, fruits and vegetables, reduction in food wastage, managing land and water resources optimally and developing a robust agri-marketing and logistics infrastructure and enabling policies for capital investment in this sector. This critical to meet the demand of a growing population, to provide optimal nutrition to a large segment of society and to become a global food hub (supplier and exporter).
To do so, a highly productive, competitive and sustainable agricultural sector will need to emerge at an accelerated pace and there needs to be a shift from ”agriculture” to “agribusiness” to revitalise the agriculture segment and achieve the 4 to 8 % growth rate on Y-O-Y basis.


  1. Agriculture credit is the most critical non-land input for development of Agribusiness


Over the years Agricultural credit has played a pivotal role in increasing agricultural production in India. The flow of credit to agriculture has increased significantly in the recent at an annual compounded growth rate of about 25%. The annual agriculture credit flow expected for this year is INR. 700,000 crore ( USD 120 Billion) which may increase to INR 950,000 crore ( USD 160 Billion) for the following year. A granular analysis would point to the fact that the flow of credit still needs to be augmented.



  1. Access of credit to Small & Marginal farmers

Although the amount of agricultural credit has increased during the last few years, the access to formal sources of credit has been inadequate for small and marginal farmers, tenant farmers, oral lessees, share-coppers, who constitute the bulk of farming community. Around 80+ percent of farmers have land holdings less than 2 ha who are spread across 600,000 villages in India. We need to increase our outreach to these farmers and it is possible with new innovations in product design and methods of delivery, better use of technology, optimisation of processes and better understanding of agriculture landscape.



  1. New Priority Sector guidelines – A paradigm shift in agri-credit policy

Agricultural credit policies in India have been reviewed from time to time to maintain pace with the changing requirements of the agriculture sector, which forms an important segment of the priority sector lending. The PSL guideline issued by RBI last in mid of 2012 has led to major shift in agri-credit policy followed by banks. Besides this foreign banks having 20 or more branches in the country have been brought on par with domestic banks for priority sector targets in a phased manner.



  1. Direct lending to farmers- Huge retail agribusiness potential

The new regulatory norms have been designed to promote direct lending to the farming community. While this policy shift has thrown open a challenge to provide agri-banking services directly to large number of farmers spread across 600,000 villages, it also provides an opportunity to tap a huge retail agribusiness potential in rural areas.


This is also an opportunity to plough in capital investment in agriculture which remains key to growth of agriculture on a sustainable basis. This can enabled by addressing the capital needs from Farm to Firm, Preharvest credit to Post harvest Management, Infusing capital for short term purpose and long term infrastructure.

  1. Innovation, outreach, enabling value chains and upgrading skills

For banks and financial institutions, it calls for designing innovative schemes, develop new products, increasing outreach through expansion of institutional framework and understanding and developing the various Agri-value chains, devising appropriate norms for credit assessment and risk management framework, besides investment in technology and upgrading skills.


  1. Concerted efforts to implement agribusiness programs on field & on farm


While institutions may devise programs, products and policies much more concerted efforts would be required to implement them on the field.  It will need technology, manpower, willingness but above all it needs a change in attitude and mind-set towards agriculture business and lending. Need to move away from obligatory attitude to setting business plan that generates revenue. 


  1. Agribusiness is bound to become a critical business segment


Given the unlimited! opportunities and vast un-tapped potential, Agribusiness is bound to become one of the  critical business segment for the banks, financial institutions and corporate houses in days to come and a key to achieve growth which is inclusive and generates economic value to all the stakeholders.  It needs to be appreciated that significant part of Financial Inclusion  in India can be achieved only through Agrifinance Inclusion.


Manoj Rawat | India



The views expressed in this blog are personal.


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