RBI deputy governor calls for enhanced financing access for Indian farmers

Shri Swaminathan Janakiraman suggested five solutions to address financing issues.

A senior official of India’s central bank said that ‘value chain financing’ and ‘warehouse financing’ offer potential solutions to address the agricultural sector’s sustainable financing needs.

Although they offer long-term benefits, sustainable financing is costly upfront for India’s farmers, said Shri Swaminathan Janakiraman, deputy governor, Reserve Bank of India (RBI), in his keynote address during the International Research Conference.

“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,” the deputy governor told attendees of the conference, held at Pune, India on 11 September 2024.

Shri Swaminathan suggested five solutions that can address the issue of financing sustainable agriculture, two of which are value chain financing and warehouse financing.

Under the value chain financing model, various stakeholders– farmers, aggregators, traders, processors, and financial institutions– are integrated into a coordinated system, with banks offering targeted financial products depending on the value chain.

“With changing consumer preferences towards branded, well-packed, safe, and healthy food, 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,” Shri Swamanithan said.

In warehouse financing, meanwhile, 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, he said.

“This form of financing helps stabilise the prices of agricultural commodities, helps farmers in managing marketing risks, while providing banks with diverse financing opportunities,” Shri Swamanithan said.

But for this form of financing to flourish, the country needs more robust third-party warehousing agencies, the deputy governor said.

Shri Swamanithan also suggested adoption of financing technology; capital formation through convergence with government schemes; and using technology and data-driven insights to enhance financing models.

The government is driving capital formation in agriculture by promoting investments through capital subsidy schemes and interest subventions, the deputy governor said.

Amongst initiatives include the ₹1 lakh crore Agri-Infrastructure Fund , and schemes like the PM-KUSUM for solar pumps, the Sub-Mission on Agricultural Mechanisation (SMAM), and the Mission for Integrated Development of Horticulture (MIDH). 

Initiatives for agricultural growth include the Agricultural Marketing Infrastructure (AMI) and programs like Pradhan Mantri Formalisation of Micro Food Processing Enterprises Scheme (PMFME), Animal Husbandry Infrastructure Development Fund (AHIDF), and Pradhan Mantri Matsya Sampada Yojana. 

“Going forward, two critical issues must be addressed: promoting sustainable agriculture and ensuring adequate funding for it. Institutional credit has grown significantly, but regional disparities persist,” Shri Swamanithan said.

“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,” he added.