Catalytic finance can unlock billions for climate-smart agriculture, bridging India’s green investment gap and building resilience for farmers and food systems

Byline:  Aravindan Srinivasan Executive Director, Climate Action at AVPN

Agriculture is one of the sectors hit hardest by climate change. Changing rainfall patterns, degrading soil health, and the requirement of copious amounts of water have put the sector under unimaginable stress. Around 60 per cent of India’s farmers depend on the monsoons, and when the rains fail, the crops fail. Reduced productivity not only compromises food security but also harms individual farmers. While climate change continually poses new challenges, it is also driven by the sector itself.

According to the government’s latest report, the fourth Biennial Update Report for 2020, agriculture accounted for around 13.7 per cent of total emissions (excluding land use, land-use change, and forestry). Another concerning area is the sector’s water consumption, which uses between 78 per cent and 90 per cent of India’s total freshwater.

The duality of agriculture as a victim and driver of climate change demands large-scale climate-smart solutions that help reduce emissions, improve farmers’ livelihoods, and, perhaps most importantly, ensure that enough food is available for the country’s 1.46 billion people.

The Investment Gap
The International Finance Corporation (IFC) estimates that the period between 2018-2030 presents a USD 194 billion opportunity for investments in climate-smart solutions for agriculture in India. Channeling capital into this space could raise farm productivity, strengthen resilience through better resource use, and accelerate the modernization of India’s agricultural systems.  However, actual climate finance for the sector falls significantly short. According to the Landscape of Green Finance in India 2024, on-farm adaptation activities such as crop insurance, efficient irrigation, soil and water conservation, and resilient cropping systems received just INR 265 billion (around USD 3.5 billion) annually in 2021/22, which is barely a fraction of what is required.

A concerning issue is that nearly all of this funding comes from government budgets, with private investment accounting for less than 1 per cent.
This is because farming in India is highly fragmented, dominated by smallholders whose incomes are precarious and vulnerable to climate shocks.  It is also supported by a vast network of agri-SMEs that face similar barriers. These enterprises—such as local input suppliers, cold-chain operators, and small-scale processors—often lack adequate collateral, have irregular cash flows, and face the same exposure to climate shocks as farmers themselves. From an investor’s perspective, this creates high risk and low return, as these farms lack the scale, collateral, and stability needed to attract conventional capital.

Many promising climate-smart interventions, such as soil carbon management, regenerative cropping, or efficient irrigation, remain confined to the pilot stage. These models are rarely structured to align with investor expectations on risk and return. Moreover, most available capital comes in the form of debt with rigid terms, leaving little flexibility for smallholders or early-stage enterprises. The high cost of capital, coupled with weak rural infrastructure, policy uncertainty, and limited data on impact outcomes, further dampens investor confidence and prevents funds from reaching the farm level.

The Case for Catalytic Capital
This is where catalytic capital becomes essential. Unlike traditional finance, catalytic capital is designed to absorb risk, offer patient terms, and create pathways for private investment to enter high-need, high-impact sectors. By providing first-loss guarantees, concessional loans, or blended finance structures, catalytic capital reduces the perceived risks for commercial players.

Its multiplier effect is critical. Investments via catalytic finance can unlock several more from private investors. More importantly, it can transform small-scale climate-smart initiatives into scalable, investible opportunities. Solutions such as crop insurance, credit, and advisory services can be scaled into models that work for both farmers and financiers.

India’s USD 194 billion climate-smart agriculture opportunity will not be realised through public expenditure alone. Catalytic finance can bridge the gap between government spending and commercial flows, directing capital to where it is most urgently needed: in building resilience for farmers and food systems.

Unlocking Catalytic Capital
Unlocking catalytic capital for climate-smart agriculture requires a deliberate mix of instruments, partnerships, and policy. Blended finance structures such as first-loss guarantees, concessional debt, and outcome-based grants can de-risk investments and make farm-level innovations investible for commercial players.

Development finance institutions and philanthropies must step in as early risk absorbers, allowing private equity and venture capital to follow with growth-stage capital. For example, NABARD’s Agri-SURE (Agri Fund for Start-Ups & Rural Enterprises), a Rs 750 crore blended fund, combines public and private capital through direct investments and a Fund-of-Funds component that channels resources via other venture funds. By inviting private investors to co-finance climate-smart and rural innovations, it shows how catalytic capital can bridge early-stage risk and scale commercial participation.

Third, corporates with large agri-supply chains can pool procurement-linked finance with catalytic instruments, ensuring climate resilience benefits their sourcing base.

Finally, policy and regulatory support is essential: credit guarantees, tax incentives for green investments, and transparent carbon and water credit markets can scale private participation. Together, these levers create the confidence needed to mobilise catalytic capital at scale—bridging the gap between public spending and commercial finance and turning agriculture from a climate liability into a resilience engine.

A Leadership Imperative
Food security, farmer livelihoods, and rural stability are national priorities. As climate shocks intensify, ignoring the financing gap in agriculture risks undermining not only our development trajectory but also long-term economic stability.

Business leaders, philanthropies, and policymakers each have a role. Philanthropists can commit flexible, risk-tolerant capital. Corporations can integrate catalytic finance into sourcing strategies and sustainability goals. Governments can create enabling frameworks that support blended finance structures.

Agriculture receives a fraction of the climate finance it needs; catalytic capital can unlock the flows required to transform Indian agriculture into a resilient and sustainable engine for growth.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.