The agriculture sector has grown by a CAGR of 11 per cent between 2015 and 2020 with the sector witnessing the highest disruption in terms of smartphone and internet penetration,” a report on “Innovation in India’s Rural Economy” prepared jointly by the Confederation of Indian Industry (CII) and Bain and Company, has said.
Agriculture is the largest sub-sector in the rural economy, contributing nearly 37 per cent of total rural GDP in 2019-20. Its contribution to the nation’s GDP was ₹35-lakh crore, said the report by Parijat Jain, partner of Bain and Company.
While rice and wheat made up 40 per cent of the land under cultivation in the country, proteins, fat, fruits and vegetables made up the rest in 2019-20.
Stating that the Indian rural sector is large and growing steadily, it said the rural economy contributed nearly half the nation’s overall GDP in 2019-20. Besides, it provided employment for 350 million people, who made up 68 per cent of the total workforce.
10% growth in agri credit
“Over the last five years, the rural sector has grown at 10 per cent annually and still has strong headroom for growth”, the report said, adding that there has also been a significant increase in access to credit in the rural sector.
Agriculture credit has grown by 10 per cent in the last five years, from ₹8-lakh crore in 2014-15 to ₹14-lakh crore in 2019-20. Rural microfinance gross loan portfolios also grew, rising from ₹1,32,900 crore in March 2020 to ₹1,46,700 crore in March 2021.
Demand for credit has increased, especially among consumption-driven loan products like those for two-wheelers and consumer durables. Technology disruption played a key role in this growth by lowering loan servicing costs, which enabled lenders to service lower-value loans.
All these have resulted in the growth of agtech start-ups, which attracted ₹6,600 crore as private equity investments between 2017 and 2020. “As newer generations of farmers and FPOs become digitally savvy, new business models are emerging across the agriculture value chain, from inputs and harvesting to processing and distribution,” the report said.
Centre’s initiatives
The Centre’s policies such as formulating a Model Contract Farming Act in 2018 and permitting initiatives by private and non-profit organisations have boosted the setting up and development of farmer producer organisations (FPOs), it said.
“FPOs are becoming critical access points to farmers and can generate awareness and support new initiatives. These trends have created a ripe environment for innovation, allowing start-ups and traditional players to introduce disruptive business models that address inefficiencies in the sector,” Jain said in the report.
Information and transparency initiatives are addressing existing inefficiencies and have formalised a traditionally informal sector. “For example, Ninjacart, a supply-chain platform, built an online marketplace to connect farmers to retailers without any intermediaries. It provides pricing, demand visibility, and payment assurance to drive engagement and support farmers. Indigo Ag is another example. Its platform delivers services across the agriculture value chain, including agronomy advisory, quality testing to increase yields, and a marketplace to connect buyers and sellers,” the report said.
Improving digital infra
Awareness and access to credit options are increasing as more rural- and agriculture-focused players like Jai Kisan and Samunnati connect farmers to financing partners. Additionally, government schemes such as the Agriculture Infrastructure Fund and Pradhan Mantri MUDRA Yojana (PMMY) are offering low-interest loans to farmers and FPOs as well as to non-corporate, non-farm, small and micro enterprises to drive financial inclusion.
Also, physical infrastructure and connectivity have improved, while significant advancements have been made in digital infrastructure.
Rural smartphone and internet penetration increased 30 per cent annually over the last five years, the report said, adding that Covid-19 also accelerated smartphone exposure and proficiency because many schools transitioned to online classes during the pandemic.
As of March 2021, about 1.3 billion Indian residents have been issued an Aadhaar identity number. This has also accelerated digital payments and innovations in banking, which improves citizens’ access to cash and credit.
“While cash is still the dominant method of payment in rural India, Unified Payments Interface (UPI) transactions doubled in the past year. Multiple factors fuelled the swift uptick, including Aadhaar building a digital identity that enabled services like Know Your Customer (KYC) and e-sign,” the report said.
Access to banking facilities also increased with the Pradhan Mantri Jan Dhan Yojana (PMJDY), part of the National Mission on Financial Inclusion, resulting in the opening up of over 40 crore bank accounts by 2021, it added.