Disruptive business models are stimulating agriculture: Report

Disruptive business models are stimulating inclusive growth in agriculture and rural finance, according to a report by Bain & Company and CII.

The report, titled Innovations in Rural Economy, said India’s rural economy contributes to nearly half of the nation’s GDP and is growing steadily, supported by government and private sector improvements to the physical and digital infrastructure.

Agriculture is the largest contributor to the rural economy, accounting for approximately 37% of the total rural GDP in 2019-20. Between 2017 and 2020, agritech startups attracted Rs 6,600 crore of private equity investment for areas such as building sustainable systems, finance technology and for ensuring inclusive growth.

The report also said that the rural microfinance sector has grown significantly in the past 18 months, rising from a gross loan portfolio of Rs 1,22,500 crore in December 2019 to Rs 1,46,700 crore in March 2021.

Agricredit has increased at around 10% CAGR in the last five years, reaching Rs 14 lakh crore in 2019-2020. About 35% of agricredit business comes from three states—Tamil Nadu, Andhra Pradesh and Uttar Pradesh.

"Significant domestic and international investments are being pumped into the sector to improve efficiency and access to credit," the report said. Startups have emerged in areas like offtake marketplaces, storage and transportation services, and agronomy advisory services to assist farmers.

Large traditional players are also adopting technology to reduce operational costs and scale, either by developing in-house solutions or by partnering with emerging players, the report added. Several global tech giants like IBM and Microsoft view this space as a new growth opportunity and are investing in innovative solutions for crop health monitoring and yield estimation.

Talking about rural microfinancing, the report said that as borrowers and lenders have both matured, rural mass lending has increased. In FY21, total originations were valued at around Rs 76,000 crore with rural two-wheeler loans accounting for roughly 50%. Small-ticket personal loans and consumer durables loans each had a rural share of approximately 30%.

Government schemes such as the Agriculture Infrastructure Fund are attracting credit to build community farming assets and post-harvest agriculture infrastructure. To promote non-farm activities, schemes like Pradhan Mantri Mudra Yojana (PMMY) have been launched to fund manufacturing, trading and service sectors, and activities that are allied to agriculture. As of December 2021, more than 320 million loans worth Rs 17 lakh crore have been sanctioned under PMMY.

All this has happened due to improvements in physical infrastructure and connectivity, plus significant advancements in digital infrastructure. Rural smartphone and internet penetration increased 30% annually over the last five years. A significant reduction in data prices drove the rise in smartphone usage; the cost per gigabyte dropped about 65% between 2018 and 2021.

Covid-19 also accelerated smartphone exposure and proficiency because many schools transitioned to online classes during the pandemic. The number of children with access to smartphones increased 42% between 2018 and 2020.