Adequate and timely funding key to achieving sustainable agriculture: RBI Deputy Governor Swaminathan

Mumbai (Maharashtra) [India], September 16 : Promoting sustainable agriculture and ensuring adequate funding for it are two critical issues that must be addressed, asserted Reserve Bank of India Deputy Governor, Swaminathan J, addressing a conference in Pune.
Giving a keynote address at the International Research Conference hosted by the College of Agricultural Banking (CAB), Pune, the RBI Deputy Governor highlighted five solutions that could go a long way in addressing the issue of financing sustainable agriculture.
He stressed upon the role of collectives such as Farmer Producer Organisations (FPOs), besides financing value chain and warehouse; technology adoption, among others.
Farmer Producer Organisations or FPOs have emerged as a crucial mechanism for addressing the specific challenges faced by small and marginal farmers. Their growth has been significant, with over 24,000 Farmer Producer Companies (FPCs) formed by March 31, 2023, the Deputy Governor said.
"These organisations are instrumental in scaling up the adoption of sustainable farming technologies developed by research institutions. By aggregating farmers, FPOs enhance their bargaining power as well as improve their access to technology and increase market opportunities for their output," the Deputy Governor said, as per the transcripts of the speech delivered recently.
To support financing to these organisations, RBI regulations provide that loans to FPOs engaged in agriculture and allied activities, up to an aggregate limit of Rs 2 crore per entity, qualify as priority sector lending (PSL). If FPOs engage in farming with assured marketing of their produce at predetermined prices, loans of up to Rs 5 crore qualify as PSL.
Sustainable agriculture refers to farming practices that meet today's food needs while preserving resources for future generations. This means adopting methods that protect the environment, reduce reliance on chemical inputs, and use water and land efficiently.
The RBI Deputy Governor also said that there is a need for increased focus on structured agriculture value chains and their financing. "For financial institutions, access to various participants in the value chain offers additional business opportunities."
Agricultural price volatility is a recurring challenge in India, often forcing farmers to sell their produce at lower prices during peak harvest due to immediate financial needs.
"Warehouse receipt financing allows farmers to store their produce in warehouses, delaying the sale until market prices become favourable. During this waiting period, farmers can access much-needed funds through commodity financing from banks. This form of financing helps stabilize the prices of agricultural commodities, and helps farmers in managing marketing risks while providing banks with diverse financing opportunities. However, for this form of business to flourish, the country needs more robust third-party warehousing agencies," the Deputy Governor said.
He added that a concerted focus on addressing regional imbalances, enhancing credit access, and integrating value chain financing is crucial for a more sustainable and resilient future for Indian agriculture.
In his remarks, he also said that the much-needed shift to sustainable farming practices will remain a distant dream for many without accessible and affordable financing options.
"Many farmers, especially those in rural or underserved regions, struggle with economic, institutional, and social constraints that limit their access. Therefore, sustainable finance should not only promote environmentally friendly practices but also ensure that financial resources are available to the farmers who need them most, providing equitable access to tools, technology, and knowledge."
Climate change and sustainability are two pressing issues that have captured global attention of late. In this context, sustainable agriculture emerges as a crucial solution.
The RBI Deputy Governor in his address noted that going ahead, achieving agricultural sustainability will be a key priority for all economies where agriculture is a major sector.
"This will involve transforming conventional farming practices into technology-driven systems, enhancing agricultural commodities' processing and preservation techniques, and contributing to value addition at the farm level. We also need to align crop production systems with climate-smart agriculture. And there is a need to ensure adequate and timely finance as well to sustain all of these," he said.
The Deputy Governor also threw light on several structural challenges facing the Indian agricultural ecosystem. Low productivity per unit of land; predominance of small and marginal landholdings; over-dependence on rains; inadequate agricultural processing capacity; and low level of mechanization are among them.
"When we consider the various sectors of the Indian economy, the agricultural sector stands out as one bearing the heaviest burden of climate change. Today, agriculture is at the confluence of three of the greatest challenges of the 21st century - sustaining food and nutrition security, adaptation and mitigation of climate change, and sustainable use of critical resources such as water, energy, and land," he noted.