Can Finance Mitigate Climate Risks in Agriculture? Farm-level Evidence from India

Climate change is one of the biggest challenges to sustainable development of agriculture, and consequently to the livelihood of farming communities, and the governments’ efforts to improve food and nutrition security and reduce poverty, especially in countries more exposed to climate risks and dominated by small-scale producers who often lack finance for investment in risk management. During the past two decades, climate finance for agriculture has attracted considerable attention in policy debates, yet agriculture’s share in the total climate finance has remained minimal. Empirical evidence presented in this paper distinctly highlight the role of finance in building resilience of agriculture. These provide a basis for a change in policy stance to emphasize climate finance in investment and credit planning in agriculture, and the need for innovative approaches to deliver finance that is climate sensitive. Climate risks are predicted to be severe in plausible future climate scenarios; hence, the need for climate finance for agriculture cannot be understated. Current level of climate finance for agriculture is not commensurate with its requirement. Today’s investments in climate actions will shape future trajectory of agricultural growth, and its economic and social outcomes. I hope this paper will be useful for policymakers, financial institutions and other stakeholders to take informed decisions on financing agriculture for risk management.