Agriculture Business, Food Security and Financial Inclusion

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

Agriculture Business, Food Security and Financial Inclusion


Agriculture Business, Food Security and Financial Inclusion


 “Its often quoted share of agriculture in GDP is < 14% and is continuously shrinking. While the share of pure agriculture in national Gross Domestic Product (GDP) may have declined, the share of agribusiness in  is bound to go up significantly with the demand for value addition continuously increasing in India.”


 With 60% of Indian families still depending on agriculture income for livelihood, India today is largest producer of milk, pulses, and spices, maintains the largest cattle herd, have the largest area under wheat, rice and cotton. Although the agriculture growth rate and per unit productivity remains a big challenge and big area of concern, the country is steadily emerging as agricultural power. Agribusiness can empower India emerge as “Global Agricultural Super Power”.


Agriculture development to a large extent addresses the “two key areas” which are drawing the maximum attention from Government, regulators, financial institutions and many others i.e., “Food security” and “Financial Inclusion”. These twin areas are “intertwined”  with  the “next phase of economic growth” of the India which we all aspire for, that which will be which lot more participative, broad based  & inclusive and can be become real engine which will propel country into next  growth trajectory.


 While “Food security” of the country can be only ensured by pushing the “Agriculture growth”, the “Financial Inclusion” in India can truly be delivered through a framework which has “Farmers” at its heart.

Agribusiness is the next big opportunity
With mounting pressure of a growing population, the change in food consumption patterns,  the need for higher productivity per unit of input, demand of value added products, ensuring the educated youth could be retained in agriculture and above all the need to ensure food security of the country, Agribusiness is now being seen as next big opportunity and the growth engine of future  by the entrepreneurs, corporate houses, banks and financial institutions.

The 10 key pointers why agriculture remains at center growth and “inclusive growth”.

  1. Agriculture still remains the mainstay of Indian 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 in agriculture and Productivity


 With 60% 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.  This would lot of long term investment in agribusiness (especially private sector), innovations in agriculture sciences, better agri- inputs, better technology, focus on natural resources conservation and create a robust framework for modernization of agriculture.


  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. 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 revitalize 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. The amount that will flow through institutional framework should encourage entrepreneurs, corporate houses and institutional investors in bring in investment  for development this sector.


  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, optimization of processes and better understanding of agriculture landscape.


  1. Financial Inclusion – Small and Marginal farmers will be at the “heart” of inclusion policy


More than 2/3rd of India’s population is dependent on Agriculture and allied agriculture activities. Bulk of our farming community belongs to Small and marginal category who own 83 % operational holdings with 63% of farmers being marginal and having landholding <1ha.  Any Financial Inclusion framework which is not aligned to these facts and ignores to genuinely take care of the interests of agriculture and of the small & marginal farmers, may never deliver the real “Inclusion”.


 A sound financial inclusion policy primarily needs to primarily focus on increasing productivity, viability and bringing lasting improvement in the economic condition of the small, marginal and tenant farmers and sharecroppers and wagers. This may surely be a step forward to achieve “true & lasting financial inclusion” and may contribute to creation sustainable food and nutritional security for the country. 


  1. New Priority Sector guidelines – A paradigm shift in agri-credit policy and open up huge retail agribusiness potential


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.


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 that remains key to growth of agriculture on a sustainable basis. This can be enabled by addressing the capital needs from Farm to Firm, Pre-harvest 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 Corporate houses, 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 and above all attract & retain educated youth in agriculture.


  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 and 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 that generates sustained profits.


  1. Agribusiness is bound to become the most 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 Agri-finance Inclusion. 


It would be important to note that while we do have National policies on Agriculture, National Policy on Farmers, Policy on Credit and Inclusion etc, however it is implementation where a lot more concerted and coordinated efforts are required from various stakeholders to rejuvenate the farm sector and bringing lasting improvement in the economic condition of the farmers. Effective implementation of policy initiatives will call for comprehensive reforms and strong public, private and people partnerships in the management of agriculture in India.


I would sum up by a quote made by Dr. Swaminathan, Eminent Agriculture Scientist “The future belongs to nations with grains and not guns”.


Manoj Rawat


The views expressed in this article are purely personal.

Manoj Rawat |India Head, Agribusiness, RBL Bank, Mumbai
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